The FINANCIAL — Consumer products and retail (CPR) has emerged as among the leading sectors for foreign direct investment (FDI) in Africa, attracting 14.1% of all FDI projects. This investment is generating more employment opportunities than any other sector, accounting for 33% of all jobs created from FDI last year. But the complexity of navigating diverse markets requires a carefully balanced approach to capitalize on latent opportunities according to a new report launched on July 15 by EY, Converting Africa’s potential into profit: the opportunity for consumer products companies , which provides unique insights and analysis on investment trends and strategies in the region.
Consumer products and retail sector leads in job creation and FDI
While Asia remains highly competitive – and most developed economies continue to struggle to achieve growth – Africa offers an exciting opportunity for investment and growth, with 24 economies forecast to grow at a rate faster than 5% through to 2030.
Consumer-facing businesses in particular are enjoying increased FDI due to ongoing diversification of economic activity and a growing middle class, making CPR one of the three largest sectors for investor activity. According to EY’s Attractiveness survey: Africa 2015 – Making choices , CPR represented 14.1% of all FDI projects in the region in 2014 and created nearly twice as many jobs as in 2013, with the average CPR project now creating 576 jobs (237 in 2013).
Derek Engelbrecht, EY’s Africa Consumer Products and Retail Leader, says:
“Sustained growth rates, improving business conditions and a rising consumer class are driving increased levels of investment in Africa. With its share of global capital investment reaching an all-time high, the region presents consumer products and retail companies with significant growth opportunities. But while the upward trajectory in job creation and investment in Africa is impressive, the complexity of fragmented markets and a diverse consumer base present a real challenge to investors.”
Agribusiness holds great potential for early entrants
Most of the world’s remaining arable land resides in Africa and large multinationals are increasingly looking to invest. The producing potential combined with advanced farming techniques to increase yield is significant, while population growth positions Africa as a prospective global leader in the sector. Indeed, 32% of respondents to EY’s Attractiveness survey: Africa 2015 – Making choices stated that they expect agriculture to drive growth in Africa over the next two years.
While huge cultural variations and trade barriers make for a challenging landscape on the continent, there is great potential for early entrants to dominate and capitalize on the shift from subsistence farming to industrialized economies of scale. However, timing will be critical to success.
Rob Dongoski, EY’s Global Agribusiness Leader, says: “Crop variety, use of precision agriculture and other advanced farming techniques, together with the availability of land, all enhance Africa’s prospect as a key grower and producer. However, this potential does not completely overshadow the risks and complexities to execute effectively.”
Fragmented markets bring both risks and latent potential
Capturing Africa’s potential for profitability remains extremely challenging. Amounting to more than a quarter of all independent countries globally, Africa is a complex environment in which to do business. Many markets in the region are fragmented and immature, and the opportunities and risks vary widely pursuant to different regulations and stakeholders. Notably, traditional trade channels such as open-air markets still represent 80% of retail across the continent and will continue to dominate for some time.
The report sets out five key steps companies should consider when traversing this landscape and seeking to capitalize on the opportunities.
Develop a clear business purpose, incorporating core capabilities and strategies on how to build competitive advantage.
Make informed choices about which markets to enter.
Build a sizable portfolio to mitigate risks and lack of scale.
Strike the right balance between a dynamic mobility program and talent retention.
Foster good relationships with civil society.
Michael Lalor, EY’s Africa Advisory Consumer Products and Retail Leader, says: “Perhaps, above all, doing business in Africa requires patience and a long-term perspective. Those who succeed will embrace the concept of pursuing profit with purpose, earning the social license to operate. This means contributing meaningfully to local economies through capital investment, job creation and technology transfer.”
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