Retailers hang in for African bonanza

19 June 2016 - 02:00 By PALESA VUYOLWETHU TSHANDU

Africa's investment case has been threatened by slow growth, limiting consumer activity on the continent. But some retailers appear willing to stay the course. According to a report issued this month, the proportion of investment by the global top 100 grocery, health and beauty retailers allocated to Africa and the Middle East grew from 12% in 2010 to 16.2% last year. The report was compiled by Planet Retail and the Consumer Goods Forum.The population of sub-Saharan Africa is expected to double to two billion by 2050, making it an attractive market for retailers.However, with economic growth in sub-Saharan Africa coming in at 3% in last year, down from 4.5% the previous year and the weakest since 2009, some investors are raising concerns about the risks of doing business on the continent.story_article_left1For groups such as Shoprite Holdings, the biggest retailer on the continent with a presence in more than a dozen countries, gradual but scaled expansion is the key to unlocking Africa's potential.Christo Wiese, speaking at the Consumer Goods Forum global summit in Cape Town this week, said that when Shoprite expanded beyond South Africa more than 20 years ago, "we said to ourselves, this is where we believe our future lies. We also accepted that that development is probably for our children and our grandchildren."The chairman of Shoprite and Pepkor said Africa was becoming "far more nuanced", but despite the collapse in global commodity prices, "the leading countries in Africa are still growing at a respectable pace".By June next year, the chain plans to open another 58 stores.However, many other retailers are finding that doing business on the continent is a logistical headache.Last year oil-producing countries Angola and Nigeria imposed strict import regulations and foreign exchange control, which have made it difficult for many of the large retailers to operate there.block_quotes_start Top 10 players such as Walmart, Carrefour and 7-Eleven are all targeting Africa and the Middle East for market entry and expansion block_quotes_endWiese said this was largely due to the "endless red tape and bureaucracy".Companies like Barclays plc have quit Africa, adding an extra dimension to investor concern about the prospects of growing a business on the continent.South Africa, which seeks to portray itself as the gateway into Africa, is having its own problems of glacial economic growth and a fragile currency.Deputy President Cyril Ramaphosa, also speaking at the Consumer Goods Forum conference in Cape Town, said: "We are beginning to bear witness to the African continent as a great consumer market."mini_story_image_hright1Ramaphosa said the government would spend more than R4-trillion over the next two decades to "alleviate the bottlenecks in energy, transport, water and communication infrastructure", which could strengthen South Africa's investment case".He added: "There is growing consensus on the continent that Africa must replace the current system of exporting commodities and raw materials."In April, Pick n Pay announced that it would set up shop in Nigeria through its partnership with food group AG Leventis, which is listed on the Nigerian Stock Exchange, and was also expecting to enter Ghana next year.Pick n Pay chairman Gareth Ackerman said: "We see the growth is in Africa, we think that there are huge opportunities."We have seen it from our suppliers and manufacturers as well."Ackerman said retailers had to be prepared to wait 20 years before seeing "any decent return" on their investments."One has to be careful and has to listen to what the experts in those markets are saying, and hopefully we won't make mistakes because we've got the right partner," he added.But other retailers such as the Spar group are fleeing from the continent to look for rand hedges in Ireland and Switzerland.Steve Matthesen, global president of retailer services at consumer research company Nielsen, said retailers looking to expand outside the continent were seeking short-term solutions to mitigate the impact of slowing growth in Africa. "While that market is building, I can understand why they might want to target other markets where there is money today," said Matthesen.But for the Wiese, the motto for operating in Africa is simple: you just have to make it work."We put ourselves in a position where we do not have a choice but to make it work," said Wiese."We stuck it out and today we enjoy higher returns across the continent than in our home market."The Internationalisation of Retail report says Africa and the Middle East emerged as a key region of internationalisation last year, experiencing the fastest rate of growth of any region tracked."Top 10 players such as Walmart, Carrefour and 7-Eleven are all targeting Africa and the Middle East for market entry and expansion," the report says."With the region still relatively underdeveloped ... expect a growing number of leading players to focus on entering the region in the coming years." tshandup@sundaytimes.co.za..

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