Capturing Africa’s transformative urban growth

(Photo © Mayssa Daye: Satellite dishes in Juba, South Sudan highlight consumer appetites in even the poorest parts of Africa's rapidly growing cities)

Recent African headlines have rightly focused on desperate news of looming famine in the Horn of Africa; the vulnerability to adverse weather conditions of the large proportion of the continent’s population that continues to rely on subsistence agriculture remains a significant impediment to its future development. What is less widely known or reported is how rapidly that proportion is shrinking: Africa is now the world’s fastest-urbanizing region, a phenomenon that promises not only to transform the region’s food security outlook but also offers significant business potential.

Mass migration, massive potential market…

Africa’s total population only passed the 1 billion mark in 2009. By 2040, it will have 1 billion urban inhabitants and by 2050, 60% of all Africans will be living in cities. Lagos, Nigeria – which will shortly overtake Cairo as Africa’s largest city – grows by 58 residents every hour; at an estimated 10.5 million inhabitants today, Lagos is 40 times larger than it was in 1950. Between 2010 and 2020, it and seven other sub-Saharan African cities will add more than 1m residents each; of those, the Congolese capital Kinshasa will by itself add 4m.

Such an enormous mass population movement will inevitably create huge challenges: an estimated 70% of African cities’ inhabitants currently live in slum conditions. Overstretched and under-resourced municipal authorities will continually struggle to provide water, electricity and social services, not to mention governance and security, to their swelling populations as well as to investing companies. The continent’s urban centers will also remain focal points for political unrest, and – as a recent survey that deemed the Angolan capital Luanda the world’s most expensive place to live suggests – day-to-day operating costs for multinational companies can also be surprisingly elevated.

Yet Africa’s diverse and complex cities are also a magnet for consumer goods companies with the vision to recognize the combined potential of an emerging middle-class and a hitherto under-served  mass market that exemplifies potential profits to be made at the so-called bottom of the [wealth] pyramid. Africa’s urban markets remain crucibles for business model innovation and adaptation, as exemplified by the trailblazing (and highly profitable) successes enjoyed by telecommunications and financial services firms over the past decade.

Capturing the urban African consumer opportunity

Increasingly it is Asian consumer goods companies having perfected their product mix and marketing strategies for targeting poorer customers in addition to swelling ranks of higher-spenders in home markets such as India or China – that are now taking the boldest steps into the region’s towns and cities. Seeing market stalls offering Indian-branded footwear and clothing or foodstore shelves stacked with Mandarin-branded produce is an increasingly common experience from Mauritania to Mozambique. While investments from the EU into Africa tripled between 2000 and 2008, Chinese FDI grew tenfold over the same timescale.

The emphatically urban emphasis of African consumer demographics – combined with an increasingly congested competitive landscape – points to the growing importance of developing an African city strategy for Western companies seeking to capitalize on growing business opportunities in the continent and avoid falling further behind their Eastern competitors.

Many newcomers to the region are surprised to learn that Africa already has more than fifty cities with a population of at least one million. While the projected average growth of 32% for those locations from 2010-2020 is both steep and enticing, 70% of Africa’s urban population growth over this decade will actually occur in smaller cities. Longer-term growth strategies for the continent will therefore involve eventually spreading to capitalize on opportunities in these locations as well: by 2025, Africa is projected to have 73 cities of 1-5m inhabitants and a further 84 of 0.5-1m inhabitants.

Difficult market access is often held up as an obstacle to expansion in Africa yet fourteen of the twenty largest cities on the continent are also sea ports, removing the overland logistics challenges that limit distribution and customer penetration in much of the continent. Clustering nearby cities around central hubs achieves further economies of scale, as does utilizing the so-called development corridors many African governments are prioritizing to accelerate infrastructure improvement and enhance market access and industrial investment. The spread of retail and distribution networks ever further into Africa’s interior offers further leverage possibilities: a major factor in US giant Wal-Mart’s recent investment in South Africa’s Massmart was a pre-existing footprint in twelve countries beyond its home country base.

Names like Ouagadougou, Lubumbashi, Ibadan and Douala may not yet rank alongside Chengdu, Wuhan or Zhengzhou in consumer goods’ companies expansion planning but they should definitely be on the radar. Fortune favors the brave, and the well-informed.

Curious to know how other major multinationals are planning to capture the urban African opportunity? Take part in Frontier Strategy Group’s inaugural African investment benchmarking survey. Contact africa@frontierstrategygroup.com for more information.

 

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