Pushing Africa up the corporate agenda

If you are like many consumer products executives, the thought of pursuing growth in the rest of Africa seriously slows down when you consider the poverty, famine, political instability and risks that would worry any business leader. But over the past decade, the continent has undergone a quiet — yet dramatic — evolution that makes it worthy of reconsideration.

Africa’s total consumer spending of $1-trillion is in line with nations such as Brazil, Russia and India, and is expected to continue its steady growth. A new consumer class is emerging so quickly that total consumer spending should double by 2020. The market for fast-moving consumer goods has grown significantly in the past decade and, in the coming decade, growth rates in Egypt, Nigeria, Algeria, Tunisia and Morocco are forecast to be higher than in China or India. While instability still plagues some nations, political risk has diminished over the past 20 years. Macroeconomic stability has also improved, with reduced inflation rates or lower ratios of government gross debt as a percentage of the gross domestic product across the most important economies.

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INDUSTRY EXPERTISE

Consumer Products

It’s time to take a new look at Africa.

Refreshing your views might lead you to do things quite differently, and maybe more radically, than you might expect. To be serious about addressing the opportunities in Africa, you can’t simply put it on your corporate agenda; you need to make it a higher priority than other opportunities and invest accordingly.

Take Diageo, for instance. The global spirits leader started exporting Guinness to Sierra Leone back in 1827, but it was not until the early 1960s that the company established its first major overseas brewery in Nigeria. Over the past six years, however, the beverage maker realised Africa could become a significant growth engine, so it established the region as a top global priority — even recently elevating it to a standalone business that reports directly to Diageo’s CEO.

Diageo has invested more than £1bn in Africa over that period, building local manufacturing capacity, acquiring local brands, setting up intricate route-to-market models and supporting its brands.

Few consumer products players have gone as far as Diageo in prioritising Africa. And the results speak for themselves: the region represents Diageo’s largest emerging market by sales and profit, experiencing double-digit growth and generating attractive profits. In fiscal 2011, it contributed 30% of Diageo’s global sales growth and 40% of its global operating profit increase. Diageo plans to further expand its business in Africa in the foreseeable future.

Two Indian companies, Marico and Godrej Consumer Products, are pursuing opportunities in Africa in a relatively different way.

The traditional playbook for a multinational consumer products company going into a new emerging market is to leverage its existing categories and brands as much as possible. Marico and Godrej decided to continue playing in the categories, such as hair care or personal care, that made them popular in India. But rather than pushing their own brands, which lack recognition outside of India, the companies chose inorganic growth, acquiring local African brands and developing them.

The experience of Marico and Godrej provides important lessons for other companies. First, growing in Africa requires a willingness to accept greater risk than growing elsewhere. Marico and Godrej chose not to use their strongest assets in Africa, but instead start with a blank sheet of paper.

Second, the rest of Africa calls for higher flexibility and responsiveness, particularly when it comes to mergers and acquisitions, where the game is becoming increasingly competitive. Marico and Godrej acquired companies that most western multinationals would consider small and risky. Because they went on a deliberate hunt for target companies, they were able to act swiftly when the right prospect appeared.

The rise of players such as Marico and Godrej shows that the playing field in Africa is not restricted to large multinational companies from the developed countries or to local players. Unlike China, India or southeast Asia, Africa doesn’t have many local incumbents with scale, and therefore Africa may well be the region where the new emerging market champions will grow to scale.

This is yet another reason to put Africa higher on the corporate agenda — while there is still time.

Vijay Vishwanath is a Bain & Company partner based in Boston.