High Risk High Returns Opportunities in Africa
Vijay Mahajan, Africa Rising: How 900 Million African Consumers Offer More Than You Think. Wharton School Publishing, 2008.
Most of us would probably be a bit skeptical about the title of this book. Our image of Africa is conditioned by the popular media whose coverage of the continent tends to focus on famine, disease, civil war, genocidal regimes, tribal conflict and corruption. Not many of us would imagine Africa to be a dynamic and growing consumer market.
Vijay Mahajan, the John P. Harbin Centennial Chair in Business for the McComb School of Business at the University of Texas at Austin, tries to get behind the media stereotypes to show us another side of Africa. While researching this book during his "consumer safari" across the continent, he discovered an Africa of innovators and dynamic entrepreneurs, as well as an undervalued but fast-moving market for consumer goods.
Mr. Mahajan sees Africa today as being in the same position that India and China were two decades ago and with the same growth potential. He suggests that if it were a single country, its current gross national income (GNI) of $978 billion would actually place it ahead of India and every other member of the so-called BRICs – an acronym coined by Goldman Sachs that refers to the fast-growing developing economies of Brazil, Russia, India, and China – with the exception of China.
While this type of comparison is not particularly useful given the vast differences in political and economic conditions on the continent, it is important to recognize that 10 African nations actually have a higher per capita GNI than China. Africa has its own set of rapidly expanding economies that Mr. Mahajan dubs NEKS, for Nigeria, Egypt, Kenya and South Africa.
Like a good marketing professor, the author looks at how to identify the key consumer segments in the African market. He sees the greatest opportunities in what he terms "Africa two." This segment, which he also calls the "black diamonds" group, consists of 400 to 500 million Africans (comparable to similar segments in China and India) who are at or near a middle-class income. He sees this group as upwardly mobile and aspiring to a better standard of living. In his view, its growing consumerism is driving economic growth and creating a fundamental shift in African economies.
The book is full of interesting stories about local entrepreneurs who have succeeded in the face of significant odds, and anecdotes about how companies such as Guinness and Unilever and also African firms have adapted to some of the challenges in the African business environment.
I was particularly intrigued by his story of how Africans have adapted to the relatively low penetration of banking and credit cards by using prepaid cellphone minutes, which can be sent from phone to phone electronically, as a form of currency to pay for goods and services.
The African market is also more technologically sophisticated than most of us think. Wireless penetration is increasing and the widespread use of mobile phones has, for example, led Nigeria to launch the first commercial mobile broadcast TV service.
Also, who would have thought that Nigeria, which churns out 2,000 films a year, would have the world's third-largest film industry: Nollywood.
Mr. Mahajan is sometimes a bit too breathless in his enthusiasm for the African market. Some of the challenging business conditions and barriers that exist across the continent, ranging from corruption to poor infrastructure, receive only passing mention. But significant business reforms are being introduced in many parts of Africa. A recent World Bank report notes that, in recent years, several African countries have been among the world's most active reformers. It suggests that seven African countries are easier to do business in than China and 15 easier than India.
While the opportunities are expanding, these are not, as the author suggests, plug-and-play markets. African markets tend to be informal and disorganized so creating opportunities often means looking for innovative ways to serve them. For example, home delivery accounts for 27 per cent of McDonald's sales in Egypt.
He also sees numerous opportunities to build successful businesses by addressing the continent's social and infrastructure challenges.
To quote one African entrepreneur in the book, "When there is a gap between reality and perception, there is good business to be made." Mr. Mahajan presents a convincing case that its time for western business to look beyond the stereotypes.
Micheal Kelly is dean of the Telfer School of Management at the University of Ottawa.
Ottawa Business Journal
Labels: Africa Can be Built by Entrepreneurs, Africa the next goldmine, Investing in Africa