Untapped SME opportunities in Africa
An exhaustive study recently done by the Economist Intelligence Unit (EIU) on behalf of DHL Express revealed that about 40 percent of global small and medium-scale enterprises (SMEs) do not appreciate Africa as a growth opportunity, despite the positive economic growth stories and growing middle class in the regions.
The report shows that many multinationals and state-owned companies are actively taking advantage of the opportunities that Africa offers, but SMEs still remain apprehensive and rather prefer to trade with other emerging markets instead.
Charles Brewer, managing director, DHL Express Sub Saharan Africa, pointed out that despite current challenges to attract global SME interest, the findings of the study highlight the untapped potential that still exists in the continent. He said international SMEs are deterred by Africa’s low average consumer spend, cultural and infrastructure challenges, as well as inefficiencies such as corruption and political risk in the region. .
“The fact that SMEs expect to generate up to 50 percent of revenues internationally by 2019 is a massive positive and highlights the vast opportunities for Africa from an investment and job creation perspective,” Brewer said.
He explains that the quality of a target market´s infrastructure, the stability of its politics, administrative costs for establishing a local presence and cultural differences in doing business were all cited by the executives surveyed as factors that deterred them from entering new markets.
“The unfamiliarity of foreign markets received particular attention, with 84 percent of respondents describing understanding a target market’s culture or language as important or very important in determining its attractiveness. This also explains why most SMEs often expand into markets that resemble their own,” he said.
In terms of expansion tactics, the survey shows that partnerships are an important consideration for SMEs. The study identified a number of innovative approaches in this area, such as piggybacking on another company’s existing retail network to enter the sub-Saharan market in Africa.
“A number of multinationals and corporates have experience great success in Africa, DHL being a prime example. And the good news for SMEs is that they have the advantage of being more agile to adapt quickly and exploit the opportunities available. An entrepreneurial spirit is vital for the success of small businesses, we ourselves started out as an SME in 1969, and as they say, the rest is history. We too have focused on partnerships in Africa, and now have a retail presence of over 3500 outlets across Africa.
“We work with thousands and thousands of SMEs across Africa and have witnessed how these businesses are able to successfully establish a presence in the region. With the support of the right partners, a well-designed supply chain, clear understanding of their competitive strengths and the right mindset, SMEs can break through any border and make the world their market,” concludes Brewer.
True to the fears of international SMEs, Africa is been bogged down by poor quality of infrastructure, as most countries in the continent have weak electricity sector, poor road and communication networks. Many of them rank very low in the World Bank’s Doing Business Index. Also, corruption in most countries is official and has eaten deep into the fabrics of business approving authorities. Yes, there are also inefficiencies, social injustices, insecurity and other issues.
However, there are facts in Nigeria and Africa that international SMEs have failed to see?
Africa is a market populated by 1.111 billion consumers, with 4.8 percent growth rate, according to estimates. Out of this population, Nigeria shares 174 million, with 2.8 percent growth rate, and over 65 percent youths.
Unemployment in Nigeria is estimated at 24 percent by the National Bureau of Statistics (NBS). Like Nigeria and other African countries, South Africa has almost 50 percent of unemployed youth. But a series of retrenchments have caused the loss of thousands of jobs in South Africa, while manufacturing and agriculture are also reeling under lack of government subsidy.
According to the African Development Bank, 25 percent of African youths are still illiterate. Most manufacturing firms in Africa suffer from skills loopholes even amid high unemployment rate in the continent. Manufacturers and techno firms sometimes import skills to plug the loopholes.
What these facts present is that international SMEs can make more money by empowering African youths with relevant skills that target industries. For instance, international SMEs can import the German-type dual education, which combines skills and vocation, say analysts. This will be most receptive in a continent with low skills and high unemployment.
Another opportunity missed by international SMEs is huge youth market for food and beverages. It was confirmed by Nigeria’s NBS that manufacturing is now the driver of the economy. Within this sector, the food and beverage sub-sector leads the pack, growing 12 percent in 2013, as against 7 percent recorded in 2012. What this means is that this sub-sector is key to the country’s high growth rate, ranging between six and seven percent.
In a population dominated by youths, food and beverages spike. Cheap diary and beverage products are huge markets. Empirical evidence shows that such population is dominated by people who prefer beverages and fast-moving consumer goods. Jumia, Konga, Shoprite and other new outlets have taken advantage of this and international SMEs what they have missed over the years.
In Egypt, Coca-Cola Company (TCCC) is also taking advantage of over 25 percent youth demographics, having announced that it will invest $500 million in the country.
ODINAKA ANUDU