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SUB-SAHARAN AFRICA

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by EOS Intelligence EOS Intelligence No Comments

Zambia Government’s Pro-tourism Steps to Take the Sector to New Heights

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Zambia, like many other African countries, has struggled with the image of being underdeveloped, poor, and unsafe, a perception which has kept foreign travelers at bay. While these aspects do remain true to some extent, the Zambian government has initiated efforts to rebrand Zambia’s image as an attractive tourist destination. To this effect, the government is working on improving the country’s infrastructure as well as increasing marketing efforts to position Zambia as a premiere tourist destination to the world. With the right investments and policies, Zambia has the potential to become a popular tourist place within Africa, giving stiff competition to its neighbors, such as Zimbabwe, and to Africa’s key tourist destinations, such as Kenya. This goal might be achievable, considering that in addition to having a wide range of national parks and game reserves, Zambia is home to Victoria Falls (shared with Zimbabwe), one of the seven natural wonders of the world and a UNESCO Heritage Site.

Previously neglected tourism industry to receive a new push

While Victoria Falls remains Zambia’s most unique attraction, Zambia seems to have more on its tourist offer. The country boasts of around 23 million hectares of land being dedicated to diverse wildlife, in the form of 20 national parks and 34 game management areas (GMAs).

In addition, it is rich in other natural resources and tourist attractions such as waterfalls, lakes, woodlands, several museums, and rich and diverse culture, which gives tourists a taste of the land through many traditional ceremonies and festivals.

Despite all of this, tourism has never flourished in the country, although this might change now, as the government launched a National Tourism Policy 2015, aiming at positioning Zambia among the top five African tourist destinations of choice by 2030. The initiative is hoped to bring increased revenues from tourism needed by Zambia to improve its economic diversification, as the country has largely been dependent on revenues from copper mining and agriculture, a model only moderately sustainable at best.

The government has undertaken multi-pronged approach to put Zambia’s tourism on the map

Regions prioritization

In order to achieve this, the government is prioritizing two major regions, namely Livingstone (which provides access to Victoria Falls) and the Northern Circuit, situated in the Southern and Northern Provinces of Zambia, respectively. It is for this purpose that the government has opened up investments in the Northern Circuit region that encompasses the David Livingstone memorial in Chitambo, Kasanka National Park, beaches at Banguelu, Kasaba Bay, Lumangwe, and Kabweluma Falls, among other key tourism sites.

Appointment of investments facilitator

Industrial Development Corporation (IDC), a state-owned investment company undertaking the government’s commercial investments has assumed the job of facilitating long-term financing of several projects that will help boost tourism, in addition to acting as a co-investor alongside private investors in the sector.

Establishing of tourism development fund

The government has taken several other measures under the Tourism and Hospitality Act 2015 to provide the needed push to its tourism sector. It has established a tourism development fund, a special fund for the sole purpose of developing and funding the various spheres of the sector. To support this fund, in March 2017, the government introduced Tourism Levy, a tourist tax charged at 1.5% of a tourist’s (both domestic and international) total bill in respect to accommodation and tourist events. As per Zambia’s Ministry of Tourism and Arts (MoTA), the tourism fund collection through this tax equaled US$338,885 (K3.4 million) as of 31 August 2017.

An increased tourism marketing budget to the Zambia Tourism Agency (ZTA) for 2018 has been allocated to promote Zambia as a prime tourist destination. In April 2018, the ZTA hosted the Zambia Travel Expo (ZATEX), a tourism fair, which is one of the most important marketing platforms for Zambia’s tourism products. The fair hosted close to 60 international buyers (including both trade and media) from Southern and East Africa, the UK, Germany, the USA, China, France, India, and several other countries.

Hotels grading and licensing

In addition, the ZTA, which acts as the tourism industry regulator in Zambia, has taken up the task of licensing and grading hotels and other accommodation facilities in order to promote efficient service delivery and maintain a certain minimum standard in the tourism sector.

Under its 2018 National Budget, the government is also working on reducing bureaucracy and the cost of doing business in the tourism sector. To achieve this, the government, along with the Business Regulatory Review Agency, is expected to establish a Single Licensing System, which will act as a one-stop shop for obtaining a tourism license.

Quest to re-launch national airlines

Apart from investments and efforts to enhance efficiency and quality of ground infrastructure (such as accommodation facilities), the government has also announced the launch of national airlines, which were expected to commence operations in 2018 (later pushed to unspecified date in early 2019, hurdled by Zambia’s difficult fiscal position). The airline, a strategic partnership between the Zambian government and Ethiopian Airlines, was to have an estimated first year budget of about US$30 million.

Infrastructure investments

In similar lines to the Tourism and Hospitality Act 2015, Zambia’s 7th National Development Plan (NDP) (2017-2021) also outlines several key strategies and measures to boost tourism sector growth. Under the NDP, the MoTA (along with other sectors and ministries) aims at developing and upgrading several roads, bridges, and air-strips that interlink and ease access to the main wildlife reserves and other tourist destinations across the Northern and Southern Circuits. The NDP allocated US$870 million (K8.7 billion) towards road infrastructure development that is pertinent to growth in the tourism sector, such as the Link Zambia 8000, the C400, and the L400 projects.

In addition to this, the NDP allocated about US$94.7 million (K950.5 million) towards the construction of the Kenneth Kaunda and Copperbelt International airports. These airports, once established, are expected to position Zambia as a regional transport hub and in turn uplift tourism.

Furthermore, the government intends to develop requisite infrastructure with the aim to facilitate an increased length of stay, rehabilitate heritage sites, and strengthen wildlife protection.

Ensuring viability of wildlife tourism

The authorities have also realized the importance of rehabilitation and restocking of the country’s wildlife parks, where wildlife population has declined to levels that make it non-viable for safaris and photographic tourism. To achieve this, the government is looking into establishing strict anti-poaching rules and is exploring various public-private partnership models to aid conservation and develop national parks.

Development of non-traditional modes of tourism

To boost further awareness about Zambia’s tourism, the government aims to develop and promote ethno-tourism through events such as the Pamodzi Carnival, which showcase Zambia’s rich art and culture. Developing non-traditional modes of tourism, such as green tourism (covering eco- and agro-tourism), sports tourism, etc., is also on the agenda.

Boosting domestic private and business tourism

The government is also undertaking efforts to boost domestic tourism, by engaging and marketing to the Zambian middle class population. This will help open another revenue avenue for tourism, as local populations are likely to be easier to encourage and fuel the sector growth while Zambia’s international brand is still being developed.

Similarly, the government is also encouraging business tourism by turning several large cities, such as Livingstone and Lusaka, into premiere conference destinations. There is a huge untapped potential in the conference category that will help attract a host of domestic as well as bit of international business-based tourism to the region. In April 2017, the Zambia Institute of Chartered Accountancy (ZICA) bought 102 hectares of land in Livingstone to set up a 5,000-seat convention center, 10 presidential VIP villas, and an international-standard golf course at a cost of US$350 million. This will be the first international convention center of this scale in Zambia.

Zambia is also the host country of the African Union Heads of State and Government Summit 2022. The Ministry of Housing and Infrastructure Development is undertaking the construction of a 2,500-capacity international conference center in Lusaka, which will be the venue for the summit. The government has garnered support from the Chinese government to help construct the center.

 

Zambia Government’s Pro-Tourism Steps to Take the Sector to New Heights

The initiatives start to show modest results

In-bound international tourism on the rise

All these efforts have yielded visible results in the last couple of years and are expected to boost tourism in the future as well. This can be seen in the number of international tourists entering Zambia. While the number of international tourists visiting Zambia remained largely stagnant between 2011 and 2015 (registering a CAGR of only about 0.3%), the government’s initiatives brought an increased influx of tourists, estimated to have reached 1,057,000 by the end of 2018, in comparison with 931,782 in 2015 (registering a CAGR of about 4.3% during the period). International tourist figures are further expected to reach 1,585,000 by 2028, maintaining a CAGR of about 4.1%.

A nudge to the industry job creation

A similar trend is also visible in job creation in the tourism sector (both direct and indirect). In 2016, about 306,000 people worked in the tourism sector (including indirect jobs supported by the industry). Employment in the sector increased by about 2.5% in 2017 and was expected to further rise by 3.4% in 2018 to reach 324,500 jobs. The number of jobs created by the tourism sector is expected to increase to 448,000 by 2028, registering a CAGR of 3.3% during 2018-2028.

Early signs of increased contribution to the GDP

The total contribution of the travel and tourism sector (encompassing both direct and indirect contribution) to Zambia’s GDP was about US$1.79 billion in 2017, rising from US$1.4 billion in 2016. The sector’s contribution to the GDP is further estimated to rise to reach about US$1.87 in 2018 and is expected to reach US$2.9 billion by 2028 (accounting for 7.1% of total GDP).

Sprouting opportunities for investors

The government’s efforts and increasing tourist numbers also result in significant opportunity for investors to enter this sector. A large number of global hotel brands, such as Carlson Rezidor Hotel Group (Radisson), Marriott, Accor Hotels, South Africa’s Southern Sun, Protea Hotels and Sun International, as well as Taj Hotels, have already established presence in the country.

However, further scope for growth in the accommodation sector remains, especially in the 3-5 star category hotels that have 50-500 beds. As per African Hotel Report 2015, Zambia ranked as the 2nd best destination for Hotel Developers in Africa in 2015. During the same year, Zambia had a supply of 122 branded bedrooms per million population. This was well below the average in the Southern African region of about 350 branded bedrooms per million population.

Further scope exists in the development of conference facilities, tourist transport services, global cuisine restaurants, communication facilities, and other supporting infrastructure.

Investment opportunities are also present in the development of gaming venues, considering that gambling is legal in Zambia. This could help build a unique tourism offer that would combine city life and wildlife activities.

Investors are likely to find several reasons to consider investment in the country. Zambia offers easy access to a pool of English-speaking work force at competitive costs. The country has one of the lowest power tariff rates in Africa. Even after a 75% increase in power rates in 2017 (now ranging between US$0.05 and US$0.07), they are still much lower than rates in other countries in the region (where they range between US$0.06 and US$0.11 per kWh). Zambia is also well endowed with abundant water resources, which is essential to the tourism industry (as per World Bank, Zambia’s internal freshwater resource per capita was estimated at about 5,134m3, much higher than in its neighboring countries – Kenya (450m3), Zimbabwe (796m3), Botswana (1,107m3), Namibia (2,598m3), and Mozambique (3,686m3)).

Tourist safety and complex legislation hamper growth of the industry

While Zambia seems to have all the right ingredients to become a popular travel destination, there are several challenges that exist.

The key challenge is tourist safety. Zambia’s reputation has for long been affected by cases of tourists being targeted in financial scams or other types of crimes such as theft, murder, rape, etc. Continuous and consistent efforts to minimize such risks are essential to change the situation, which, apart from greater police involvement and law enforcement, should also include marketing campaigns voicing the benefits of tourism in the country to the local population.

Another challenge that the government must deal with is the level of bureaucracy and excessive number of laws governing various aspects of the tourism operations. Currently, some 10 pieces of legislation that affect tourism business are in force, most of which need to be simplified and harmonized, and in doing this, the government should use input from the local industry players.

The excessiveness in regulations is also paired with magnitude of charges and levies added on many activities, resulting in higher retail pricing. These include 16% VAT, 10% service charge on accommodation, food and beverage, and conferencing, 1.5% tourism levy, and 0.5% skills levy in addition to other levies, such as business levy, fire, health permit, food handling, etc. This leads to Zambian hotels being more expensive than hotels in neighboring countries. A prime example of this is found in Victoria Falls – Zambian tourism offer in Victoria Falls remains largely uncompetitive with regards to price in comparison to the offer on the Zimbabwe side of this major attraction.

EOS Perspective

With the ongoing government support along with growing interest in African wildlife holidays, Zambia has all the ingredients to emerge as a popular tourist destination in the future. China could be one of the key target markets for Zambia, as a large number of financially-capable Chinese tourists have shown keen interest in travelling deep into Africa. Zambia should also bet on business travel and conferences (both domestic and international) to form another lucrative revenue streams.

While efforts to boost tourism are being made in the right direction, with somewhat visible results, revamping such a long-neglected industry will take more than that. Ensuring the safety of the travelers is an objective that should remain on top of the government’s priorities list.

Further, it appears that some forms of tourism have been marginalized in the government’s focus areas, but should probably receive more attention in the long-term plans. Despite the fact that Zambia has about 35% of South African Development Community’s (SADC) water resources, little emphasis has been put on marine tourism development in the form of boat cruises (on lakes), fishing, etc. Similarly, considering the country’s rich wildlife and natural reserves, education tourism seems like an obvious segment to offer a great potential.

It appears that the required will and leadership from the government are in place to change the industry. However, Zambia’s current fiscal struggles (as it is coping with rapidly increasing debt and implementing austerity measures) might limit the resources needed to realize the plans and ambitions. This might lead to lost opportunities (much needed in this agriculture and copper mining reliant economy), as Zambia has the potential of becoming a popular travel destination, giving stiff competition to its neighboring popular travel destinations, Zimbabwe and Kenya.

by EOS Intelligence EOS Intelligence No Comments

Small Hydropower: Sub-Saharan Africa’s Answer to Energy Crisis?

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The Sub-Saharan Africa (SSA) region is believed to have bountiful energy resources, sufficient to meet the region’s energy requirements, however most of these resources are largely underdeveloped due to limited infrastructural and financial means. This has led to majority of the countries in the region to have restricted access to electricity, despite the presence of huge waterways, which could boost the hydropower sector’s growth, particularly the small hydropower (SHP) projects – plants with generation capacity between 1 and 20 MW. In recent years, SSA region’s focus has slowly shifted to SHP projects instead of depending on large-scale hydro plants, which are relatively expensive to construct and require longer time to build. However, question remains whether SHP has enough potential to improve electricity supply and reduce power outages across the SSA region.

African continent has approximately 12% of the global hydropower potential, most of which is centered in the Sub-Saharan region due to the presence of vast water bodies. Despite the underlying potential, the region faces massive electricity shortage partially due to under exploitation of hydropower.

Over the years, the SSA region has focused on the development of large-scale hydropower projects to increase its electricity generation capacity. However, recently, the emphasis has shifted to SHP because they are economically viable with almost negligible environmental effect and a short gestation period. Additionally, several small African economies utilize less than 500 MW of electricity annually, which negates the requirement to build a large dam, making SHP a viable option. Further, with comparatively lower overheads and maintenance costs, SHP could play a vital role in solving electrification problem in rural areas.

By 2024, the African SHP capacity is likely to reach 49,706.1 MW, growing at a CAGR of 19.2% since 2016, driven by the tremendous growth opportunities that the region offers. SHP projects are likely to proliferate in the region, owing to low capital investment requirement for installation, which makes SHP a more viable and affordable option than large-scale projects. SHP market still remains quite unexplored due to limited technological and infrastructural capabilities, and lack of sufficient promotion of SHP in national planning schemes.

Nevertheless, in the last couple of years, investments in the region’s SHP sector have increased, with various internationally-funded projects likely to commence installations. Geographically, countries such as Zambia, Uganda, and DRC (Democratic Republic of the Congo) are most suitable for SHP generation, due to the abundant presence of river basins and water resources. These countries depend predominately on hydropower for their energy requirements.

Hydropower is the primary source of power supply in Zambia, with a 99.7% dependency on hydropower to meet electricity needs. However, the country faces massive power outages due to fluctuating water levels, owing to persistent issue of scanty rainfall or droughts in the country, causing turbines to stop functioning to generate electricity. In 2015, the country witnessed a massive drought, which led to a huge decline in electricity generation. Nonetheless, since then, the country’s water level has improved, due to better rainfall pattern, resulting in higher level of power generation (as compared with 2015) through hydropower. The government has been making efforts to develop SHP stations to improve electricity supply – some of the SHP stations in the country include Lunzua, Mulungushi, Chishimba, and Shiwangandu hydropower stations.

Uganda’s power requirement is quite high due to extensive use of electricity in the industrial sector. The supply is always lower than the demand and the country faces frequent load shedding issue. Hydropower, accounting for 80% share in electricity generation, is the main source of power production in Uganda with a number of SHP plants in operation. Uganda’s government supports the hydropower market and has been making consistent efforts to promote SHP projects. For instance, in order to attract investors, the government provides incentives such as VAT exemption on hydropower projects.

DRC has the highest hydroelectricity potential in SSA due to the presence of particularly abundant water resources. Hydropower accounts for a share of 99% in DRC’s power generation. As of 2014, DRC’s total installed electricity generation capacity stood at 2,500 MW against its potential of 100,000 MW. In long term, DRC aims to become a key hydropower exporter in the region.

The SHP market across Zambia, DRC, and Uganda is still developing, with several potential SHP sites that could be harnessed to improve electricity supply. Each country faces its individual set of challenges in terms of SHP development, however, the hindrances seem trivial against the mammoth benefits that the countries could reap through SHP development.

Hydropower in Sub-saharan Africa

EOS Perspective

Hydropower holds a key position in SSA’s energy generation mix and SHP projects have particularly witnessed steady growth in the recent years. However, whether SHP has the potential to alleviate the power crisis in SSA is still debatable.

Is high reliance on hydropower a reasonable approach to overcome energy crisis?

While hydropower plays a dominant role in energizing the SSA region, continued energy crisis across various countries reflects the dangers of over-dependence on one form of energy for power generation. The chronic power shortages, load shedding, and low levels of electricity penetration are a clear indication that the SSA countries are unable to keep pace with electricity demands by heavily relying on a single power source.

Pinning hopes solely on hydropower to alleviate the energy crisis has spelled catastrophe for certain key industries, heavily reliant on electricity for functioning, that are suffering due to the electricity shortage. For instance, in 2014, DRC’s mining sector was adversely hit by the electricity supply shortage and development of new mines had to be frozen. The limited electricity supply situation has not yet improved, as DRC announced plans (in 2017) to import electricity from South Africa to support the struggling mining sector.

A solution to the electricity crisis could be to avoid heavily investing in one source for energy generation as well as to focus on tackling the fundamental vulnerabilities of power sector. In the long term, addressing the energy crisis would demand better management of water resources, continuously growing capacity of existing power plants along with a well-planned diversification of energy generation.

Is SHP a holistic solution to SSA’s energy crisis?

While focusing only on hydropower as a solution to the entire energy crisis situation across SSA countries might not be the best approach, developing SHP for rural electrification could be ideal to eradicate energy poverty across rural communities. SHP alone cannot consistently satisfy the energy demands of SSA countries such as Zambia, Uganda or DRC, but it can surely become the best possible solution to electrify rural areas, as people residing in these communities typically live closer to a river than to a grid.

Rural communities are characterized by much lower electricity access rates as compared with urban areas because people residing in villages typically cannot afford grid connections and in most cases the electricity supply through national grid does not reach the remote areas. SHP could play a major role in off-grid electricity supply that can be used for domestic application in rural households.

Besides the requirement to develop SHP particularly for rural communities, it is also essential for various SSA countries to adopt a cost-reflective tariff, which would ease pressure on public finances and attract more private investments.

Further, focusing only on increasing electricity supply is not a comprehensive solution to the crisis, as certain SSA countries such as Uganda suffer due to high tariff rates, which also need to be monitored. Uganda has one of the world’s highest electricity tariff rates and consumption is partially affected by it due to low affordability. The high commercial and industrial tariffs adversely impact some major industries such as agro processing (agriculture is a core sector of Uganda’s economy). A lower tariff rate could help to boost production across industrial sectors (including agriculture) and improve affordability among households.

Nonetheless, development of SHP projects would certainly help to move closer to eradicating the energy crisis in SSA region but only to a certain extent. It is imperative to take other measures as well to completely tackle the issues of supply shortage and load shedding. Development of SHP projects across the SSA region is challenging, however, navigating through these obstacles would be well worth the efforts, particularly in countries such as Zambia, DRC, and Uganda, where SHP could play a major role in rural electrification.

by EOS Intelligence EOS Intelligence No Comments

Affordable Auto Financing – The Key to New Passenger Vehicle Sales in Nigeria

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Since the announcement of the National Automotive Industry Plan in 2013, the Nigerian automotive industry has witnessed an increased interest from several global automakers. As a result of the Plan as well as recent reforms made by the Nigerian government, PwC predicts Nigeria has a chance of becoming Africa’s auto manufacturing hub by 2050. However, the passenger vehicles market in Nigeria remains heavily dominated by imported second-hand cars, mainly due to the various industry challenges, including lack of access to auto financing. Could affordable auto financing schemes drive growth in Nigeria’s new passenger vehicles market?

This post formed a mainstay of a broader coverage article titled
‘Affordable auto financing essential for OEM success in Africa’, contributed by EOS Intelligence to ‘Guide to the automotive world in 2017’, Automotive World’s annual publication covering a gamut of articles by leading global automotive industry analysts and consultants. The report was published in January 2015.

Nigeria’s new passenger vehicle sales are far behind sales in countries such as Egypt, Algeria, and Morocco, despite the fact that Nigeria is the most populous country in Africa. With a giant share of nearly 80%, Tokunbo vehicles (local name for imported used vehicles) heavily dominate the Nigerian passenger vehicles market.

Although there is a plethora of industry challenges that range from lack of cohesive government policies to poor infrastructure, one of the major growth constraints at present is the lack of affordable auto financing. Due to the limited accessibility and expensive financing options, new vehicles remain out of the reach for most Nigerians.

Nigeria Affordable Auto Financing

Nigeria Affordable Auto Financing

Currently, the cost of auto financing in Nigeria is exorbitant. Amid current economic environment and credit criteria, only a small segment of the population can obtain auto loans. Therefore, most Nigerians either buy used cars or save money over period of time to buy new vehicle for cash, stalling the new vehicle sales – retail customers accounted for less than one-third of all new cars sold in 2015.

This shows how lack of financing options is holding growth in a market segment with the highest growth potential. According to Lagos Business School’s research, an affordable vehicle finance scheme could boost Nigeria’s annual new vehicles sales to one million from 56,000 units at present.

Nigeria Affordable Auto Financing

Nigeria Affordable Auto Financing

EOS Perspective

Although the National Automotive Industry Plan and recent government reforms managed to attract some FDI in recent years, the Nigerian passenger vehicles industry still remains heavily reliant on imported used cars. As the government plans to curb the country’s auto imports, as a first step, the industry stakeholders should plan policies that can make new vehicle ownership more attractive to mass consumers.

The current credit facilities offered by banks are unattractive to many consumers due to cost and credit terms. In order to fuel growth in local vehicle manufacturing and new vehicle sales, the industry, along with the help of CBN, should develop more affordable vehicle credit purchase schemes targeted at the mass middle class population.

Further, as majority of consumers simply have little or no credit history, the current lending models are not going take the industry growth any further. By leveraging on alternative credit data such as payment data from utility and telecom companies, lenders should look beyond credit scores to segment a new customer base of creditworthy consumers.

For vehicle manufacturers and dealers, there is a tremendous opportunity to move up the value chain by setting up in-house financing with the help of the right partners. By offering innovative auto finance solutions, they can push the demand for new vehicles, especially among millennial and emerging middle class first-time buyers.

Whether Nigeria is capable of becoming the next auto manufacturing hub for Africa, only time will tell, but with better financing options, it can surely boost new car sales and help the local automotive industry to progress.

by EOS Intelligence EOS Intelligence No Comments

Consumer Goods in Sub-Saharan Africa: Think Local, Act Local.

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Sub-Saharan Africa’s strong GDP growth, growing middle-class, and fast urbanization have attracted many investors and foreign retailers to the region in recent years. There is no doubt that the region’s demographics offer massive opportunities for consumer goods industry. But, a closer look at the ground reality and recent experiences from multinational companies operating in the region reveals the magnitude of challenges that need to be carefully assessed.

Sub-Saharan Africa’s (SSA) recent growth, expanding middle class, rapid urbanization, and growing household incomes have made it a promising market for the consumer goods industry. In recent years, several reports and industry experts have labeled the region as the ‘next big thing’ with massive potential. Although there is no denying that the growth outlook and market opportunities in the region are promising, there are considerable challenges that firms have to assess and overcome in order to succeed in these frontier markets.

Reality Checks

“… we have realized the middle class here in the region is extremely small and it is not really growing.” – Cornel Krummenach, Chief Executive equatorial Africa region, Nestle (June 2015)


Industry Challenges

“If you look at how difficult it can be in Africa to move goods across a border, the fees and expenditure involved, the red tape, and the lack of suppliers for supermarkets, it’s discouraging.” – Boris Planer, Chief Economist, Planet Retail (March 2014)

Beyond the well-known infrastructure challenges, one of the more overwhelming challenges for consumer companies is to gain a complete understanding of the highly fragmented retail industry. As retailers and consumers remain widely scattered, effective route-to-market and distribution becomes a daunting task. In addition, the complex procedures, and bureaucratic obstacles result in supply disruptions and higher operating costs. For instance, Shoprite, a leading regional retailer, spends nearly US$ 20,000 weekly on import permits to transport goods for its stores in Zambia alone. In Nigeria, Shoprite keeps a warehouse full of flour, while PZ Cussons keeps up to three months of stock in Nigerian factories to ensure a constant supply.


How to Succeed

“To operate successfully beyond our home border we had to learn to trade over vast distances,” he explains. “We had to invest heavily in supply chains, information technology capabilities and international sourcing skills, as trading in Africa is still logistically difficult.” – Whitey Basson, CEO, Shoprite Group


The famous song ‘Africa’s not for sissies’ holds so true for the region’s consumer goods industry. As SSA is a culturally diverse region with its heterogeneous consumer goods market, retailers need to think local and act local. They need to develop a comprehensive understanding of consumers, their spending behavior, and shopping habits. As traditional retailing will continue to hold significant market share for quite some time, succeeding in SSA’s consumer goods markets will be challenging. The key for retailers is to assess the various challenges against the market opportunities. Companies will have to be agile to respond to sudden industry changes, at the same time flexible in tailoring their strategies as per needs of the evolving market.

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1) African Development Bank in 2011 estimated middle-class population in SSA to be over 300 million and defined “middle-class” as individuals earning between US$4 and US$20 a day. Standard Chartered Bank in its 2014 report projected the middle class in 11 major SSA economies to be around 15 million and estimated this figure to surpass 40 million by 2030. Standard Chartered Bank defined “middle class” as those earning between US$8,500 and US$42,000 a year.

2) Coca-Cola designed an innovative distribution model for African markets where bottlers deliver directly to distribution centers, who in turn deliver to retailers. This resulted in win-win situation for all as everybody in the supply chain ecosystem earns profit. Shoprite Group’s growth is heavily linked to its central distribution model that helped the firm to improve customer services and ensure smooth supply across the region.

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In May 2013, in our article ‘Africa is Ready For You. Are You Ready For Africa?‘, we also discussed six aspects that companies must consider when planning their Africa strategy and offerings.

by EOS Intelligence EOS Intelligence No Comments

Evolving Business Needs to Pave Way for Retail Distribution Centers in South Africa

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Traditionally, retail distribution in South Africa was largely in the hands of the manufacturers, who solely owned and operated the warehouses and fleet of vehicles that were used to distribute products to retail stores. Today, this system is seen as inefficient and is increasingly losing in popularity. Leading retail chains, such as Shoprite, SPAR, Pick n Pay, and Woolworths, established centralized distribution centers and implemented warehouse management technologies to cut costs and ensure that there are no disruptions in demand and supply. While online retailers have also established central warehouses, it is still to be seen if they can implement the model with equal success as online retailing supply chain is more complex.

Back in the day, it was a well stated fact in the country and also across the world that manufacturers were responsible for moving goods from their manufacturing hubs to the retailer’s back door. These manufacturers would own and operate large warehouses and vehicles for distribution, and would supply to several retailers in its coverage area. As retailers were largely at the mercy of the manufacturer’s delivery schedule, this system put significant control of the supply chain in the hands of the manufacturer. Moreover, retailers could not cater to unexpected demand spurs, which in turn hampered their business.

Over the years, several leading retail chains in South Africa have abandoned this system and worked towards gaining complete control of their supply chains. This has resulted in them establishing their own centralized distribution centers (DCs). Under this system, retailers buy in bulk and then distribute from their DCs to various outlets on a need-be basis. This has not only helped them gain autonomy over their inventory levels, but has also reduced their distribution costs as well the lead time between order and delivery time to stores. Moreover, with self-owned distribution centers, retailers have been able to re-engineer their retail stores and improve its space utilization by dedicating a minimum required area to storage and all the remaining space to sales.

Benefits of centralized retail distribution centers are not only limited to retailers, but extend both ways in the supply chain to manufacturers and end consumers as well. This model enables the manufacturers to keep inventory levels as low as they can and eliminate the risk of obsolete or over stock positions. In addition, this model empowers smaller manufacturers, who do not have the financial strength to maintain their own warehouses or large distribution fleet. Under this model, they can compete with larger manufacturers as they only have to deliver their products to the retailers’ centralized distribution centers instead of investing heavily in their own distribution network and infrastructure. At the consumer end, retailers pass on a part of the benefit accrued (in terms of savings and discounts, respectively) from the elimination of a middle man and buying in large quantities from manufacturers.

Shoprite, a leading retail chain in South Africa was one of the first to adopt the centralized distribution strategy, giving it a strong competitive advantage. The group has distribution centers in Centurion (145,000 m2), Cape Town (45,000 m2), and Durban (11,500 m2). SPAR, another major retail group operates six technologically advanced DCs across South Africa. Two other retail chains, Woolworths and Pick n Pay, also receive their stocks from self-owned DCs. Experts estimate that retailers, which follow the centralized distribution system, manage savings of about 5-7% of supply chain costs.

In addition to working wonderfully for retail stores, centralized warehouses have lent immense support to the online retail model. While e-commerce in South Africa is still in its nascent stage (with Internet penetration at around 34%), online retailing has been growing rapidly (33% year-on-year in 2013) owing to attractive pricing, as well as improved technology and online payment security. Usually, online retailers store their goods in a central warehouse. However, the delivery of large volumes of value goods within short periods gives rise to the need for more distribution points that are located close to stores. E-commerce companies undertake direct-to-customer deliveries through their own internal facilities or through outsourced partnerships. They extensively use the services of courier and express parcel (CEP) industry to distribute their goods.

Another important aspect for efficient distribution is supply chain information technology and sharing. South African retailers have invested heavily in advanced distribution and supply chain technologies, such as RFID, electronic point of sales (EPOS), and electronic data interchange (EDI) that link the physical inventory levels with the information flows to adapt quickly to changes in demand.

The introduction of RFID into the distribution system helps in attaining real-time access and updation of current store inventory levels, along with increased inventory visibility, availability of accurate sales data, and better control of the entire supply chain.

EPOS facilitates the consolidation and transmission of aggregated sales data and other information from individual retail stores to the centralized DC. Alternatively, the centralized warehouse uses EDI to share information among all its supply chain trading partners. Over and above the inventory and warehouse management solutions, retailers also use transport route planning and scheduling system that optimizes store deliveries and integrates the operations of the distribution center and the transport division.

Although it is safe to say that the evolution of centralized warehouses have benefited retailers, manufacturers, and customers alike, the ever-evolving and digitally empowered consumer is driving the need for further innovation in the way companies, especially online retailers, are managing their distribution and supply chain operations. The rise in e-commerce and its inherent challenges and opportunities is spurring the need for greater visibility across the entire supply chain. While South African retail chains are on the right track with centralized distribution centers and warehouse management technologies, only time will tell if they manage to optimize their retail industry to the levels of the developed nations.

by EOS Intelligence EOS Intelligence No Comments

Africa is Ready For You. Are You Ready For Africa?

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For decades, Africa was associated with poverty and helplessness rather than business opportunities and thriving markets. But the reality is evolving, and companies from across industries are increasingly including the African continent in their investment plans. Global FMCG players too have started to set their eyes on this untapped goldmine of opportunities. However, the market is much more complex than its thriving counterparts in Asia and companies must get hold of the market dynamics before entering or they stand the risk of getting their hands burnt.

Some two decades ago, it became apparent to the leading international FMCG companies that many of their core developed markets in the USA and Europe were no longer able to provide sustainable growth, which made them extend their business focus to include developing markets in Asia. While these economies will continue to still generate significant returns for quite some time, many global FMCG giants are already exploring new growth avenues and are turning their eyes towards the African continent. Growing middle class (already accounting for more than one-third of the continent’s total population, it is expected to hit 1 billion people by 2060), paired with accelerating economic growth, large youth population, overall poverty decline, and urbanization trends are the key factors underpinning Africa’s position as the next frontier in the global FMCG arena.

This has already spurred investment activity amongst leading FMCG players. By 2016, Unilever and P&G plan to invest US$113 million and US$175 million, respectively, to expand their manufacturing facilities in the continent. While these facilities are to be developed mostly in South Africa, they are expected to cater to developing markets across eastern and southern regions. Godrej, a relatively smaller India-based company, has taken up the inorganic route to tap this market, by acquiring Darling group, a pan-African hair care company.

Despite luring growth potential offered by the continent, the African markets are much thornier to penetrate than it seems. A shaky political and regulatory environment acts as one of the largest roadblocks. The continent has witnessed 10 coup d’états since 2000 and has been subject to countless changes in business policies resulting from unstable governments. Further, inefficient distribution networks, inadequate business infrastructure, as well as complex and inhomogeneous marketplace housing 53 countries, 2,000 dialects, and countless cultural groups, all cause African consumer markets difficult to navigate through.

Notwithstanding the challenges, the potential offered by the African continent overweighs. Companies, however, must mould their strategies and offerings to the realities of African markets in order to succeed. Here are a few pointers to consider:

  • Bring affordability and quality to the same side of the coin: Contrary to popular perception, the middle-class African consumer attaches much importance to quality and brands. Companies that have long followed the strategy of selling poor-quality products in this market cannot sustain for long. Having said that, affordability still stays as an important factor for the middle-class Africans. To deal with this, companies can look at offering good quality products in smaller packaging, to ensure low unit price. For several years, African consumers have gotten used to buying smaller quantities that could fit their limited budgets.

  • Discard the one-size-fits-all approach: On a continent with 53 nations, companies looking to enter African markets with blanket approach are likely to fail. While South Africa is relatively more developed and has slower growth, markets such as Nigeria and Kenya are developing at a rapid pace, and thus their dynamics differ. Consumer shopping behaviors and patterns also vary. Sub-Saharan nations, in comparison to North African consumers, tend to exhibit more brand loyalty and are more conservative in trying new things. North African countries also present stronger desire for international brands. Thus, it is most critical for international players to identify the characteristics of a particular market that they plan to enter.

  • Locate the right partners: Informal trade dominates African markets making distribution a daunting task. However, this challenge can be turned into an opportunity for companies to improve their competitive edge and bypass the lack of sufficient distribution and retail facilities. In rural areas of Nigeria and Kenya, Unilever has replicated its Indian direct-to-consumer distribution scheme, wherein a host of individuals undertake direct selling to consumers in their communities. Similarly, other companies have posted sales executives with each sub-distributor to manage inventory and brand image. Distribution costs are high in Africa but bearing them is not optional.

  • Move beyond traditional media: TV and print remain a popular and trusted media for advertising to urban consumers. However, owing to their low penetration in rural regions, they have limited impact on rural consumers. This brings forth the need to reach mass consumers through in-store marketing. Over the coming years, companies can also look into mobile advertising as surveys reveal that the number of Africans having access to mobile phones is already higher than those with access to electricity. Mobile penetration in the Sub-Saharan Africa stood at 57.1% in 2012 and is expected to reach 75.4% in 2016. This promises a gamut of mobile marketing opportunities for consumer companies.

  • Deal with infrastructural woes and innovate to compensate: Power outages, poor transportation, and limited access to cold storage facilities make public infrastructure undependable for businesses. Thus, companies must be open to invest in own power generators and water tanks. Innovations at the product end may also help overcome infrastructural limitations. For instance, Promasidor, an African food company, uses vegetable fat instead of animal fat to extend its milk powder’s shelf life when stored without refrigeration. While spending on infrastructure heavily increases costs, it can provide companies with a competitive advantage in the longer run.

  • Invest in personnel management and grow new talent: The fear for personal safety among foreign nationals and lack of skilled professionals within Africa makes recruitment a challenging task, especially for mid- and top-level management. Tapping into African diaspora located throughout the world comes across as a win-win solution. Moreover, providing training and management courses to local graduates allows addressing personnel needs over long term.


The African market can be a goldmine for FMCG players, if entered cautiously. However, the same can become a landmine, if proper investments and planning are not undertaken. Despite the present challenges, increasing number of companies will be looking into Africa, however only few will have the skill set to translate this opportunity into a great success.

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