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Is Africa An Emerging Economy?

Posted in Finance Articles, Total Reads: 2224 , Published on June 28, 2012

Africa has always been in News mostly for the wrong reasons. The African continent was most severely hit by the racial and colour discrimination, Apartheid. Despite being the most natural resources rich continent in the world, Africa has always been a poor continent.

The natural resources like oil and diamonds which should have been the driver of people’s progress and growth, ironically, resulted in the mass blood shed. Africa’s poverty, revolts, human rights’ violation etc. have always been highlighted by the media worldwide. However, there is another aspect of Africa – opportunities. Africa’s economy is growing by 5% to 6% annually. Internet and mobile usage, the most widely used contemporary tools of marketing, is growing day by day. It’s estimated that Africa offers potentially a $900 billion market.

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Africa has a population of more than 900 million people which also form its huge consumer base. With such a huge consumer base, Africa is certainly an attractive proposition for companies all over the world. Middle class is the driving force for growth in any emerging economy and Africa is no exception. The middle class of Africa constitutes 35% to 50% of the population i.e. around 350 to 500 million people. These persons, mostly, are hard working nurses, teachers, civil servants etc. They are the people who are hopeful about Africa’s future and aspire for a better living. Undoubtedly, they are the biggest potential target market for marketers in Africa.

The most highlighted thing in media about Africa has been its poverty. The question which arises now is whether the Africans are capable of purchasing goods and services. If African continent would have been a country, its GDP would have been more than that of India, another emerging economy. Hence Africans indeed have purchasing capacity. Even for the Africans who have limited purchasing capabilities, lowest coinage strategy, could be adopted by companies to market and sell their products. This also creates a huge marketing opportunity for the second hand products. The mobiles which have been used by the people in American and European continents end up in the hands of African people.

However, the poverty issue raised by media in Africa is not a hoax. It definitely exists. It’s reflected by the existing poor infrastructure in Africa. Many places are not well connected with other places. Electricity is not ubiquitous. Although these issues represent the basic problems of Africa; they also form a lucrative marketing opportunity for companies doing business in infrastructure facilities. Nevertheless, poor infrastructure is a major growth hindrance for the companies belonging to other industries.

In such a situation, the best a company can do is to operate in the local African way. E.g. Coca cola’s core competency is its extensive distribution network. Poor infrastructure must have been a problem for Coca cola to frame its distribution network in Africa. However, Coca cola has successfully operated in Africa for many years. The reason behind Coca cola’s success in Africa is its adaptability. Coca cola at all times ensures the availability of its products by whatever means they get; be it airplane or donkey ride.

Women in Africa, like anywhere else in the world, use cosmetic products. Cosmetic industry companies need to come up with products tailored especially for Africa. Many local companies have identified this opportunity and have already come up with products tailored especially for African women; making the cosmetic market more competitive.

Film and entertainment industry is another one of the most sought for industries in Africa. Nigerian film industry, called Nollywood, already produces more films than Hollywood or Bollywood. One of the main reasons for Nollywood being successful is Africa’s large youth population. 40% of the African population is younger than 15, hence not only film industry but sports and music industry are also attractive opportunities for companies.

Africa due to its poor quality of living and hygiene standards, suffers from many diseases. AIDS victims in Africa are the most than in any other continent. Approximately 67% of all African people are suffering from HIV and 72% of all deaths are caused due to AIDS. Therefore, companies offering health services and pharmaceutical industry have a huge market opportunity in Africa.

The political turmoil in Africa is the most demotivating factor for the companies to invest in. Political instability raises the question about the future of the investment made in Africa. However, the scenario is changing drastically and one of the solutions to this problem could be to spread the operations of the company in many African countries rather than focussing on only one country.

Another solution could be to acquire the local entrepreneurs. This will not only eliminate the potential competitions but will also overcome the other entry barriers. E.g. Nakumatt is a rapidly growing retailer in Africa. Anyone who’s planning to enter the African retailing market can acquire it.

The changing market dynamics in Africa is largely due to the increasing awareness in Africans about the better standard of living. The major contributors in making people more aware and capable are the Africans who migrate to other countries for business or education purposes. Africa gets about $40 billion a year from their Diaspora. They also make an attractive market opportunity for marketers operating in other continents. E.g. Recruit Africa is a company based in London which provides job opportunities to Africans.

Mo Ibrahim, the founder of mobile company, Celtel and the pioneer of Africa’s change gives a fascinating insight about how the change could be brought in Africa against all odds. Other Diasporas have also followed him to come back to Africa and set up their own entrepreneurial activities. There is an estimated 100 million Africans living away from their homes in Africa but still driving the Africa’s economic growth from the front.

Africans may not have the purchasing capabilities as good as Americans or Europeans have. They may be suffering from the deadly diseases like HIV / AIDS. They may be facing the most deadly political turmoil. However, the aspirations for a better living, belief and determination of the African middle class to bring in the changes,  willingness to do the hard work and inspiration and support from their Diasporas will ensure the economic growth of Africa.

This article has been authored by Somendra Sahai from BimTech.

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