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The growth in the Retail sector of Africa

Africa is a world in itself. It is home to one billion inhabitants (around 15 percent of the global population) and 53 countries covering more than 30 million square kilometres, each with very different climates and environments. There are hundreds of ethnic groups and cultures approximately 2,000 spoken languages and stark contrasts in terms of political stability and economic development. It is a continent of growing local economies with important natural resources. The market potential is tremendous, especially in the energy, consumer goods, telecommunication, industrial equipment, logistics and services sectors. A Harvard Business Review article (February 2009) entitled ‘Now’s the Time to Invest in Africa’ says that “reliable data show that a number of sub-Saharan nations have emerged from conflict in stable condition and that new macroeconomic forces are poised to have a profound effect – despite the global economic downturn. Now, African companies indicate that the continent offers competitive manufacturing sites, IT outsourcing, and construction services. There is real opportunity on the ground in Africa.” Challenges to conducting business in Africa however, do exist. These include poor infrastructures, transport systems, unreliable electricity supply, logistical issues and the lack of information for decision making, corruption to name just a few. Arguably, the biggest challenge is the lack of reliable information, both on a macro level as well as a micro level. Business and decision making networks are very specific to each area and can be difficult to identify.

With a lot of multinationals investing in Africa in various sectors, the continent has turned in to an investment paradise for a few, Retailers being one. With the increasingly busy lives of consumers the demand for convenience and value for money has gone up. Big boys (retailers) in South Africa are introducing new outlet formats. Besides big African retailers like Pick ‘n Pay and Woolworths there has been tremendous increase in new players venturing in to the African market ground. The outlets offering take away foods like sandwiches, salads and wraps have been on rise from last two years. Pick ‘n Pay is making its mark of late by introducing food and wine bars in its larger departmental stores adding to its One Stop Shop status. Introduction of all these stores is a significant indicator of the immense unexplored food retail market in Africa.

“To do business in Northern Africa, you must know specific information about each area you want to engage in business. And this is really complicated because of the lack of reliable business Information. Even when you refer to secondary information sources, you must be very careful and evaluate your sources, as there is often a problem in the way market research is conducted,” says M. Karim Ben Bouzid, Directeur Général Adjoint, Industrie des Confi series de Tunisie.

This White Paper gives an overview of Northern and Southern Africa, highlighting retail opportunities in Protein food products. This paper will also discuss in detail the retail growth in South African market and the sub-Saharan countries and the consumption preferences of Protein rich food in these regions.

2. NORTHERN AFRICA: MAGHREB + EGYPT

Introduction

Northern Africa is composed of 6 countries; Algeria, Libya, Mauritania, Morocco, and Tunisia (collectively known as the Maghreb) as well as Egypt in the East. Together, they represent one of the major entry points to the African continent. Each of these countries gained independence between the twenties to sixties; Egypt (1922), Libya (1951), Morocco and Tunisia (1956), Mauritania (1960), Algeria (1962).

Picture will come

On February 17 1989, the Maghreb countries established the Arab Maghreb Union, aimed at promoting cooperation and future economic integration between the members (a Northern African Common Market). Due mainly to political reasons, the Union had very limited results to date. According to a survey by the Morocco Ministry of Economy and Finances, local countries have been exporting 51 times more to the European Union (EU), than to other Maghreb countries. Internal exchanges represent only three percent of total local exports.

Gdp table

In total, Northern Africa is a leading economic region in Africa, with gross domestic product (GDP) of US$444.9 billion. Its population of 158.3 million has a GDP per capita of US$2,810. Maghreb on its own has a population of 84.7 million, and a GDP per capita of 3.741 US dollars. Inside Maghreb, Algeria is the third largest African economy with a GDP of US$134.3 billion. Egypt is the fourth largest African economy, with a GDP of US$128 billion. The latter is the most populated Northern African country (73.6 million), in contrast to the largest Maghred countries, Algeria (34.4 million) and Morocco (31 million). GDP per capita also varies largely from one country to another. Libya and Algeria are in the lead, thanks to their energy revenues (US$11,484 and US$3,903), followed by Tunisia, Morocco, Egypt and Mauritania (US$3,423, US$2,422, US$1,739 and US$952) respectively. Egypt has been growing rapidly with a GDP growth (7.1%), followed by Libya, Tunisia, Algeria, Morocco and Mauritania. Algeria, Libya and Egypt rely on oil and gas production, while Morocco and Mauritania have thriving mining industries. Other than the contrast in economies, Northern African countries have remained, for various reasons, very independent from each other. This makes the customization of Market Intelligence approaches in each country compulsory.

Regional highlights

Strategic position

The proximity of Northern Africa to Europe across the Mediterranean Sea, and to Asia with their common borders with the Middle East area, endows the region with many strategic advantages due to its position. Transport between Northern Africa and Europe for example is relatively easy. Travel by air between the two regions ranges from one to five hours at considerably affordable prices. Tourists and cargo can travel from south European cities to Northern Africa in a matter of two days. This helps facilitate just-in-time management and efficient supply chains. Today, between 25 and 30 percent of all high value-added global cargo flows through the Suez Canal in Egypt and past the Strait of Gibraltar above Morocco. “There is almost no place in the world, with two groups of countries (South of Europe and North of Africa), so close geographically and culturally – and yet so different at the wealth level.

This represents a big potential threat together with a major opportunity! Economic actors have a key part to play in building a positive evolution, by taking advantage of the huge potential generated by this unique situation,” says Mr. Zyad Limam, Publisher of the Afrique Magazine.

This proximity has resulted in enhanced mutual understanding, cultural closeness and communication, which in turn, has enabled Northern African countries to position themselves as efficient intermediaries between their neighbours and Sub Saharan countries.

Map 2

Bilateral trade agreements

Bilateral trade agreements within the Arab Maghreb Union have sought to promote exchanges between Northern African countries. There are free trade agreements between Tunisia and Libya, Tunisia and Morocco (1999), Morocco and Egypt (1998), Egypt, Jordan, Morocco and Tunisia (2004 Agadir agreement). In 2009 alone, a preferential trade agreement has been signed between Tunisia and Algeria, an investment agreement between Libya and Mauritania, and a maritime agreement between Mauritania and Algeria.

In addition, Morocco has signed a free trade agreement with the US (2004) and Tunisia signed the first total free trade area agreement with the EU (2008).

Relative financial stability

Thanks partly to local rules that prevent local banks from investing in some structured financial products; the local banking industry has not been too severely impacted by the international financial crisis. Euler Hermes Sfac, a global credit insurance company, even rates some Northern African countries quite favourably. Tunisia has been given a BB rating, Morocco a B rating, Algeria a C rating, Libya a C rating and Mauritania a D rating (Scale: AA, A, BB, B, C and D).

Most major local currencies have been quite stable, compared to the Euro. In 2008, the Egyptian currency increased in value by over 10 percent, the Morocco Dirham by three percent, the Algerian Dinar by five percent. Only the Tunisian Dinar decreased in value.

While exports may be temporarily affected, Northern African countries are still able to woo investors from developed countries looking to lower production costs and to benefit from growing local economies. Energy producers, Algeria, Libya and Egypt expect a decrease in income due to the current crisis.

Educated workforce

Northern Africa is by far, the most developed region in Africa. The Human Development Index (HDI) by the United Nations Development Program combines normalized measures of life expectancy, literacy, educational attainment, and GDP per capita. It rates Libya 0.84, Tunisia 0.762, Algeria 0.748, Egypt 0.716, Morocco 0.646 and Mauritania 0.557. According to United Nations research, there is a high rate of literary amongst adults over 15 years in Northern Africa, especially in Libya (87%), Tunisia (78%), Algeria (75%) and Egypt (72%).

Qualified employees are therefore available at very attractive prices. On average, the cost of a local engineer is about one third that of a European engineer. For instance, Tunisia and Morocco support information technology businesses, healthcare services (Tunisia), Aeronautics (Airbus investment in Tunisia) and automotive manufacturers (Renault Nissan plants in Morocco).

Moreover, many people speak French and other European languages, and a large number have studied in Europe or in the States.

Infrastructure projects

Northern Africa has several massive infrastructure projects in the pipeline. A new international airport is being built in Enfidha, Tunisia, 80 kilometres South East of the capital. The first high-speed train line in Africa, linking Casablanca to Tangier, is being built by Morocco. Other ambitious projects include the border-to-border East-West Algerian Highway (1,216 km) and a similar one in Libya (2,000 km) as well as the Tanger Med project, a spectacular harbour being built in Morocco. In refined energy production and storage, eight major refinery projects are being planned in Assiout (Egypt), Ras Lennouf and Mellita (Libya), Skikda et Tiaret (Algeria), Skhira (Tunisia) and Jorf Lasfar (Morocco) at a combined cost of US$25 billion.

Mobile phone networks now cover major areas and the Internet is taking off. Morocco is the most advanced with 20 percent Internet penetration (2006 UN fi gures), followed by Tunisia (13%), Mauritania (10%), Egypt (8%), Algeria (7%) and Libya (4%).

Investment friendly measures

Northern African countries have made great strides in attracting foreign investments. Morocco and Tunisia have been especially active, offering Free Trade zones and tax-free areas, tax-free benefits, capital and earnings repatriation incentives and other financial advantages. These measures have also been effective in attracting investors from “non-traditional” countries such as the Middle East, China and Japan.

Other initiatives have caught the attention of investors. In March 2009, Algeria launched a 1.7 billion Euro investment fund, while the African Union and African Development Bank (AfDB) Group have been fostering infrastructure-related programs to attract international investors.

Domestic market development

With a growing population of 160 million and rising GDP levels, Northern Africa will face growing demand in numerous sectors; from consumer goods, public services and healthcare to transport links, construction and telecommunications.

GIA predicts that other sectors likely to face favourable growth prospects include e-trade (back offices, warehouses and logistics), mobile-commerce (mobile phone payments) and other high tech businesses. Opportunities also exist in tourism, especially along the Algerian and Tunisian coasts, and in agriculture where tensions surrounding food supply should stimulate local agriculture developments. Organic agriculture and food distribution for instance, can also be an interesting opportunity.

3. SOUTHERN AFRICA

Introduction

The Southern African region in this Paper includes all the members of the Southern African Development Community (SADC), which was established in 1992 to foster common political interests and greater trade and investment flows between Member States. They are Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe.

Map 3

The combined income of the SADC market is approximately US$431 billion and comprises a total population of 247 million (2007). South Africa is the biggest SADC economy with a Gross Domestic Product (GDP) of US$283 billion, representing 65 percent of the total SADC market.

Gdp table

The largest SADC country in terms of population is the Democratic Republic of Congo, with a population of 61 million. In contrast, Botswana, Mauritius, Namibia and Swaziland have populations of 2 million or less. GDP per capita also varies widely. GDP per capita in Botswana is US$7,694 per annum while it is estimated to be US$369 in Mozambique and US$166 in the Democratic Republic of Congo.

The region includes several dynamic economies. Angola is the fastest growing economy, with an estimated growth rate of 21 percent, followed by Malawi, Mozambique and Tanzania with growth rates of about seven percent each.

Regional highlights

The SADC Protocol on Trade

In January 2008, 12 of the 14 SADC Member States established an SADC Free Trade Area (FTA), committing members to phase out existing tariffs, harmonize trade procedures and documentation within SADC and to reduce other barriers to trade within the region. The 12 members of the FTA include Botswana, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. Together, they make up a regional market worth US$360 billion with a total population of 170 million. Member economies have been growing by up to 7 percent a year. Angola and the Democratic Republic of Congo are set to join the FTA, adding a further US$71 billion and 77 million people to the SADC market.

“If the likes of SADC are effective in removing trade barriers within Africa then whoever moves first and gets it right, will win Africa,” says Mr. Pieter Spies, Cadbury Managing Director for Central & East Africa. This theory applies across a myriad of different industries where successful, first-mover advantage in the region could spell success across the African continent.

Amongst member states, South Africa has been actively seeking greater trade relationships with fellow SADC states. The South African Minister of Trade and Industry, Mandisi Mpahlwa, has embarked on an aggressive strategy to pursue greater trade relationships with SADC members to increase further development in Africa. South Africa has signed a memorandum of understanding (MoU) on economic cooperation to strengthen trade with Mauritius. Mauritius is currently one of South Africa’s largest trading partners with exports to the island amounting to US$242million in 2007.

Digital revolution

Until recently, Internet access in Southern Africa had been slow and expensive. This is changing rapidly as Southern Africa rapidly acquires the infrastructure required to make high-speed Internet connectivity assessable and affordable to the masses. Underwater cables being laid by privately funded companies will connect Southern Africa to the world. Universities will be able to facilitate research with other institutions; medical facilities may make bigger strides in improving healthcare, small businesses can compete in the e-economy, and the rise of call centres could facilitate job creation.

The infrastructure will also make Southern Africa considerably more appealing to foreign investors, in terms of the ease and efficiency of doing business in the region.

Benefits of reforms

Africa’s gross domestic product (GDP) growth is expected to hold up well even while global growth deteriorates, as the structural reforms that many African countries have been implementing over the past few years continue to pay off, says a research paper by South Africa’s Industrial Development Corporation, entitled “Africa And The Global Economic Crisis: Opportunities And Challenges”. It predicts that while GDP growth in Africa has moderated considerably, the continent will continue to experience growth in excess of 3% in the face of global economic slowdown.

“Widespread economic reforms and notable improvements in overall governance have borne fruit and attracted foreign investment, while several long-standing conflicts have come to an end, enabling reconstruction in those countries to begin. This has contributed to vastly improved macro-economic management, rising incomes and spending, increased investment in physical and social infrastructure and foreign investment activity in productive sectors,” the research report states.

2010 FIFA World Cup

Decades of negative news coverage have often presented a one-sided view of Africa in general. The 2010 FIFA World Cup, was held in nine cities across South Africa, and offered a great opportunity to change the image and perception of the continent internationally. During coverage of the event, the world was presented with a different view, one of bustling cities, world-class facilities, speeding highways and an affluent people.

Widespread media exposure and focus on Southern Africa will enhance the region’s brand as a global tourist destination and a sophisticated emerging market of choice for foreign investment.

Protein Food Scenario:

In most parts of Africa, scarcity of protein rich food is no surprise. Though almost all people in this region like eating meat in their regular meal, they do not do it due to economical reasons. Protein rich animal products are very expensive in Africa. Though there is a lot of sea food production in the coastal region, the export oriented units limit the supply of the same in to the local markets.

More than 200 million Africans eat fish regularly. Fish: the Rich food for poor plays an important role in enhancing the protein diet. It can be a prominent thing which can prove beneficial in improving the nutritional status of Africans. But in most of the lo-income food deficit countries, the import bill for food is paid through the receipts from the fish exports. This implies that the most affordable protein food is scarce in this region to satisfy domestic consumption.

According to an estimate by Food and Agriculture Organization (FAO) 22% of protein intake is through fish products in Sub-Saharan region.

Table and graph indicating Fish supply

Declining Consumption: A good Opportunity

Africa is the only continent in the world where the supply of Fish per person is declining. The reason for this decline is the less growth in capture fish production and the growing population. To maintain the current level of per capita supply of Sub-Saharan Africa (6.5 kg/year) up to 2013, the fish production has to be increased by 28% for next 3 years. Also, the increasing consumption of other animal protein products has resulted in declining of fish consumption.

Graph

Poultry:

South African poultry industry, with a total value of nearly US$3 billion, is the country’s largest individual agricultural industry that contributes more than 17 per cent to agriculture’s GDP. Most of the meat requirement of South Africa is met by its domestic production. Only 15 % of total poultry meat requirements are imported from Namibia, Botswana, Swaziland, Australia, New Zealand and Europe. Rainbow and Artral are the two big players (producers) who dominate the broiler industry in South Africa. Rainbow produces 4.4 million broilers per week on average and Astral produces 3.8 million broilers per week. Country Bird is the third largest producer with over 1.3 million broilers per week which is around 8% of total broiler production in South Africa. There has been an extraordinary increasing demand of 6% per annum in this region for Broiler market from 2000 to 2008. In 2009 however the consumption dipped a bit.

Still broiler meat is one of the most affordable protein sources in Africa after Fish. The South African per-capita consumption of broiler meat in 2009 was 30.8kg, which is almost double to the per capita consumption of Beef and 6 times the consumption of pork and 10 times the consumption of Mutton. South Africans now eat more than double as much poultry as in 1993. The reason for such an increase is mainly due to the economic growth as it raises the living standards and pushes a large number of consumers towards protein rich diet.

Eggs consumption in Africa is 300% less than the world average. While per capita consumption of eggs in Africa is 2.4 kgs ( amounts to around 188 eggs/ year/ person), world average is 9.1 kgs. And according to the projections by World Poultry Centre the consumption in Africa is going to grow by 37% by 2015.

Retail

Coming to the Retail part, the focus area of this paper, we will discuss about the growth in Retail sector in Africa over the last decade and the emerging future opportunities for food retail. Retail sector in Africa has grown leaps and bounds in the last decade but surprisingly there has been very little buzz about the same. The geographic spread of supermarkets from one place to another is predictable from the very nature of economics and policies of a region. But the speed and acceleration with which its happening is highly unpredictable and has been surprising to witness in last 5 to 10 years. Ideally as the Economists explain, boom of retail in the 1990s’ led the Retail giants explore opportunities in developing economies like countries in Latin American regions and then in the South & Southeast Asian regions. Major Retails like Wal-Mart, Ahold and Carrefour first entered in to the larger and richer countries in these regions and then continued the journey by entering the poorer countries. But, in Africa this has not happened. It is probably the time these things will come in to the picture soon over the next half decade.

It’s time for Africa:



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