Rise and rise of Africa
Africa Rising — by Vijay Mahajan
When we think of developing nations worthy of attention, we default to thinking of Brazil, Russia, India and China (BRIC).
Marketing Professor Vijay Mahajan has compiled a fascinating take on another arena worthy of attention — Africa. Most people’s default thoughts on Africa are of a continent of countries at war, diseased, and with begging bowls.
Here are some facts: Africa is home to 900 million consumers and is one of the fastest-growing markets in the world. Growth rates in Africa far outstrip those of developed markets with 220 million Africans living in areas where GDP growth is more than 6%. Eight of the 10 top-growing countries in the world are in Africa. Add to this fact that Africa’s wealth makes it the 10th-largest economy in the world — bigger than each country in the BRIC — except China.
Africa does have some of the poorest nations in the world, but is wealthier across the continent than India. Average gross national income per capita (GNIC) across all 53 nations in 2006 was about 1066, 200 more than that of India. There are 12 African nations with more than 100 million people among them that have GNICs greater than that of China.
A decade or two ago people were incredulous that India could be a global market, and there are probably many who share that incredulity when thinking about Africa. Africa has massive needs and surprising buying power and the perceptive are taking notice.
Guinness stout is suffering with global sales down 4%, but in Africa sales are growing by 4% to 5%. Nestlé has forecast growth of 1.5% in developed markets, but in its current African target area, West Africa, it expects to grow at 5% to 6%. Ditto for Novartis and Coca-Cola whose president of African business asserts that on a per-unit basis, Africa is the group’s third most profitable market. Little wonder that major Indian companies like Tata, Mahindra, Kirloskar and Ranbaxy have set up operations in Africa and are already achieving high levels of growth.
While it is true that the top four companies on the 2007 list of Africa’s largest are metals, mining, oil or gas, (Anglo American, BHP Billiton, Anglo America Platinum and Sasol), among the top 20 are consumer goods companies, the likes of SABMiller, telecom companies — (MTN, Orascom Telcom, Itissalat Al Magrib, Telkom), banks — (Standard, Absa, FirstRand), and real estate (Liberty International).
Of the 53 countries in Africa, four or five have severe problems, but you have almost the same number of “bamaru” — (sick states) in India. Africa is not homogeneous, but neither is China nor India. Go to Khartoum with its skyline that is inviting comparisons to Dubai and it is hard to remember that it is part of Sudan. Every economy has trouble spots, and the entire opportunity cannot be judged by the outliers.
So what is the opportunity? According to Vijay Mahajan, Africa can be divided into Africa One, Two and Three. Africa One is comprised of anywhere between 50 million and 150 million people of means who are being chased by everyone selling to the well-heeled cohort in Europe or the Americas. They are the obvious targets for everything from private banking to exclusive clothing.
Africa Two is comprised of anywhere between 350 million to 500 million and are all upwardly mobile, concerned with the education of their children, and are able to purchase consumer goods. This is the cohort of the Black Diamond, the emerging middle class that has created a fundamental shift in the South African economy, and who many believe have had a multiplier effect boosting the economy to a point of structural change. They are believed to be growing at an estimated 30% per annum. But Africa Two includes domestics, drivers, clerks and small entrepreneurs.
Africa Three is comprised of anywhere between 500 million and 600 million and are really poor.
Africa One is on everyone’s radar, but Africa Two has to date been under serviced. Rwanda’s leaders recently announced an aggressive plan to raise per capita income from 230 to 900 by 2020 by using IT to transform the nation into an African Singapore. The primary beneficiaries will be Africa Two and those fast enough to take advantage of an initiative like this.
Supermarket Nakumatt of Kenya is a good example of marketing to Africa Two. Its profitability at 3% is similar to that of WalMart, to whom it bears a striking resemblance in much of its business model. It had 210000 take up of its smart cards from 1.5 million shoppers and has co-branded a credit card with Barclays. Much of its stock is goods on consignment. Nakumatt management has an astute understanding of its customers and their aspirations. An example is the possibility of using smart points earned through purchases for school fees to which the company adds 10%. It also had an online programme for Kenyans abroad to send gift certificates for purchases at Nakumatt to family back home.
Clearly, serving this market means overcoming the myriad economic, political, legal and social challenges facing the continent, but Africa Rising makes a very strong case for believing that the effort will be richly rewarded.
When we think of developing nations worthy of attention, we default to thinking of Brazil, Russia, India and China (BRIC).
Marketing Professor Vijay Mahajan has compiled a fascinating take on another arena worthy of attention — Africa. Most people’s default thoughts on Africa are of a continent of countries at war, diseased, and with begging bowls.
Here are some facts: Africa is home to 900 million consumers and is one of the fastest-growing markets in the world. Growth rates in Africa far outstrip those of developed markets with 220 million Africans living in areas where GDP growth is more than 6%. Eight of the 10 top-growing countries in the world are in Africa. Add to this fact that Africa’s wealth makes it the 10th-largest economy in the world — bigger than each country in the BRIC — except China.
Africa does have some of the poorest nations in the world, but is wealthier across the continent than India. Average gross national income per capita (GNIC) across all 53 nations in 2006 was about 1066, 200 more than that of India. There are 12 African nations with more than 100 million people among them that have GNICs greater than that of China.
A decade or two ago people were incredulous that India could be a global market, and there are probably many who share that incredulity when thinking about Africa. Africa has massive needs and surprising buying power and the perceptive are taking notice.
Guinness stout is suffering with global sales down 4%, but in Africa sales are growing by 4% to 5%. Nestlé has forecast growth of 1.5% in developed markets, but in its current African target area, West Africa, it expects to grow at 5% to 6%. Ditto for Novartis and Coca-Cola whose president of African business asserts that on a per-unit basis, Africa is the group’s third most profitable market. Little wonder that major Indian companies like Tata, Mahindra, Kirloskar and Ranbaxy have set up operations in Africa and are already achieving high levels of growth.
While it is true that the top four companies on the 2007 list of Africa’s largest are metals, mining, oil or gas, (Anglo American, BHP Billiton, Anglo America Platinum and Sasol), among the top 20 are consumer goods companies, the likes of SABMiller, telecom companies — (MTN, Orascom Telcom, Itissalat Al Magrib, Telkom), banks — (Standard, Absa, FirstRand), and real estate (Liberty International).
Of the 53 countries in Africa, four or five have severe problems, but you have almost the same number of “bamaru” — (sick states) in India. Africa is not homogeneous, but neither is China nor India. Go to Khartoum with its skyline that is inviting comparisons to Dubai and it is hard to remember that it is part of Sudan. Every economy has trouble spots, and the entire opportunity cannot be judged by the outliers.
So what is the opportunity? According to Vijay Mahajan, Africa can be divided into Africa One, Two and Three. Africa One is comprised of anywhere between 50 million and 150 million people of means who are being chased by everyone selling to the well-heeled cohort in Europe or the Americas. They are the obvious targets for everything from private banking to exclusive clothing.
Africa Two is comprised of anywhere between 350 million to 500 million and are all upwardly mobile, concerned with the education of their children, and are able to purchase consumer goods. This is the cohort of the Black Diamond, the emerging middle class that has created a fundamental shift in the South African economy, and who many believe have had a multiplier effect boosting the economy to a point of structural change. They are believed to be growing at an estimated 30% per annum. But Africa Two includes domestics, drivers, clerks and small entrepreneurs.
Africa Three is comprised of anywhere between 500 million and 600 million and are really poor.
Africa One is on everyone’s radar, but Africa Two has to date been under serviced. Rwanda’s leaders recently announced an aggressive plan to raise per capita income from 230 to 900 by 2020 by using IT to transform the nation into an African Singapore. The primary beneficiaries will be Africa Two and those fast enough to take advantage of an initiative like this.
Supermarket Nakumatt of Kenya is a good example of marketing to Africa Two. Its profitability at 3% is similar to that of WalMart, to whom it bears a striking resemblance in much of its business model. It had 210000 take up of its smart cards from 1.5 million shoppers and has co-branded a credit card with Barclays. Much of its stock is goods on consignment. Nakumatt management has an astute understanding of its customers and their aspirations. An example is the possibility of using smart points earned through purchases for school fees to which the company adds 10%. It also had an online programme for Kenyans abroad to send gift certificates for purchases at Nakumatt to family back home.
Clearly, serving this market means overcoming the myriad economic, political, legal and social challenges facing the continent, but Africa Rising makes a very strong case for believing that the effort will be richly rewarded.