Businesses in the developed countries of this world are looking more and more at developing countries as an interesting market for them to expand their operations.
Africa is the #1 continent on their minds.
Why?
Mainly for the following reasons.
1. A growing population
Because Africa’s population could grow to 1.5 billion in 2025 and rise to almost 1.7 billion in 2025.
Meaning: 1.7 billion potential customers. Can you imagine how much money could potentially be made by selling to even 1% of these customers?
By 2050, that population could rise even further to 2.49 billion. That is a huge amount of customers who will be spending money.
2. A young population
Africa’s population is young. This means that – assuming good health and no accidents – they have a long life ahead of them.
Compared to the ageing populations in developed countries, Africa’s youth have more life stages to go through. They will have many more years to spend money.
3. Increasing affluence
Consumer spending in Africa increased by 3.9% annually since 2010, and reached $1.4 trillion USD in 2015. This spending is expected to increase to $2.1 trillion USD by 2025 and $2.5 trillion USD by 2030. That is a huge amount of money.
As people get older, they usually make more money. In Africa’s case, youth are also expected to benefit from increased economic growth.
In other words, they will have more years to make money and their income will be higher because the economic situation of many countries will improve.
When people have more money to spend, they usually also start buying other kinds of products (more convenience and luxury) and making different choices. For example, they may start focusing more on maintaining health through a better nutrition.
4. Increased access to mobile phones and internet
As internet infrastructure expands across the continent, prices of data to access the internet are dropping. Mobile phones and smartphones are also becoming cheaper and finding their way to more and more hands.
Cheaper data and cheaper smartphones mean more opportunities to go online to get information or buy things, including online courses. It also means more access to opportunities to generate money online.
5. Increased urbanisation
Cities in Africa have been growing for a long time because they offer more economic opportunities than rural areas. They are expected to continue growing for the foreseeable future.
Dense population centres make it interesting for companies to create distribution centers that serve as a logistics hub for surrounding areas. This development will offer opportunities for distribution partnerships between companies.
As cities increase in size, it also becomes financially interesting for more businesses to start doing business there because incomes in cities are usually higher than in rural areas.
6. Implementation of the ACFTA
The planning is for the African Continental Free Trade Area (ACFTA) to be implemented in 2030. If this happens, it will create a single continental market for services and goods.
This will exponentially increase opportunities for cross-border trade. It will also open up more opportunities for smaller businesses.
More cross-border trade also means more opportunities for service businesses like logistics and postal companies who – because of the scale of the market – can start offering services at affordable prices.
This is interesting for consumers because they can then afford to buy things from one side of the continent and ship it to the other side at flat rates. Similar to what has been done in the US for decades.
This also means that US companies (and Canadian) companies have years and years of experience setting up companies that can handle trade across an entire continent. And as the EU increasingly harmonises rules and regulations between member countries, more and more European companies are also gaining experience in this field.
When the AFCTA launches, these companies will have positioned themselves to take advantage and increase their sales. They will also have various points of entry into Africa instead of having to learn how to do business in each separate African country.
7. Blockchain
The biggest benefit for Africa that I see blockchain bringing is that it eliminates the need for trust. Today, a lack of trust between buyers and sellers limits the possibility of growing a business.
For example: I won’t pay you in advance for my furniture if I am not convinced that you will deliver it to my house. As a result, the furniture seller is limited by the geographical area that he or she can manage.
But if trust is no longer an issue, intra-regional and cross-border trade will be boosted because more sellers and buyers will feel confident to do business with strangers that you have never even met.
This will also create more opportunities for trusted blockchain intermediairies to establish themselves as independent third-party brokers.
Strategic paths for SMEs
By 2030, the largest consumer markets in Africa will include Egypt, Nigeria, and South Africa. Other lucrative opportunities will abound in Kenya, Ghana, Ethiopia, Angola, Algeria, Morocco, Tanzania, and Tunisia.
Small and medium-sized businesses in these countries can also take advantage of these opportunities.
One way is by growing their business so that they are ready for intra-regional and cross-border trade. This will require them to focus more strongly on increasing their sales and boosting their profits. Managing a growing business will teach you what you need to know to operate at scale.
Another way is to partner with bigger businesses. For example, many businesses from Europe or the US will not understand the African culture and way of working. They may also lack the networks that enable them to reach a certain part of the country or certain groups of consumers. They will need partners to show them the way.
However, these partners – especially if they are SMEs – must be able to operate at scale. This means that you need to focus on business growth so that you can show a track record when the time comes.
And thirdly, small and medium-sized businesses can decide to focus on niche markets. These could be markets that are underserved by big companies. It could also be a particular market segment that big companies consider too small.
Whatever strategic path they choose, small and medium-sized businesses in Africa need to take action to make sure that they too are well-positioned to take advantage of the opportunities that are emerging.
