Retailers switch focus away from Africa

Local retailers have shifted
their focus away from
African expansion and
instead are investing their
money into IT capabilities
and store upgrades.
“Five years ago the
picture was totally
different. There was talk of
aggressive store roll-outs,”
said Derek Engelbrecht,
lead consumer products
and retail partner at
professional services
company, EY.
But with sub-Saharan
Africa posting its lowest
growth rate in two decades
last year – slowing to
just 1.5%
according to
World Bank
figures – and
the outlook
for this year
looking
equally bleak,
the risk of
investing in
Africa has
just become
higher.
“The publicly available
data from the big 12
retailers in SA – including
Pick n Pay, Massmart,
Woolworths and Edcon –
shows they are re-investing
their money into local
upgrades,” Engelbrecht
said.
Dr Rafiq Raji, researcher
at the Singapore-based
Nanyan Business School’s
Centre for African Studies,
wrote in a recent blog that
the economic downturn
of 2015 and 2016 in key
African countries had
“unravelled some of the
dreamy suppositions about
the supposed rise of the
African consumer”.
According to him,
weaker
currencies
have made
imported
goods
expensive
for locals.
“Power supply
shortages
in countries
like Ghana
and Zambia
also
added to costs and
authorities’ temporary
solutions to narrow the
electricity supply gaps were
relatively expensive,” he
said.
Raji added that a scarcity
of foreign currency also
made African expansion
risky. “Often erratic
currency policies of African
countries, most of which
barely have enough foreign
exchange, mean an importbased
strategy could be
potentially overwhelmed
upon a sudden currency
devaluation, currency
scarcity or both,” he
commented.
Furthermore, the “rising
African middle class” is
now smaller than originally
thought, said Raji. “Global
food manufacturer Nestlé
asserts as much. In June
2015, it announced plans
to cut 15% of its workforce
in 21 African countries
because of this supposed
underestimation,” he said.
The African Development
Bank (AfDB) defines the
middle-class African to be
one who spends about US$2-
$20 a day, and numbers
about 350 million – only 34%
of the population – which
may not be enough of an
incentive for retailers, given
the risks.
Anton Hugo, retail and
consumer industry leader
at PwC Africa, pointed out
that Africa’s fortunes were
very much tied to those of
the global economy, noting
that pressure on emerging
market currencies, coupled
with a decline in oil and
other commodity prices, had
seen pressure on government
revenues and subsequently
governments’ ability to
increase social expenditure
and wages in the public
sector. This also affects the
growth of the middle classes
on the continent.
He suggested that online
retail might be a better
bet for those wanting to
target the African market.
“Although online retail is
still in its infancy in SSA,
the industry is showing
promising potential,” said
Hugo, adding that this
too came with challenges,
including unreliable
internet connections,
logistical challenges, as
well as a general distrust of
transacting online and low
bank penetration.
INSERT AND CAPTION
Five years ago the
picture was totally
different.
– Derek Engelbrecht
CAPTION
Pick n Pay Namibia ... retailers are now investing in IT and
store upgrades.