CONSUMER MARKET NIGERIA –HOW TO ENTER ONE OF THE LARGEST AFRICAN MARKETS

The increasing competition worldwide forces global FMCGcompanies to search for new markets. Competition in

Asia has increased significantly and the businessenvironment in China and India is becoming more andmore difficult. One solution is to address Africa with

more than 1 billion potential consumers a rising middleclass, with increasing disposable incomes and the

interest in foreign products.

“For all the challengesof the Nigerian market,

if companies do nothave a Nigeria strategythey do not really have

an Africa strategy.”(CEO, SAB Miller, 2009)

Africa in a NutshellAfrica is one of the fastest growingmarkets with an annual GDP growthof 4.9% since 2000. The populationis set to double in the next 40 yearsfrom 1 billion to 2 billion people.Because of the growing number ofinhabitants and high birth rate, themedian age in Africa is 20 years,while in comparison Asia’s averageperson is 30 and Europe’s even 40years old. This has an impact on theage of the employees and results in ayoung and dynamic workforce.Following the labor productivityrising of 2.7% Africa has a greatchance to position itself on theglobal market. On average per yeartrade between Africa and the worldhas increased by 200% incomparison to year 2000. Theinflation was 22% in the 1990s, butfortunately has now sunk to 8%. Allthis has had an impact on theconsumers and has resulted in agrowing middle class with increasingpurchasing power. i

FMCG in AfricaConsumer goods companies benefitfrom good development on thecontinent. Especially the projectionthat the number of destituteconsumers will shrink by 20% andthe number of customers withdisposable income (income overUS$1.000) will grow by 16% is veryhelpful for successful business. Manyinternational companies havealready entered the African marketsuccessfully. By doing so at an earlystage, companies like Unilever wereable to shape the market, buildbrand loyalty and influenceconsumer preferences.iiThe growth rates of Africancountries in the consumer categoryare similar to the ones India had inthe past. There aren’t as manyorganized players in the market asthere are in other continents andthe penetration levels are alsosignificantly lower, which offershuge growth potential for productsand brands. iii

i) The economist "The sun shines bright" (2011)ii) Cinci consulting "Winning in Africa" (2010)iii) Reuters "FMCG firms eye Africa as next growth vehicle" (2010)

Country Analysis for FMCGcompaniesThe countries are gainingattractiveness and in many of them,new regulations and developmentsare lowering the risk of investing.There are several important factors,which have to be taken intoconsideration to measure theattractiveness and risks of Africancountries: Local demand (Incomeper capita, population), risks(Corruption index, political &economical situation),attractiveness (Competitors, ease ofbusiness, costs). Taking all thesefactors, the risks will shrink and theattractiveness for several countrieswill grow tremendously until 2020.Itis seen that Nigeria will be one ofthe key markets to address in futurewith the highest demand for FMCGproducts in Africa.FMCG in NigeriaNigeria has a significant future‐success‐story. Being the largestconsumer market, the country has apopulation of about 170 million(estimatet 2012) people. 72% ofthose are under the age of 30 years.This number is set to double by 2050to 326 million. There are eight“anchor” cities in Nigeria withpopulations above 1 million each.This development shows the hugepotential for future investment andconsumption activity. Also thenumbers of the FMCG sector areformidable. The whole sector grew10% from 2000 until 2010. Thecontribution from FMCG spending toGDP grew enormously over the tenyears from 13% to 24.3%. Nigeriansaged between 16 and 65 have $100billion to spend (due to per capitaincome).iv

iv) Worldbank (2008, 2010)

FMCG Country Potential in Africa 2012 vs. 2020

Even though there is a hugepotential, there are risks andweaknesses, which have to be takeninto consideration. Nigeria ranks133 from 183 in the ease of doingbusiness index. This is a result ofdifferent factors like electricity,contracts, permits and tax‐issues.Also corruption and terrorism haveto be understood before enteringthe market. There are religiousissues between Muslims andChristians and at the Niger Deltathere are oil conflicts on a regularbasis.The most important aspect whilethinking about doing business inNigeria is “informal trade”. 87% ofthe trading in Nigeria happens ininformal markets, even withShoprite, Spar and othersupermarket chains entering thecountry. One of the biggest placesfor informal trade is the Onitshamarket, consisting of 12 specializedmarkets with 50,000 shops and anFMCG trade volume of $1.5 billion.Most of West Africa is served by thisor other similar markets.Market Entry StrategiesThere are several opportunities andpossibilities to enter the Africanmarket:distributionmodel, jointventures,acquisitionsand thegreen field‐strategy.The mostrecommended model isdistribution, because of its lowoverhead costs and wide productcoverage. When choosing thedistribution model, the company

establishes relationships with localdistributors, who sell the products inthe defined region. The prices arenormally prearranged. The Key is tochoose the right partner. Thedistributor should have sufficientstorage capacity and a gooddistribution network, which coversthe whole country. vThe right strategy can only bechosen when all the advantages anddisadvantages from the differentmarket entry strategies are balancedand compared with the intention ofthe company.Executive Take‐AwayAll in all Africa can be seen as afuture‐market with significant rowthpotential for FMCG companieshowever the business environment isnot easy and needs designatedAfrica strategies.One of the key markets today and infuture is Nigeria with a rising middleclass, growing importance of retailbusiness and its strategic markets.To have a smooth market entry intoAfrica/Nigeria companies will haveto adapt their strategy to culturalaspects and to build up localexpertise with HQ management.

v) Cinci consulting "Winning inAfrica" (2010)

XCOM Africa GmbH is a consultancycompany with single focus on Africa. Weconsult companies with their Africastrategy and create value bytransferring our cultural Africaknowledge into their organization. Ourservices include market analysis,development of market entry strategies,coaching, local project managment,selection of partner in Africa and“hands on” implementation of Africastrategies together with our customers.

www.xcom‐africa.com

Informal tradeNigeria as main hub

Source:GlobaledgeAfribizBrookings AfricaGrowth Initiative