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International Issues/ Economy/ Foreign Affairs

Africa – the new markets?

“By the year 2050, the African continent will breach a population of 2 billion and the middle class will grow from present 400 million to 500 million. About 25 percent of global youth is in Africa, with a median age of 17 years. About 40 percent of Africa is urbanised. The FIIs (foreign institutional investors) have pumped in $62 billion in to the continent”

Still, there are negatives, when we talk about Africa in total! Despite the last two decades of political reforms and economic growth – in many African countries there are issues like corrupt regimes, political instability that do create jitters when one wants to travel to or set up a business in Africa.

CBD area in Jo burg
(Central Business District Area in Johannesburg, South Africa)

In the year 2006, during my visit to South Africa, while pursuing a business venture in plastic ‘consumer’ goods, I could get an insight that there is racism and discrimination in Johannesburg, the crime capital of the country. Whites have cornered all the ‘important’ jobs in the capital; and there are lesser blacks holding good positions too (eg., my neighbour Michael Obonooga holding a senior position in an Advertising firm). There is still a ‘grave’ fear of crime in the city, because of the unemployed ‘black’ youth stalking the lonely streets during late evenings.

But, the rapid expansion of Africa’s consumer class do convince many companies to consider entering a region that has been avoided in the past. The continent represents a large and growing opportunity for fast moving consumer goods(FMCG) like plastics, house-ware, ceramics, dish clothes – product range of the business venture I pursued. The combined GDP of the African countries put together is – nearly $ 1.5 trillion – that is larger than India. Research Studies have indicated “growth of 4.5% in compounded GDP annually until the year 2015 that will boost consumer spending by 35%”.

As we know, GDP per capita is the single most driver of global growth! With increasing influence of other factors in Africa – like growth in education, global exposure – the wants and needs of the consumer class have constantly changed over the last decade (as learned during my conversations with the local population).

In marketing terms – the product category growth of any FMCG product always follows the classic ‘S’ curve. The growth from ‘warm up’ zone ( when FMCG products are expensive and not affordable) to the ‘hot’ zone ( affordable products’ prices with increasing GDP per capita) is due to economic progress in the continent and it is far from reaching saturation. So, there is huge potential in Africa just like it is in many other developing countries like Brazil, Russia, India, China (BRIC Countries). Well, this is basic ‘market-dynamics’ analysis done and is always considered prior to deciding – whether to penetrate or not the ‘concerned’ new markets?

S curve
( Maximum penetration – referred as cool zone area, Rise in the curve – hot zone area while Slack in the curve represents ‘warm up’ zone area)

Coming back to the point I started with – emerging black middle class, high rates of urbanisation, growing educational standards and the growing business opportunity driven markets in the continent – but, the markets have to be studied first by ‘each product category’ wise. What may apply to one product need not do so for an another product. One needs to exercise caution to ensure not entering a ‘cool’ zone market – because the ‘deployed’ product category may not sell in enough ‘quantities’ required for new business break-even.

Still, Africa represents a solid opportunity for sellers and producers, whether in trade or manufacturing respectively. And, the companies who manage to get a foothold or even expand their presence in the continent, will benefit with increasing spending by the consumers, in the years to come.

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About Raman Ramamurthy

I am a Management consultant, an avid reader, play Lawn tennis in my leisure time and love Music. Presently, I am settled in India along with my wife and my son.

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