Nigeria: Insecurity and its impact on business

Despite ongoing violence in Nigeria, opinions about the country’s security challenges and what they mean for investors differ widely among local entrepreneurs and international business leaders.

Some executives, whether in Lagos or other commercial centers like Abuja or Port Harcourt, say they aren’t concerned. They believe business will continue as usual and that the threat from militant group Boko Haram will subside after the elections in February next year.

Boko Haram is generally believed to be sponsored by a few political forces who are keen on influencing election results. The group’s terrorist activity has increased dramatically since the election of President Goodluck Jonathan, the country’s first Southern and Christian president, and some believe that Boko Haram was able to emerge because traditional power structures were disrupted in many of the northern states when the central power shifted to the South.

Other business leaders are deeply troubled, not only by the rising violence but by its underlying dynamics.

“We don’t understand why Nigerians are blowing themselves up for a cause. It simply isn’t part of the Nigerian psyche,” a senior manager of a consumer goods company told me.

The head of marketing at a Nigerian bank echoed these sentiments, before adding: “The dynamics here are changing. Everything is getting more expensive because most of our food comes from the north, prices have been going up and what the average Nigerian earns is simply not enough anymore. I fear this may impact the balance here in Lagos, particularly as we get more refugees from the north. Our infrastructure can’t cope with it.”

Business Impact

The volatile state of Nigerian security has also lead to varied experiences among business leaders. As the owner of a distribution company explained: “In our annual sales meetings, one of our local representatives stood up and pronounced huge losses due to the instability in the North. In response, another representative exclaimed that his major customer sits in Borno state!”

Consumer goods companies tend to be the businesses that suffer most, selling low value, high volume products in the populous yet poor northern states. State-imposed curfews mean less people are going out to buy things, and many traders in neighboring Niger, Chad and Cameroon have ceased buying their products in bulk from Northern Nigeria.

Still, businesses operating in affected areas are developing creative ways to address the challenges.

We just had to adapt to the environment. When Boko Haram destroyed the mobile phone masts, we couldn’t call our local representatives anymore. So we just invested in VoIP (Voice Over Internet Protocoll) technology, which is a little more expensive, but now we can communicate frequently with our local representatives, and business is flourishing,” the CEO of an FMCG distribution company told me.

A Common Enemy

While the threat resulting from Boko Haram is still geographically contained around the Northern and central states, the country’s commercial capital has been spared. It is believed that those funding Boko Haram have business interests in Lagos they do not want to be undermined.

Many business have refocused their attention to safer and more prosperous parts of the country to capture the abundant commercial opportunities Nigeria has to offer, but there is till concern that what led to the rise of Boko Haram is not just political maneuverings but real socioeconomic grievances which if left unaddressed could incite insecurity in more stable places.

Some business leaders stress the need for the government to take action. But as Nigeria enters what is only its fourth electoral cycle, others are more patient. They believe that more time is needed for democratic processes to mature and for the disrupted traditional structures to be corrected, calming the power struggles that lie at the heart of the Boko Haram threat.

And still a few try to look at the situation with a typically positive Nigerian attitude:

“In history, the unifying factors of nation states have often been the existence of a common enemy. We have that now, and it could help us focus less on what divides us as tribes and regions, but what unites us as a country.”


Anna Rosenberg is Head of Sub-Saharan Africa Research at Frontier Strategy Group, a Washington headquartered information services provider advising multinationals on doing business in emerging markets. Anna is currently on a research trip to Nigeria and Ghana, meeting representatives from local and international businesses, journalists and government officials. Follow Anna on twitter @anna_rosenberg

*This article is Part 1 of an ongoing series, originally published in conjunction with How We Made it in Africa.

Kenya: Worsening Insecurity Impacts Business and the Economy

As another major terrorist attack has hit Kenya, companies should expect this not to be the last one in the near future. Terrorism is creating a growing sense of fear that is harming consumer-oriented businesses and tourism, a major driver of the Kenyan economy. However, despite causing disruptions and uncertainty in the short-term, rising insecurity will not derail Kenya from its path of economic expansion in the medium-term and companies should ensure that they maintain a balanced view of the impact insecurity will have on their operations, customers, and long-term plans for the market.

Kenya WSJAt least 48 people were killed when militants attacked Kenyan coastal Mpeketoni on June 16th (Picture: Associated Press) 

To put Kenya’s terrorist threat into perspective, it is important to understand the underlying dynamics that form the root cause for mounting volatility:

  • Origins of the terrorist threat: Insecurity arises from political instability in neighboring South Sudan and Somalia. Since the Kenyan army’s military incursion into Somalia in 2011, there has been an upsurge in terrorist attacks on public places. The main threat comes from radical Islamist group Al Shabaab and homegrown Islamist militants.
  • The tarnished tourism industry fuels volatility: Tourist numbers tumble every time a new attack hits the country, triggering a drop in prices for hotel rooms. This leads to a rise in unemployment and economic grievances in coastal areas, which creates a fertile recruitment ground for radical causes.

The Toll on the Tourism Sector
New travel warnings to Kenya’s major tourist areas issued by the US, Britain, France, and Australia could cause large job losses and shave off a 1.0% point of GDP growth. The sector accounts for more than 10% of GDP. The number of tourist arrivals already declined by 7.0% from July 2012 to July 2013.

  •  Weak governance exacerbates insecurity: In its fight against terrorism, the government is mistreating Muslims and has arrested thousands of mainly ethnic Somalis. Its behavior is fueling discontent.

However, despite rising insecurity, Kenya’s positive economic drivers will outshine the challenges: Terrorist attacks will cause sporadic disruptions but the vibrant private sector, rising consumer spending and Kenya’s important role as a hub for East Africa are strong economic drivers which are unlikely to be derailed by insecurity. FSG clients should review our recent report, Market Spotlight: Kenya, which covers Kenya’s medium-term macroeconomic outlook and provides strategies companies can implement to be prepared for a rise in insecurity.

Actions companies can take:

  • Guarantee the security of your employees: Refrain from putting employees in international hotels or from holding marketing events in major hotels or malls, as these could become a target.
  • Adapt to changing consumption patterns: Package goods for consumption activity at home, as consumers are more likely to consume at home because of security concerns.
  • Maintain a balanced view: Carefully assess the risks stemming from terrorist activity to your business operations and demand for your products, as these may ultimately not be significant and should not warrant a decrease in investment in the market.

 

MNC Insight: Five things I learned during my 10-day visit to Dubai

I met with more than a dozen Dubai-based senior executives from multinational companies across several sectors. Five important issues emerged during our conversations:

1. Improving performance in Africa is the focus of MEA strategic planning 

During my visit to Dubai, 70% of the companies that I met were focused on improving their performance in Africa. Interestingly, most of the companies use Dubai as a hub for Sub-Saharan Africa. The UAE is already an established regional hub for the Middle East, because of the advanced commercial infrastructure, air travel links to rest of the world (Gulf flights can reach 2/3 of world’s population in 8 hours), access to skilled, albeit expensive expatriate labor, and relative ease of anticipating local costs.

2. MNCs are frustrated increasingly by the procurement process in Saudi Arabia 

Many executives cited an extended and unclear procurement process as an obstacle to business growth. There are new procedures and staff in many ministries, in part to ensure compliance, and this has led to more delays in the approval process. SAGIA, Saudi Arabia’s investment agency, recently announced a new fast-track option for processing foreign investor applications and I will investigate how it is being implemented during my upcoming visit to the market.

3. Executives are still mystified by MENA’s frontier markets, particularly Algeria and Iraq

In Algeria, companies often work through a local partner, but have underperformed due to a difficult operating environment. Many are watching whether President Abdelaziz Bouteflika’s fourth term will usher in an era of growth or support stagnation. In Iraq, most companies do not have enough info to navigate the market appropriately and find it difficult to make the case for resources given dramatic headlines that appear in Western news outlets every day.

4. Investment in Iran is still a taboo topic for many despite the market’s huge potential

Iran has the 2nd largest population in MENA and among the largest oil and gas reserves in the world. Yet the market opportunity still seems too far off for many MNCs, especially those with US headquarters. Interestingly, I met with a consumer-oriented Danish company that is trying to get expansion plans approved by their board. The executives are worried about rising competition from American companies if a nuclear deal is reached in July.

5. Companies are not worried enough about MENA’s vulnerability to a Chinese slowdown

China’s growth trajectory was not a concern for many executives until I connected the dots to the overall health of MENA economies. The Middle East supplies nearly 50% of China’s oil. Strong Chinese demand drove an oil price surge that increased GDP in GCC countries by $1 trillion between 2003 and 2013. In addition, 15% of MENA exports go to China and Chinese-based companies are major foreign investors in the region. As a result, executives need to factor into their strategic plans how a slowdown in China (below 7% annual growth) would hurt economic activity in MENA.

What is the East African Community and what does it mean for business?

With all eyes set on the race for oil production between Uganda and Kenya, a development of a different sort is taking place some 200 miles to the south in Arusha, Tanzania. The East African Community (EAC) is conducting a plenary session to discuss trade policies with representatives from the five member states of Burundi, Rwanda, Kenya, Tanzania and Uganda in attendance. Meetings of the sort are not unusual in Sub-Saharan Africa. The EAC, however, is quite unique.

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The East African Community

As Sub-Saharan Africa’s most integrated trade bloc, the EAC is a large, single market with a combined GDP of $US 99.8 billion and 141 million people. It allows for the free movement of goods and labor, and is home to large infrastructure projects that bound the region together. Unlike other African trade blocs such as SADC, COMESA and ECOWAS, the EAC’s goal is not purely economic: its ultimate vision is to become a political federation with a single currency. Despite some frictions between each country’s head of state, the EAC has prioritized regional integration at a pace unforeseen in Sub-Saharan Africa.

MNCs can therefore enjoy several benefits when selling or establishing a local presence in the region:

  • Infrastructure projects and the breakdown of trade barriers create a larger economy that is more attractive to investors
  • The EAC’s ongoing physical and institutional reforms cut the costs and risks of doing business
  • Political stability and proximity to Central Africa, South Sudan, and Ethiopia offer wider regional access
  • Increased competition because of the EAC’s single market results in cheaper goods, but adds pressure to profit margins

While the EAC is home to a broad consumer base that demands a wide variety of goods from various industries, it also faces several challenges to doing business. Inconsistencies in customs valuations, export taxes and rules of origins abound, while the infrastructure is aging. Transport costs along the EAC’s two major corridors are some of Sub-Saharan Africa’s highest. The timeline for integration has not been kept. However, the EAC is addressing these challenges with new projects, investments and treaties. For example, one-stop border posts in select towns will ease bottlenecks associated with intra-regional trade, and the ongoing construction of the LAPSETT transport corridor will provide alternative routes to distribute goods in the wider region. The EAC’s evolving landscape underscores the importance of looking at the region – and Sub-Saharan Africa as a whole – through a long-term lens.

Regional integration is key to Sub-Saharan Africa’s economic growth and will continue to be pushed at the top of policy-makers’ agendas. Old boundaries will continue to break down in favor of highways, pipelines, railway lines and power grids that will redefine regional dynamics. MNCs planning to expand their Sub-Saharan Africa presence should consider clusters of linked markets, as economic zones will continue to influence dynamics in ways more impactful than individual countries. The EAC might be Sub-Saharan Africa’s most integrated trade bloc, yet it is also symptomatic of a bigger, long-term trend of economic realignment on the continent.

To learn more about the EAC, FSG clients may review the full report on our client portal.

What Nigeria’s GDP Rebase means for your business

 

After Nigeria finally announced its rebased GDP calculations, the economy grew by 89% to US$ 509 billion, far more than expected. Nigeria is now the largest economy in Africa as it has overtaken South Africa’s US$ 345 billion economy.

Nigeria’s GDP rebase enhances Africa’s attractiveness as a place that holds significant opportunity because of its size, not just because of its growth rate. There are 24 other African markets planning to recalculate their GDP by 2016. As a result, we expect the overall economy of Sub-Saharan Africa to soon be much larger than currently assumed.

FSG’s report on what the GDP rebase means for your business remains relevant:

  • Brace for increasing competition: Nigeria is now more attractive in every financial and economic model worldwide, luring companies to invest locally. The size of Nigeria’s economy is now larger than that of Poland, Thailand, and the UAE.
  • Recalculate your targets: As the composition of the Nigerian economy has changed, some sectors are now much larger or smaller than previously assumed, altering the addressable opportunity for different industries. Efforts to make the case for additional resources will become easier in sectors that are larger than previously estimated, such as business services.
  • Prepare for rising government spending: The Nigerian government is expected to increase spending as the GDP rebase improved its ability to borrow on global financial markets. Public spending will focus on education, healthcare, transportation, housing, and infrastructure.

The operating environment will be negatively affected this year by heightened volatility in light of upcoming elections in 2015. However, the GDP rebase highlights why it’s important to stay focused on the country’s long-term opportunity.

Ethiopia – cracking the local code

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

As I sit on the plane from Addis Ababa to London, I am gathering my thoughts and impressions of Ethiopia. My trip made me realize just how complex a place it is. Ethiopia is different. Or at least, that’s what everybody keeps telling me. “The first mistake foreign businesses make, is to think that Ethiopia is part of East Africa. Ethiopians are not really Africans, nor are they Arab,” a leading distributor for the healthcare industry told me.

Ethiopians count time differently. It is currently the year 2006. Midnight is 6pm according to “Habesha time.” Unlike its neighbors, Ethiopia has long been closed to foreign exposure. It was famously never colonized, if one ignores the 5 years of Italian rule in the 1930s and 1940s – enough to introduce pasta to the national cuisine. From 1974 to 1991, Ethiopia was under communist influence. Today, Ethiopia is only at the very beginning of opening up to the world.

Yes, Addis Ababa has been the capital of international diplomacy in Africa since the early 1960s. Home to the African Union headquarters and other international organizations, Addis also hosts diplomats from around the world in its swanky hotels and remarkable Chinese-built AU building. Diplomats are easily spotted – they drive big cars and wear expensive suits.

ETHIOPIA 1The Chinese-built headquarter of the African Union is nothing less but a remarkable piece of architecture

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The two sides of Addis include swanky buildings and impoverished areas

It seems odd. The majority of the population earns about US$60 per month and cars have a 240% import duty. The result is a stark contrast between rich and poor, diplomat and local. Most shops sell cheap Chinese imports or second-hand clothing. As a result, you can find the odd Ethiopian walking around in a Marks and Spencer shop assistant jacket. Russian Ladas from the socialist area, today widely used as taxis, contrast with the diplomat’s 4x4s. The high import duty means that cars, no matter how old, appreciate in price!

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The real economy can be seen in the city’s vast market place Merkato, but Westerners rarely come here

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The shop-owners in the Merkato are collectively investing in real estate to move their shops from their little shacks into proper buildings 

However, not all Ethiopians have low income levels. The number of dollar millionaires rose from 1,300 in 2007 to 2,700 people last year. GDP grew by 7.1% in 2013 and the government is implementing reforms to improve the operating environment. Ethiopia is therefore increasingly attractive for multinationals that want to tap into a large population estimated at around 90 million people.

This population figure is nonetheless misleading. Local distributors in the FMCG keep telling me that, “the addressable market is more like 10 million when you count the people living in cities.” Some argue that the addressable market is even smaller. Contrary to other African countries, urbanization is not very pronounced in Ethiopia as about 85% of its citizens live in rural areas. Despite low urbanization, consumer goods companies present in the market are experiencing dramatic growth rates of between 20% to 50%. It seems that growth, while from a low base, is happening fast.

I have come to see that doing business in Ethiopia is a long-term game. Companies must understand it will take time for income levels, and consequently consumption, to grow. It will take time for the government to build the required infrastructure to connect rural to urban areas, so that the addressable market will approach 90 and not 10 million people.

The government’s main objective is to transform Ethiopia first and foremost into an export market before it becomes a consumer market. Industrialization, job creation and poverty reduction are also major priorities – and indeed, it has already made major strides in reducing poverty. The government also wants to tackle the recurrent problem of Forex shortages, which is only possible by having more US dollars come in through exports rather than by importing more. For example, the high import duty on cars has been implemented because the country spends a large amount of its export earnings on importing fuel. The government wants to change this trend.

According to many local and international business leaders, the government differs from other African governments in that it delivers on many of its promises. It has created various industrial zones, given preferential treatment to investors keen on producing locally, such access to land and tax exemptions. The amount of infrastructure being built across the country is nothing less than remarkable.

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The railway currently under construction in Addis will provide a much-needed improvement to public transport

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This image vividly represents Ethiopia’s ongoing transformation

The government also wants to keep a tight grip on the economy. It will only allow foreign companies to invest in sectors that have a true need. As the minister of Foreign Affairs Tedros Adhanom Ghebreyesus told me, “Multinationals need to bring something we don’t already have, either technology or innovation.”

As a result, some sectors are still closed to international companies. These include retail, telecommunications and banking, among others. The government wants to protect local industries and strengthen them before international players come in. There is nonetheless mounting pressure for these sectors to open up and as many say, it is only a matter of time.

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The Commercial Bank of Ethiopia is one of the few banks allowed to operate in the country

Some companies are in fact already sneaking in through the back door. Leading international telecommunication providers are allegedly acquiring stakes in Belcash and M-Birr, two companies that provide the technology infrastructure for mobile banking. Telecom giants are therefore already positioning themselves for preferential access to the market.

Ethiopians want international brands, and they want them now. The odd coffee shop uses a similar logo to Starbucks, and I saw several shoe shops that call themselves Aldo and Clarks.  “But Ethiopia was long closed to foreign influence, and they don’t have a direct association with international brands. So, a no-name brand from Turkey for example, can become very successful here, because consumers don’t know the multinational brand. Companies are on a level playing field, and it all comes down to marketing,” a distributor whose Turkish nappies enjoyed a much larger market share than P&G’s pampers, told me.

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International brands are much aspired to, as can be seen from this Apple logo on a bus

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Local brands are widely popular, and for a good reason. I quite enjoyed St. George’s beer 

Understanding the “local code” is crucial when trying to reach the consumer, as I have been told repeatedly. To give you an example, an international FMCG company endorsed a local musician. However, it turns out this local musician was not well-liked by the 30 million strong Oromo tribe because of his praise of a former Emperor who committed manslaughter of the Oromo many decades ago. The company had planned to send this musician on a tour into the Omoro tribal area, which caused a massive outcry. The marketing mishap reveals how companies must understand cultural sensitivities to succeed in Ethiopia.

Several international companies are already tapping into Ethiopia’s opportunity very successfully. They include the typical pioneers for doing business in Africa; namely Coca-Cola, Pepsi, Diageo and Heineken. GE already paid various visits to the country and is planning to set up an assembly factory. Coca-Cola has a long history of being in the country. Apparently Emperor Haile Selassie owned shares in the company – and at a time, Coca Cola was traded for gold!

The pioneers are already here. Their success partly rides of the back of what the head of GE for East Africa described: “in Africa, we are working backwards, we create the infrastructure that will lead to the demand for our products.”

The pioneers of FMCG companies are already present in the market: Heineken, Pepsi and Diageo

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I can see that this approach takes time and is expensive, but ultimately, the “working backwards approach” leads to success not just for the companies, but for the socio-economic development of countries.

Given the realities I have seen in Ethiopia, this model makes perfect sense to me.

For additional insight from Anna’s research trip in East Africa, be sure to read her earlier posts: Kenya – A Regional TrendsetterNotes from the Field: Kenya, Nairobi – African Cities Need Urban PlanningKenya – Let the pictures speak for themselves, and The Uganda Trap

The Uganda Trap

Uganda 1

Kampala’s skyline

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

Apparently Ugandans very rarely say no; they much prefer to say maybe. As I sit (without a previous appointment) in Prime Minister’s Amama Mbabazi waiting room hoping for a slot to open up in his busy schedule, I can see this cultural practice work to my advantage. His secretary is doing everything in his power to find the time for Mbabazi to see me.

To have the chance to speak to the prime minister reflects my impressions of Uganda in a nutshell. Unlike Kenya where I spent the previous week, Uganda seems less intense, much safer and above all, has a more relaxed competitive spirit. It is therefore easier to access high profile individuals and business opportunities.

Then again, I might have fallen into the “Uganda trap.”

“Uganda is very attractive when you look at macroeconomic indicators, the country is growing at 5.6% average in the last 5 years. Now we have oil, which will come online in 2016, which means we will grow even faster. But to be honest, the addressable market is much smaller than it might appear on paper,” says the CEO of a leading bank in the country. “If you want to be successful here, you have to own the market, invest heavily to become the number one player. Many investors don’t know that, they are lured by the figures rather than seeing it for themselves. That is what I call the ‘Uganda trap’.”

While this might be true when looking at Uganda as a single market, I cannot help but see its many advantages. The country benefits from a strategic geographic position – despite being land-locked, it serves as the main access point to neighboring Eastern DRC, Rwanda, and South Sudan. The nascent oil sector will be a game-changer and there are many gaps in the market waiting to be filled.

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I visited DEMBE in Kampala– a regional FMCG distributor servicing Uganda, Rwanda, Tanzania and Kenya, Burundi, South Sudan and Zambia

Although Uganda’s addressable market is smaller than Kenya’s – in part due to past political instability that hindered economic development – there is still strong demand for a wide variety of goods. Wealth is evident. I passed a well-maintained golf course in central Kampala and sipped a creamy cappuccino in the city’s new shiny Acacia shopping mall.

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The Ugandan elite playing golf in central Kampala

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The recently opened Acacia shopping mall has Western products and African designer fashion on display

In addition to offshore oil finds, Uganda is also building an oil refinery and hopes to become an exporter of refined oil in East Africa. Hopes are high that the government will properly manage this natural resource as did Botswana with its diamonds. To that end, a special government task force was sent to oil-producing countries in order to learn from their successes and mistakes. The government eventually decided to follow the Norwegian model.

Despite strong upstream and downstream potential, Uganda’s main advantage vis-à-vis its neighbors lies in agriculture. A common prejudice in the region states that Ugandans are less productive than Kenyans because they never had to worry about getting enough food on the table. “In Uganda, if you throw something out of the window, next thing you know, a tree has grown there. Uganda is so fertile, no one stays hungry,” someone told me.

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A vendor offering tropical fruits to passersby in Entebbe. The lush and fertile countryside lends itself nicely to agriculture all year round

Uganda contributes to a large portion of arable land in East Africa and is surrounded by countries that have difficulty feeding their populations. Large opportunities abound for the country to turn its raw materials into processed foodstuff and export it into the region. However, the capital required for a supply and marketing chain is missing, although new revenues from the oil sector might help.

Agriculture and oil are not the only opportunities. On my way to the ministry of finance, I bumped into a group of Turkish businessmen waiting for the elevator. They told me they worked in construction, “building a lot of roads to be precise.” I asked them about Chinese competition, given that many Chinese companies tend to win most infrastructure tenders in Africa. The businessmen answered that, “the roads that were built by the Chinese, are already in decay. African governments now want good quality.”

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Currently, there is not much danger in getting run over by a train, as it only passes Uganda every 2 to 3 days. But this might change soon as the rail network expands

Uganda might be less mature than some of its neighbors, but I find that it will become a small and important market in itself.  In a few years down the line, the country could become a hub to service Anglophone central Africa for international companies.

To quote the Prime Minister, who I have now seen and who emphasized the country’s readiness for agro-processing, fisheries and minerals as areas of investment, “Uganda is not a land-locked country, but a land-linked country, ready to export more of its products into the region and the world.”

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Prime Minister Amama Mbabazi showing me the flag of the East African community 

For additional insight from Anna’s research trip in East Africa, be sure to read her earlier posts: Kenya – A Regional TrendsetterNotes from the Field: Kenya, Nairobi – African Cities Need Urban Planning, Kenya – Let the pictures speak for themselves.

Kenya – Let the pictures speak for themselves

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

I am currently sitting on a plane bound for Uganda, gathering my thoughts and impressions of a busy week in Kenya.

Kenya’s business landscape is buzzing with activity – there is no doubt about it. The past two years have seen international companies set up their regional offices in the country to benefit from strong human capital and good infrastructure links.

Western, local and other emerging markets companies are all competing for market share of Kenya’s expanding consumer class. Kenya is therefore becoming an increasingly competitive place to do business.  The pictures I took during my travels through the country speak for themselves:

Nakumatt, a Kenyan supermarket chain, sells a variety of local and international products:
Nakumatt Shelves

Whether in Nairobi or in the countryside, one is bombarded with billboards advertising Huggies nappies, Nivea deodorants, Colgate toothpaste, Samsung electronics, Tusker beer, Johnny Walker whiskey, Coca Cola and Kentucky Fried Chicken, among many others:

Commercial Billboards

 

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On my way to the airport, I saw two workers put up the Porsche sign at the company’s new outlet in the industrial district, nearby other car retailers such as Toyota and Foton of China:

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High rise apartment blocks and large villas are mushrooming throughout Kenya’s major towns:

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Construction is everywhere. New roads and railways are being built, and the airport and port are expanding. The upsurge in infrastructure will make the distribution of goods in the country much easier:

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For additional insight from Anna’s research trip in East Africa, be sure to read her earlier posts: Kenya – A Regional TrendsetterNotes from the Field: Kenya, and Nairobi – African Cities Need Urban Planning.

Nairobi – African Cities Need Urban Planning

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

Kenya Traffic

Yesterday I spent 7 hours stuck in traffic versus 4 in meetings. With more and more cars on the streets, there is no doubt that the middle class is rising… and road congestion along with it. Even after spending some time stuck in Luanda’s traffic – which enjoys an abysmal reputation – I have to say it is nothing compared to Nairobi’s.

My experiences on Nairobi’s roads might have been bad luck or indeed a reflection of reality. Either way, I couldn’t help but notice that this traffic must have a negative impact on the economy. Spending hours stuck in a car with the engine running is expensive, environmentally destructive, and above all, unproductive. People become unhappy and unhealthy.

Cities in Europe have undergone a transformation in recent years that turned them into places people actually want to live in. Bicycles now crowd the roads, and people run and walk to work. London is about to build a garden bridge that will turn the daily commute into a pleasant walk in the park.

Africa, however, is a place of reverse innovation. Just think of M-Pesa, the mobile service that made banking accessible to the unbanked, or M-Health and M-Farming that give advice on better healthcare and farming practices, respectively. Think of Cardiopad, a touch screen tablet that electronically transmits medical tests in rural areas to urban examination centers for diagnosis. However, this innovative spirit highlighted by these inventions is regrettably not evident in urban planning.

Real estate prices are rising fast – one acre of land in central Nairobi costs today between US$ 6.0 to 7.5 million – so everyone involved in construction wants to make a rapid profit, overlooking the fact that cities should be livable places. New apartment blocks need matching infrastructure, such as schools and hospitals nearby, and roads to reach them.

Nairobi’s congestion will only get worse as more people buy cars as the consumer class grows, the financial sector matures and consumer credit becomes cheaper. Cars are a status symbol. To quote my taxi driver: “people would get a loan to buy a car, even though they cannot afford to maintain it, just because their friend also owns a car.”

However, rapid economic growth in Africa’s main cities, rising private and public investment in infrastructure, and long-term national development plans are all ingredients that should be translated into building African cities that are pleasant to live and work in.

As I sit in the taxi, I think that urban planning in Africa should embrace innovation to the same extent as the financial services and technology sectors. Better public transport, safe roads to cycle on, car sharing systems are just some examples that would make roads less congested and people healthier, happier and more productive. International companies should engage with the government and advise city councils on building cities of the future – not just cities.

Kenya’s Tatu city, an urban development that aims to provide living and retail space that is pleasant, environmentally-friendly and within easy commuting distance from Nairobi, could lead by example once completed. But innovation needs to first and foremost take place within existing cities, not only newly-built ones.

For additional insight from Anna’s research trip in East Africa, be sure to read her earlier posts: Kenya – A Regional Trendsetter and Notes from the Field: Kenya

Kenya – A Regional Trendsetter

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

My conversations today with business leaders, consultants and journalists revealed that Kenya is a regional trendsetter for many reasons. The country’s private sector is arguably the most dynamic in the region, benefiting from a free market economy since independence. Kenya is much more open to international business as a result, unlike neighbors such as Tanzania that, for a long time, follow a state-led and socialist approach to business.

Kenya is oftentimes the first point of entry for goods traded in the region through its port of Mombasa. Upon clearance from the Mombasa port, goods are then transported via the Northern Corridor to Uganda, Burundi and Rwanda; and from those countries to South Sudan, and the Eastern DRC. The majority of goods not imported from outside the continent and sold across East Africa are produced in Kenya. Its manufacturing sector is underdeveloped but remains bigger than those of other markets. As a result, Kenyan consumer trends, particularly in fashion and technology, are carried throughout the region.

Historical legacy and better infrastructure are not the only reasons for Kenya’s role as regional trendsetter. Kenya’s financial landscape is more sophisticated and mature than its neighbors’ and Kenyan banks are expanding across the region.  Local retailers, such as Nakumatt, are among the most successful in the region and are on an expansion drive. The country’s talent pool and human capital are strong, as multinationals face minimal problems in staffing their local operations.

Anna Rosenberg visited the headoffice of Nakumatt - a leading retailer in East Africa

Anna Rosenberg visited the headoffice of Nakumatt, a leading retailer in East Africa
 

However, not all East African consumers are receptive to these trends. Tanzania’s relationship with Kenya is strained. Tanzanians perceive Kenyans as aggressive and are afraid that they might take over Tanzanian businesses if the country opens up more under the East African Community. As a result, Tanzania is hindering faster progress of regional economic integration.

To put it in the words of two executives I spoke to today, “Kenyans are trendsetters in East Africa” but “they are not well liked in the region.”