The 15 most attractive retail / FMCG markets in Africa

14 September 2015 Consultancy.uk

The African region is developing steadily, with the economic growth creating a larger middle class and with it, bigger opportunities for retail companies. In a new report, A.T. Kearney ranks the potential of 48 countries on the African continent, finding Gabon to be in the number 1 spot, followed by Botswana. Giant Nigeria comes in at number 4, while last year’s top performers Rwanda and Namibia fall to number 7 and 8 respectively.

In a recently released report from A.T. Kearney, the management consultancy maps the current state of retail attractiveness within sub-Saharan Africa as well as their longer term potential. In the report, titled ‘Retail in Africa: Still the Next Big Thing’, the advisory assessed the development of 48 African countries, excluding North Africa (Mauritania, Western Sahara, Morocco, Algeria, Tunisia, Libya, and Egypt).

The ARDI top 15

The so-called African Retail Development Index (ARDI) 2015 reveals that a number of African nations are witnessing the development of a shopping culture, based broadly on strong economic figures that are seeing the growth of a middle class. The region remains a massive potential for business development as its long term GDP growth potential remains staller as the region starts to catch up. For retail, the potential too is unrivalled, say the authors, with many of the young growing middle class not yet decided on brand favourites.

Yet, Africa too remains a difficult region in which to place safe bets. The region has mainly long term potential, with the short terms more difficult to divine as instability continues in many countries in the region. A main factor that is contributing to the development of the shopping culture is an increase in urbanisation – particularly strong in countries like Gabon, Ghana, Angola and South Africa among others.

Ranking the FMCG
To assess the retail attractiveness of the investigated countries A.T. Kearney uses four categories, each bearing 25% of the total weighting: Market Attractiveness measures the level of retail sales per capita (40%), population (20%), urban population (20%) and business efficiency (20%), while Country Risk looks at the country risk (80%) and risks to business (20%). Market Saturation looks into the metrics of share of modern retailing (30%), number of international retailers (30%), modern retail sales area per urban inhabitant (20%) and market share of leading retailers (20%), while Time Pressure measures the CAGR of modern retail sales (2010 - 2014) weighted by the general economic development of the country and the CAGR (2010 - 2014) of the retail sales area weighted by newly created modern retail sales areas.

Breaking down the ARDI top 15

The ranking finds Gabon to be this year’s most attractive retail market. The country moved up from last year’s number 5 spot with strong economic potential as well as a relatively stable risk rating. The country has a relatively high GDP for the region, while the stable score of its true middle class (with around 75% on more than $2 per day) across the board makes it a high value investment target for its undeveloped retail market. Botswana comes in second in 2015, after jumping 6 spots from last year’s ranking. The country remains relatively rich from resources, agriculture and tourism (with more than two thirds above $2 per day) – providing strong fundamentals for the further development of its retail market. While the market is relatively saturated, absolute growth continues.

Angola too has managed to jump considerably in the ranking, up from place 12 to number 3. Considerably larger population wise than the number 1 and 2 position, with 22.3 million, the country has enjoyed strong 7% growth in recent years. Due in part to its natural riches, with oil and minerals, the country has a relatively few of its population living on less than $2 a day (42%) with nearly a third of the population earning more than $4 dollars a day – akin to the middle class.

Million people per income segment

Nigeria finds itself in fourth position, with its fast growing population, now at 178 million and plentiful natural resources, making it a prime target for retail potential. As it stands the country has a relatively large middle and upper class – with 25% earning more than $4 a day – as well as a low penetration of supermarket trade (1%)  – with much of the shopping done at informal stores. This provides considerable scope, according to the report, for multi- channel formal shopping development. Tanzania rounds off the top five, the country boasting a relatively stable political climate, 50 million people, and more than 7% annual GDP growth. Placing the country in a relatively good position for retail activity, even if 73% of its population earns less than $2 a day.

The biggest fallers in attractiveness this year are Rwanda and Namibia. Rwanda falls from the number 1 spot last year to number 7 this year - particularly financial and political risks have sparked its slip from top spot – yet the country remains well ranked overall. Namibia too has seen its ranking decrease significantly – from number 3 to number 8 – mainly due to the high level of market saturation in the country.

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