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Kearney Sees Growth Ahead in Sub-Sahara

Rwanda and Nigeria top expansion markets in firm’s African Retail Development Index.

Opportunities for retail expansion in sub-Saharan Africa are just opening up, but U.S. retailers might already be losing out to more ambitious competitors in other markets in the race to expand into the world’s fastest-growing region.

That’s among the messages contained in consulting firm A.T. Kearney’s first African Retail Development Index, a subset of the company’s annual Global Retail Development Index that reveals strong economic expansion, rapid urbanization and small but growing opportunities for fashion retailers in the region.

Sub-Saharan Africa currently is home to about 900 million people, about one-eighth of the world’s population, and has only one metropolitan market, Lagos, Nigeria, with a population of more than 10 million. Its nations account for about 6 percent of the world’s aggregate gross domestic product, and many of them are hampered by political instability and undeveloped infrastructure that won’t easily support business development, according to Mike Moriarty, partner at A.T. Kearney.

But, he noted, things are about to change. Most of the projected growth in the world’s population between now and 2050, when the earth’s inhabitants are expected to increase to 9 billion from their current ranks of about 7 billion, will take place in Africa. GDP growth rates tend to fall into a range of between 7 and 10 percent.

“In the next 20 or 30 years, seven of the 12 most populous countries in the world will be in Africa, and it already houses seven of the 10 fastest-growing economies in the world,” he said.

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In rating the sub-Saharan nations with the strongest growth prospects, as the GRDI does on a worldwide basis, Rwanda took the top spot, followed by Nigeria, Namibia, Tanzania and Gabon. The remainder of the top 10 was made up of Ghana, South Africa, Botswana, Mozambique and Ethiopia. The region didn’t place any countries in last year’s GRDI, but Moriarty expects at least three nations to break into the top 30 of this year’s global index and another two to come in not far below it.

The evaluations of the markets incorporate time pressure, with less-developed markets scoring higher; market saturation; country risk, including political and economic factors, and market size, with each of the four factors comprising a quarter of the total score. South Africa, for instance, got the maximum grade for market size but, as the most developed nation in the region, the minimum for market saturation.

While Wal-Mart Stores Inc. planted its flag in South Africa and surrounding markets with its investment in Massmart Holdings, Moriarty pointed out that U.S. companies, even those that have moved to take advantage of expansion pockets in northern Africa and the Middle East, haven’t focused much on locales to the south.

“Brazilians and Chinese and Australians are moving quickly to capitalize on the opportunities in the sub-Sahara,” he said. “The middle class is still growing, and the biggest opportunities are still in necessities, not discretionary purchases.”

But he expects that to change as well, with growth in the developing markets and especially among younger consumers.

“If you’ve got a fashion brand that thrills 16-year-old girls in London, it’s going to have the same effect on those customers in Namibia and Tanzania,” he said. “And there’s a tendency to leapfrog with technology in emerging markets, too. It took Americans 175 years to move from agrarian to industrial to digital. It’ll take Africans 20 or 25 years.”