FDI in Africa Grown by $4Bn Since 2001

Trends in retail trading, the business landscape in Sub-Saharan Africa, how international retailers enter the continent and the innovation in payment methods were some of the issues tackled during the second day of the World Retail Congress Africa in Sandton, Johannesburg.

Led by Godfrey Tapela, senior investment officer, Manufacturing and Services at the IFC, the morning session highlighted the key driving factors persuading retailers to enter the continent. 

Africa’s rapid urbanization and a growing middle class are welcome developments to retailers seeking new markets.

Foreign Direct Investment, (FDI) he added, grew from $140 million in 2001 to a sizeable $4billion in 2012, a sign of how international investors and development agencies view Africa. 

Tapela highlighted the critical elements that retailers must address if they are to succeed in Africa, including understanding country risk mitigation and having regional on-the-ground knowledge.

Tapela re-emphasized the impediments to new entrants to the retail sector in the continent – challenges such as inadequate infrastructure, lack of access to finance and the shortage of skills, and a regulatory framework that is different from one country to another.

Chris Bishop, editor-in-chief of Forbes Africa chaired a panel discussion featuring Michael Elliot General Manager of Luxottica (South Africa) a luxury brand specialist retailer and Michael Yates, managing director of Procter & Gamble (P&G) South Africa on how international retailers and brands manage entry into the African market.

Yates said Procter & Gamble’s mission is to create value for its shareholders and add value for its customers, whilst Mr Elliot said his company entered into franchise agreements with established local retailers to get their products to customers.

Mr Elliot and Mr Yates said counterfeiting was an ever present threat and they worked with local authorities to deal with the problem. Mr Yates reiterated the fact that Africa’s relatively young market, (50% of Africa’s population is under 15 years), is encouraging for any manufacturer or retailer with long term plans.

Mr Elliot said the growing middle class, particularly the black middle class in South Africa bodes well for the luxury goods sector. 

Mr Yates added that as a manufacturer, it was important to anticipate the aspirations of the local population in territories that a company operates; otherwise a company could lose its competitive advantage.

Independent analyst, Syd Vianello chaired a series of discussions on franchising, master licensing, joint ventures and acquisition models. Francisco Sousa Pimentel, managing Director of Sonae SR said his company has 20 partnerships in 4 continents. He said their focus is on having equity and franchise partners and in getting local companies to handle distribution of their products.

Pimentel said it was difficult to form partnerships due to political barriers. He however said it was important to find opportunities to involve communities. Sonae has partnerships with Neotel in South Africa.

Luke Mckend, country head, South Africa Google said the penetration of mobile phones enabled the company to access most of its customers, but highlighted the two biggest challenges were limited access to the internet and getting people to understand the culture and enjoy the benefits of the internet.

He highlighted the fact that Youtube had 4.5 billion hits in South Africa alone in 2012 and this figure will double in a few years.