Background
Many would agree that Africa is the future of the world. With a growing young population coupled with rapid urbanization and fast-growing consumer expenditure, Africa offers attractive opportunities for entities wishing to expand into new frontier markets. Retailing contributions to GDP across the region continue to increase, indicating that the region is consumption driven. According to Euromonitor International, retail sales in the region amounted to over USD500 billion in 2018. Key retailing markets include South Africa, Egypt, Morocco, and Algeria.
The retail sector landscape is changing rapidly. A growing population and larger cities translate into big opportunities for retail. For instance, wholesale and retail are already the 3rd largest contributor to Nigeria’s GDP. Kenya has seen a 54% growth in its number of stores over the last 5 years. South Africa has almost 2,000 shopping malls covering over 24 million square meters. With a surge of investment in technology and infrastructure, Johannesburg is poised to become “Africa’s hippest city.”
Consumption in Africa is expected to continue increasing year over year. A Deloitte Consumer Review states, “At a time when many emerging economies are slowing, Africa is the second-fastest growing economic region behind Asia.”
Introduction
In Morocco, it’s known as a hanout. In Egypt, it’s a bakkal. In Kenya, it’s a duka. In South Africa, it’s a spaza. In the Yoruba language of Southwest Nigeria, it’s an oja. In the Baoule language of Center Cote D’Ivoire, it is called Gwa bo. By whatever name, the traditional retailer is the cornerstone of socioeconomic systems across Africa. Despite the advance of supermarkets, convenience stores, and other modern formats, African consumers on average continue to buy more than 70% of their food, beverages, and personal care products from the continent’s more than 2.5 million small, independent shops.
Africa is made up of a combination of traditional and modern retailing channels. These channels vary by market and are influenced by factors such as economy, state of development, consumer preferences and local culture.
The Challenges
Yet traditional retail in Africa faces many imposing challenges, including the expansion of modern retail, the nascent rise of e-commerce, and changes in consumer behavior that were accelerated by the COVID-19 pandemic. So, what does the future hold? For answers, we studied more than 4,500 small retailers in five of the biggest African markets: Egypt, Kenya, Morocco, Nigeria, and South Africa.
Despite the proliferation of modern retail channels in Africa, traditional and informal retailing dominates due to lack of infrastructure. Traditional channels include independent retailing channels such as small grocers and kiosks. When compared to modern retailers, these outlets offer convenience, flexible trading times, accessibility and lower-priced products. Traditional channels such as Dukas in Kenya and spaza shops in South Africa have been molded to cater to the buying patterns, purchasing power and product preferences of consumers.
The opportunity
“About half of the world’s fastest-growing economies will be located on the continent, with 20 economies expanding at an average rate of 5% or higher over the next five years, faster than the 3.6% rate for the global economy,” writes Brahima Coulibaly, director of Brookings’ Africa Growth Initiative.
The African Union began the operational phase of the African Continental Free Trade Area (AfCFTA) in July 2019. With 22 partners, the agreement has a combined market of 1.2+ billion people and a GDP of $2.5 trillion! AfCFTA has the potential to make Africa the largest free trade area in the world.
“Countries are realizing they need to trade more with others because of an expected increase in revenues and jobs creation, especially for the youth. Intra-African trade is expected to rise to 53.3%, meaning that revenues will increase.” – Vera Songwe, the Executive Secretary of the UN Economic Commission for Africa (ECA).
The Rise of Brands
The emerging middle-class consumer is increasingly brand conscious. Consumer spending is still mostly concentrated in the informal sector of roadside stalls and town markets. However, in East Africa there is already a discernible shift from informal to formal retail.
As retail moves from informal to formal, companies like Walmart and The Carrefour Group are expanding their reach across the continent. Walmart bought a 51% stake in South African retailer Massmart Holdings Ltd. in 2010. Despite some setbacks and leadership changes, Walmart intends to expand the brand with 47 new stores between 2019 and 2021.
The African Development Bank estimates there will be 2.1 trillion USD in consumer spending up for grabs by 2025. Services brands like food and beverage, telecom and banking should be paid attention.
Sub-Saharan Africa has several of the world’s fastest-growing economies. Ethiopia tops this list with an expected 8.5% growth rate for 2019. Since the start of the new millennium, sub-Saharan African nations’ GDP continues to grow at a rate faster than the global average.
To ensure that the retail sector gets more attention and attracts more investment, it is important that the sons and daughters of Africa take bold initiatives, focusing on pragmatism and the sense of real development. By ranking the retail sectors including actors, we will contribute to building the future of the next generation of professionals across the African continent.
The African Market on The Rise
Africa is the market to watch. Africa is filled with innovators. For example, tech startups increased by 40% between 2016 to 2018 and 22% of the working age population are establishing new businesses. Instead of lamenting poor infrastructure, African entrepreneurs are finding clever solutions to get things done. Thus, urbanization, a young and technology embracing population, and improving infrastructure all indicate that Africa is poised for growth and global influence.
Africa has the fastest rate of urbanization in the world. More than 40% of its population is currently living in urban centers. By 2030, Africa’s 18 largest cities will have a combined spending power of $1.3 trillion. Additionally, Africa has as many cities with one million inhabitants as North America.
The Rise of The African Middle Class
Consumption in Africa is expected to continue increasing year over year. A Deloitte Consumer Review states, “At a time when many emerging economies are slowing, Africa is the second-fastest growing economic region behind Asia.”
Moreover, Africa is on track to become the continent with the world’s youngest population. Approximately 70% of Africans are presently under the age of 30. Youth account for around 20% of the population. Fifty three percent of African income earners are between 16 – 34 years old. This is an age group known for their awareness of and eagerness to consume new products.
Moving Forward: What is Next for Retail In Africa?
Africa is the market to watch. Africa is filled with innovators. For example, tech startups increased by 40% between 2016 to 2018 and 22% of the working age population are establishing new businesses. Instead of lamenting poor infrastructure, African entrepreneurs are finding clever solutions to get things done. Thus, urbanization, a young and technology embracing population, and improving infrastructure all indicate that Africa is poised for growth and global influence.
References
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