Why Middle-Market Firms Should Keep Africa on Their Radar

Africa may not be at the top of your list as you consider global expansion, but I’d urge you to reconsider.

By 2050, Africa’s economy is set to grow from $2 trillion to $29 trillion. The continent is home to 11 of the 20 fastest-growing economies in the world, and consumption rates are rising. Contrary to common assumptions, doing business in Africa poses no more challenges than in many other emerging economies. In fact, several African countries were highly ranked in the World Bank Group’s Doing Business 2015 report.

But the question remains: What does all this mean for middle-market companies?

Quite simply, it means that there are great expansion opportunities in Africa — but only if you know how to take advantage of them. Use these five questions to identify which markets could be best suited to your company and strategize for a successful future expansion:

1. What are the barriers to market entry? African nations are experiencing bold reformations of their business climates. But some markets still pose significant challenges. For instance, while Ethiopia’s state-controlled telecommunications and financial services sectors prohibit foreign investment, the country’s consumer base stands at more than 92 million people and holds massive untapped opportunities if you know where to look.
   

Use microeconomic and macroeconomic trends to identify potential markets. If your company relies on physical infrastructure, research the situation on the ground to ensure you’ll have access to necessary resources. Analyze the country’s legal framework, particularly as it relates to your sector. You may find that your initial target has unfavorable laws and a neighboring country would suit your business better. This allows you to get a foothold in the region without battling a hostile bureaucracy.

2. Is your offering compatible and competitive? The African market is a gold mine if you find the right match, but it’s treacherous if you’re unprepared. You need a keen understanding of local preferences and buying power to ensure your product will succeed.

The middle class is blooming across the continent and is driving up consumption rates. However, you need to understand what the middle class looks like in different markets. In some countries, many “middle class” consumers spend as little as $2 per day, and their consumption patterns are susceptible to inflation spikes and other economic shocks. If you work in fast-moving consumer goods, consider packaging your product in small quantities that are affordable to local consumers.

3. What’s the potential for brand localization? Don’t assume that what sells in the Western Hemisphere will sell in Africa. You must tailor your product and marketing to local preferences. Gaining an intimate understanding of the local culture, cuisine, and values will help you assess how well your product will resonate.

For example, when KFC expanded into Nigeria, it added Nigerian fish and vegetable fried rice to its standard menu. Moves like this show that you know and respect your market and earn you local favor.

4. What’s the historical context in your industry? Look toward other companies’ market performance to gauge your potential success. Africa is abuzz with vibrant micro, small, and medium enterprises. But Africa’s market is young in growth and demographics, and it’s characterized by rapid shifts in consumer preferences.

Run incisive analyses on recent economic trends and assess how previous businesses fared in the country. Align your company with partners that have proven track records in your market. Companies that want to expand into Kenya will know that mobile money is the preferred form of payment there, so corporations like Safaricom and Bharti Airtel make natural partner options. Evaluate any partnership opportunity based on a company’s historical success.

5. What are your company’s actual and potential regional footprints? Regional integration is a main engine of Africa’s economic renaissance. The East African Community is one of the fastest-growing economic blocs in the world. Consider your company’s opportunities in pursuit of bigger markets that transverse any national boundaries. Look at the regional expansion in the past five years and any capital raising that will further spur this trend.

One example of a company that successfully expanded into Africa is R&R Ice Cream, which acquired Nestlé South Africa. The liberalized market and high level of consumption power in South Africa mean low barriers to entry, and the success of other ice cream brands indicates that R&R will likely profit from the acquisition. The historical and market contexts made this a lucrative opportunity, and it shows how other middle-market businesses can see the same success by expanding into Africa.

Africa’s boom is only beginning. As the economies of more African nations grow and stabilize, there will be countless opportunities for market expansion and partnerships. By putting Africa on your radar now, you can strategist how to capitalize on early growth and position your company as a leading global enterprise in a dynamic market.

Konstantin Makarov is the managing partner of StratLink Africa. With over 14 years of experience in financial markets, specifically emerging markets, Konstantin brings a holistic approach that addresses challenges faced by companies, fund managers, and family offices that are operating or considering investing in the emerging and frontier economies.

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