Items filtered by date: September 2012

Howwemadeitinafrica – excerpt from Business in Africa: Corporate Insights

The battle of the brands is about to begin in Africa, predicts Rick de Kock, Director of Africa Operations for advertising company TBWA\Africa. As the word spreads about the consumer opportunity in a continent of a billion people with rising incomes and high economic growth levels, global brands from all over the world are rushing in.

With 54 diverse countries on the continent, even rigorous business plans can run aground on the unique and complex set of circumstances found in each country. Dianna Games, the CEO of Africa @ Work and a columnist for Business Day, has recently compiled a book, Business in Africa: Corporate Insights, that addresses these issues concerning doing business on the continent. Below is an extract reproduced in online newsletter Howwemadeitinafrica.

  The battle of the brands is about to begin in Africa, predicts Rick de Kock, Director of Africa Operations for advertising company TBWA\Africa. As the word spreads about the consumer opportunity in a continent of a billion people with rising incomes and high economic growth levels, global brands from all over the world are rushing in.

“The competition for consumer spend is keen and growing,” he says. “Some of the world’s fastest-growing economies are here and international brands want a piece of the action.”

The original driver for TBWA’s African expansion was the movement of South African multinationals into the rest of Africa. “But we started to find that more and more of our global clients wanted to go into the continent and wanted us to work for them in African markets.”

Interest in the consumer markets of Africa is coming from all over the world, he says. “We are seeing more brands from India coming down the east coast of Africa and there are a lot of new brands coming from Europe and America such as Walmart and Yum Brands, which is opening KFC outlets across the continent. There are very few coming from China at this stage but that may change in time. And there are also the African brands. Many of the big African brands have traditionally come out of South Africa but that is also changing as African companies spread their wings out of their traditional local markets.”

Talking to customers

“Consumers are starting to understand that everybody wants to talk to them. With the explosion of new technology, African consumers are more connected to the world than ever before so they have more choice and they know what is good and what isn’t. If you try to sell them rubbish, they’ll know.”

This rapid penetration of technology into Africa has implications for the way business operates. The landing of numerous submarine cables on African shores since 2009 has given the continent vastly increased access to international fibre bandwidth and the numbers of internet users is rising as the technology becomes more affordable. The number of internet users rose from 4.5 million in 2000 to nearly 140 million by 2012 – with 45 million in Nigeria alone. But internet penetration still has not reached beyond seven per cent of the population, so the potential for growth is huge.

The GSM Association, a body that represents the interests of mobile operators worldwide, predicted that the number of mobile phone users in Africa would reach 735 million by the end of 2012.

“We are dealing with a mostly young, dynamic target market that is becoming globally connected through the internet and mobile phones and they are understanding brands a lot more,” says De Kock. “The way we communicate with this market will have to change dramatically. Everyone will have to up their game.”

“With the massive competition for audiences and consumer spend, advertising messages are starting to fade into each other; they are becoming wallpaper. So advertising has to move from being literal to more conceptual in order to stand out.”

“Traditional media such as radio, television and billboard are still key delivery platforms in Africa and they will be for a while. But millions of Africans are now getting their messages from a variety of places. We can’t just run a television advert anymore. We have to ask how we can also start tapping into consumers’ social networks. The model being used in Africa is changing rapidly.”

De Kock says the biggest spenders in African advertising are, by far, the mobile companies, followed by financial services providers and the producers of alcohol products and fast-moving consumer goods (FMCG). The fastest growing spend is in the alcohol and FMCG industries.

As more and more multinationals arrive in Africa they will challenge local brands, De Kock predicts. “The challenge for African marketers is to build local brands to the point where they become pan-African and even global brands. There are very few pan-African brands currently that don’t come from South Africa.”

The advertising industry in South Africa is far more advanced than it is elsewhere in Africa. “We have a long tradition of advertising here and this country worked hard to box above its weight in the rest of the world.” He cites the example of Hunt Lascaris, which, from small beginnings, became not only a top agency in South Africa but internationally.

But, he says, the advertising environment in other African countries is changing. “Over the past few years, advertising in Africa has gathered momentum, the messaging is getting sharper and the production quality is getting a whole lot better. I have seen real strides being made in the industry. Some countries are much more sophisticated than others, for example Kenya where there has been a long tradition of advertising; whereas West Africa is now playing catch up. But it can be difficult to draw skilled people into the industry because it is quite intangible. It’s not like becoming a lawyer or a doctor,” notes De Kock.

Thinking locally

“You are not dealing with homogenous societies within regions, or even within countries. Foreigners have tended to regard Africa as one country rather than acknowledging the many differences in nationalities, cultures, religion and languages. The worst thing you can do when you are trying to sell something to people is to offend them by being culturally insensitive.”

The advertising industry reflects, in part, the society in which it operates. “This means you can’t adopt a one-size-fits-all approach,” says De Kock. “If you want to be relevant, you have to spend money making adverts that are particular to a market and that means you cannot re-use material that has been made for other markets. You have to invest in understanding your consumers to know what drives them and what visual language would appeal to them.”

“You need to pay attention to the cultural differences between North, East, West and Southern Africa. There are also local differences that need to be taken into account, even within countries, when developing advertising campaigns. Nigeria, for example, has more than 250 ethnic groups while in East Africa, where Swahili is widely spoken, there are variations of the language between countries such as Kenya and Tanzania.”

“You can speak to people in official languages such as English but if you really want to resonate with markets you should try to build in the local languages and regional peculiarities. Humour is something that needs to be handled carefully – what is funny in one market may not be funny in another.”

“Religious sensitivities also have to be taken into account. In many countries we would think nothing of showing men and women in bathing costumes on a beach together. But this would be a real problem in countries in North Africa for example. And even within countries you need to consider these issues because of religious diversity.”

De Kock says such factors make it crucial that multinationals operating in Africa truly understand the markets they are trying to reach. In the past, market information has been difficult to find. However, recently market research firms have proliferated, servicing companies that are competing for advantage in a crowded marketplace. “But, at the end of the day, it really helps to have a presence on the ground. No one knows a market better than someone who lives in it.”

Although he believes South African companies have a big role to play on the continent, “people from the rest of Africa have a lot to teach us about entrepreneurship. If you drive through African cities late at night, you will see many entrepreneurs hard at work, with their workplaces lit only by candles or torchlight. The sense of energy across the continent is massive, particularly in East and West Africa. Nobody stands still. They are always finding ways to make money.”

“There is no doubt things are moving and, with the developed world in trouble, investors no longer regard Africa as being so risky. There is almost a sense that if you can lose your shirt on Wall Street, Africa seems quite tame. In fact, if you’re not doing business in Africa already, you’ve possibly missed the boat.”

This article is an extract from Dianna Games’s book, Business in Africa: Corporate Insights (published by Penguin Books, September 2012).

Available at all leading book stores – R260 (US$31.60).

Dianna Games is the CEO of Africa @ Work, a South African-based company that aims to facilitate and improve business in Africa through the provision of research, information and networking opportunities. She is also a columnist for Business Day.

High-growth, high-return Africa, with much improved trading conditions, is the most sought after frontier destination for global investment today. However, there are 54 countries on the continent and even rigorous business plans can run aground on the unique and complex set of circumstances found in each of them. Business in Africa: Corporate Insights takes the reader to the coal face of doing business on the continent. 

Business information on Africa might be increasing, but there is no substitute for operational experience. That is what this book offers, in articles by and interviews with people at the forefront of developments. They offer unique insights into the challenges and peculiarities of operating in Africa, and point out trends and likely future opportunities.

Drawing on McKinsey & Associates, the Brenthurst Foundation and the Gordon Institute of Business Science for a picture of Africa’s economic performance and future trends, contributions to the book also come from individuals such as veteran Africa analyst Dr Duncan Clarke, Nigerian business leader Tony Elumelu, economic commentator Greg Mills of the Brenthurst Foundation, South African publisher Khanyi Dhlomo and Africa branding expert Doug de Villiers. The book also includes insights from global companies such as GE, Coca-Cola, Actis, Du Pont, Carlson Rezidor Hotel Group, Nando’s and Anglogold Ashanti and household names in Africa such as MTN, MultiChoice, UBA, Webber Wentzel, Imperial Logistics, TBWA, Liberty Properties, Seed Co, Wilderness Holdings and SacOil.

Book details

• Business in Africa: Corporate Insights compiled and written by Dianna Games, CEO of Africa @ Work
  Book homepage

IF IT was easy everyone would be doing it,” a friend involved in African retail property development often says. He also says “the best development is the one that happens”, referring to the many plans of developers, funders and others who see the opportunity to build shopping malls in Africa frustrated by the myriad challenges involved.

Many targeted sites have remained pins on a map for years. But there has been a ramping up of interest in the sector lately, particularly from South African developers who are eager to supply world-class centres to retailers looking for early-mover advantage in growing markets outside SA.

The city centre of Lusaka is already overtraded, with three big shopping centres within a 5km radius. At least one more is planned on the city’s outskirts and others in mining towns.

But in other, larger markets, there is little critical mass. For example, in Lagos, a city of anything between 9-and 15-million people, depending on who you ask, there are only three retail malls. In Accra, up to 3-million people are served by one western-style mall.

There are high expectations for retail property development in Africa. In Ghana, about four malls are in the pipeline for the next two to three years and six in Nigeria — two of Africa’s fastest growing countries. Several are planned in countries such as Kenya, Mozambique and others, some as standalone malls and others as part of mixed-use developments.

Most of SA’s big retailers have ambitious expansion plans in African markets outside SA for anything between several dozen stores to more than 100 over the next few years.

Overseas brands such as Adidas and KFC are already in African shopping centres to the north and a few others are testing the waters with franchises. But a global survey of retailers by South African property management company Broll indicates relatively few are ready to take the plunge yet. Out of 326 companies interviewed, only a handful were looking at African markets at all and they had an interest in SA and North African countries but showed no appetite for the markets the South Africans favour — such as Kenya, Nigeria, Zambia, Mozambique and others. South African-based companies have moved into this space, beating a path for companies from other regions to follow when their appetite for risk increases.

But developers are not finding it easy, particularly in Nigeria, a key target for African expansion plans. As one old Africa hand says: “It’s not twice as difficult to develop a shopping mall in countries such as Nigeria as it is in SA; it is three to four times more difficult.” Problem-free land title is one of the challenges. Litigation from multiple claimants remains an ever-present threat. High costs of land and availability of large tracts of it in congested cities is also an issue.

The limited availability of long-term debt and a relatively low level of interest by international institutions in African property funds are among the challenges. Imported professional skills and inputs, power shortages and a range of other factors in the supply chain ramp up costs, so high rentals are needed to yield a decent return.

Ad hoc government policy is another issue. While Nigeria’s removal of clothing from a list of banned imports has opened up big opportunities for retailers, shoes — a big seller for fashion retailers — remain on the list in a vain attempt to protect the country’s ailing leather industry.

In Zambia, a recent government decision to prevent foreign currency being used for local transactions is a big concern for property companies, which index rentals to the US dollar. One expert says $500m of investment in Zambia’s property market has been put on hold as a result.

There is also the question of whether the emerging African middle class is as big as the experts maintain it is. Rapid urbanisation rates are pushing up potential consumer numbers but not necessarily incomes. These factors, among many others, are a brake on the desire of developers and retailers to build critical mass quickly in African markets. It may still be a while before their high expectations match the reality on the ground.

• Games is CEO of Africa At Work, an African business consultancy.

REPORT: MTN Case Study in Going Global: Insights From South Africa’s Top Companies
Dianna Games
GIBS and MME Media, 2012