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Africa's 1 Billion Consumers Too Many for Wal-Mart to Ignore
By Franz Wild - Oct 21, 2010 9:34 AM ET Tweet (27)LinkedIn Share
Business ExchangeBuzz up!DiggPrint Email . Customers walk in and out of Massmart Holdings Ltd.’s GAME megastore in the Canal Walk shopping center on the outskirts of Cape Town. Photographer: Gianluigi Guercia/AFP/Getty Images
Richard Twesigye says he shops at Massmart Holdings Ltd.’s Game store in Kampala, the Ugandan capital, because the quality is better than at the local market. Like millions of other Africans, he can afford it if the prices are a little higher.

“These stores are high class,” Twesigye, a 61-year-old businessman, said while shopping at the chain store. “In ordinary stores there are a lot of counterfeits, but these big stores care about their reputation.”

It’s people such as Twesigye, members of Africa’s burgeoning middle class, who prompted Wal-Mart Stores Inc. on Sept. 27 to propose purchasing Massmart, the continent’s third- largest retailer, for $4.6 billion. With 288 stores in 14 African countries, purchasing Johannesburg-based Massmart would enable Wal-Mart to profit from one of the world’s fastest- growing retail markets.

Africa’s population reached 1 billion last year and after economic growth averaging 4.9 percent from 2000 to 2008 the number of families with an income of more than $20,000 a year has exceeded India’s, according to a report by McKinsey & Co. Inc. With China investing in African mineral and infrastructure projects and the continent’s population rising by more than 2 percent a year, that market is set to expand.

“It will be to their own detriment if companies ignore Africa,” said Celeste Fauconnier, Africa analyst at Johannesburg-based Rand Merchant Bank, the investment banking arm of FirstRand Ltd. “We are seeing massive growth in the population, an increasing middle class and people having more access to money.” ‘High Quality’

Consumer spending in Africa rose at a compound rate of 16 percent between 2005 and 2008, driven by economic and population growth and migration to cities, New York-based McKinsey said in its June report. McKinsey estimated that the number of consumers earning more than $1,000 a year will rise by 221 million within five years.

Sub-Saharan Africa’s economy will expand 5.5 percent next year, 2 1/2 times faster than developed countries, according to the International Monetary Fund. Per-capita income in Sub- Saharan Africa was $1,096 last year, according to the World Bank.

The FTSE/JSE Africa General Retailers Index is up almost 50 percent this year, ahead of the almost 9 percent increase in the FTSE/JSE Africa All Shares Index. South African Retailers

South African companies have spearheaded retail investment in the continent. Shoprite Holdings Ltd., South Africa’s largest retailer by market value, began expanding abroad in 1995 and now has 71 stores in 16 African countries, according to the company’s website. Rivals Pick n Pay Stores Ltd. and Woolworths Holdings Ltd., also Cape Town-based, both announced plans this year to expand their African operations.

Pick n Pay may accelerate plans to cut costs and improve efficiency before Wal-Mart’s arrival, the company’s Chief Executive Officer Nick Badminton said yesterday.

In Mozambique, Anita Guambe, a 45-year-old housewife, stopped asking her husband, a taxi driver, to buy food for the family on his regular trips to South Africa after Shoprite opened a store in the capital, Maputo.

“The entry of big chains is welcome because most of their products are of high quality and they are well packaged,” especially compared with the unhygienic street markets where the poor have to shop, Guambe said.

Challenges

Bentonville, Arkansas-based Wal-Mart will face challenges in the world’s poorest region. It will need to maintain a supply chain in a continent where roads and railways are unreliable, property rights are often weak and security isn’t guaranteed, said Paul Theron, managing director of Johannesburg-based Vestact Pty Ltd. It manages more than 1 billion rand ($145 million) of assets for private clients.

Poverty remains rampant in Africa, with 50 percent of the population living on less than $1.25 a day, according to the World Bank. And each of the continent’s 53 countries has its own tariffs, laws and regulations.

“One must not forget that Africa is lots of different countries, with different cultures, different languages and different ways of doing business,” said Jeanine van Zyl, retail analyst for Old Mutual Investment Group of South Africa, South Africa’s largest privately owned fund manager. “Perhaps they will fail if they try and do it too fast. You have to step away from markets that are not ready to be entered. The process can’t be rushed.”

Nigerian Potential

Wal-Mart was lured by the potential of markets such as Nigeria, Africa’s most populous nation with 140 million people.

“The focus has shifted towards these oil-based economies and commodities-based countries, which is where people have more purchasing power,” said Andrew Kingston, who helps oversee 300 billion rand for Sanlam Investment Management in Cape Town.

The purchasing power of Nigerians earning between $1,000 and $5,000 a year doubled to $20 billion between 2000 and 2007, McKinsey estimated. Massmart has plans to increase the number of its outlets in Africa’s largest oil producer to 20 from one over the next two years.

Wal-Mart International Chief Executive Officer Doug McMillon told investors at a presentation in Rogers, Arkansas, Oct. 13 that rising income levels in South Africa made Massmart a “tremendous opportunity.” South African consumers are “going to want more general merchandise, they’re going to want more food,” he said.

Over time, he said, the stores outside South Africa will “pay benefits” as the retailer learns what it’s like to operate in those countries.

Cleaner, Safer

The Game store in Lagos “is cleaner and not as chaotic as the market,” said Kola Oladapo, an accountant who earns 500,000 naira ($3,300) a month and shops there. “You never have to fear that by the time you walk out your wallet is missing.”

Wal-Mart, the world’s largest retailer, offered to bid 148 rand ($21.56) a share for Massmart, South Africa’s second- largest listed retailer, a premium of 9.8 percent over its share price at the time. The company is examining Massmart’s finances.

“The base work has been done, all they need to do is leverage that,” said Evan Walker, who helps manage 150 billion rand at Johannesburg-based RMB Asset Management.

For Twesigye, the Game shopper in Kampala, the important thing is quality.

“Some things may appear expensive, but considering their superior quality, prices remain good,” he said. “At such a big store one avoid the hazards of human jam, which comes with pickpockets.”

To contact the reporter on this story: Franz Wild in Johannesburg at [email protected].

To contact the editor responsible for this story: Peter Hirschberg at [email protected].
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Link to source below:
http://www.bloomberg.com/news/2010-...ting-richer-can-t-be-ignored-by-wal-mart.html
 

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Discussion Starter · #2 ·
I always suspected that africa's purchasing power was a little higher than what was let to believed.
 
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This isn't good news for Africa, especially for a continent which has a weak/non-existent manufacturing sector. Basically, if Walmart really does go ahead opening shops in Africa, this could potentially kill of any chance of further development in this sector. It is just another way of selling cheap Chinese made goods in the African economy. It will also kill of small business in Africa as well. African governments should looks towards way preventing this from occurring. Protectionism measures are needed in this case
 

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Mutu ya Chuma.
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What does Walmart going sell that isn't sold there? Cheap Chinese goods sold by Africans and the Chinese themselves.

They would make it in SA where were things are very expensive, they could help reduce prices there.

Luanda is another area where its possible to succeed due to near moon prices.

Pathetic that Kinshasa is behind Luanda's in retail prices.

Lagos could be sweetable for them as well.
 

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This is bad, so bad. :eek:hno:

Thank GOD that Ethiopia bans this type of nonsense.
 

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Discussion Starter · #7 ·
This isn't good news for Africa, especially for a continent which has a weak/non-existent manufacturing sector. Basically, if Walmart really does go ahead opening shops in Africa, this could potentially kill of any chance of further development in this sector. It is just another way of selling cheap Chinese made goods in the African economy. It will also kill of small business in Africa as well. African governments should looks towards way preventing this from occurring. Protectionism measures are needed in this case
I believe your reasoning is flawed.
 

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Well, it is a good thing that investors are eyeing Africa now. Having Walmart present I guess wouldn't be such a bad thing.

If Walmart wants to leap into Africa, then African governments need to do a few things to make sure the corporatin doesn't dominate over local competitors:

1) To enter the market Walmart, and other foreign retailers, must be in a joint venture with a local retailer. For the shareholder's agreement, I would say the 50:50 would work well. It would allow equal control over the JV for the foreign and domestic retailer. Possibly a little higher, possibly smaller. But I'd say no more than 55:45.

2) If available, goods must be brought from local producers.
This is bad, so bad. :eek:hno:

Thank GOD that Ethiopia bans this type of nonsense.
Hmm, well does Ethiopia have any large retailers? I don't think barring foreign entrance is a good idea, but if the sector is severely underdeveloped in terms of local companies present in it, then allowing foreigners in would only lead to their domination at the expense of local competitors.
I think some countries need to be cautious with outright banning FDI in sectors of the economy. It could work in favor of local companies who may grow larger, employ more, etc. And also it could turn sour.

I think Kenya has done a good job with development of its retail sector. If I'm right not many foreigners have invested in Kenya's sector, with most of the local giants grew on their own, and some even buying out other rivals.
What does Walmart going sell that isn't sold there? Cheap Chinese goods sold by Africans and the Chinese themselves.

They would make it in SA where were things are very expensive, they could help reduce prices there.

Luanda is another area where its possible to succeed due to near moon prices.

Pathetic that Kinshasa is behind Luanda's in retail prices.

Lagos could be sweetable for them as well.
selling cheap China goods won't work in other developing nations. If Walmart isn't willing to go into JVs w/ local companies, and buy as many wholsale goods from locals, then they shouldn't be allowed to enter the market.
 

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Walmart...boring...what special skills are they bringing to Africa? Africans dont know how to operate supermarkets?

Foreign investment is good in things like industry where Africa may not have the technical expertise but this is something else.
 

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èđđeůx;65759419 said:
Well, it is a good thing that investors are eyeing Africa now. Having Walmart present I guess wouldn't be such a bad thing.

If Walmart wants to leap into Africa, then African governments need to do a few things to make sure the corporatin doesn't dominate over local competitors:

1) To enter the market Walmart, and other foreign retailers, must be in a joint venture with a local retailer. For the shareholder's agreement, I would say the 50:50 would work well. It would allow equal control over the JV for the foreign and domestic retailer. Possibly a little higher, possibly smaller. But I'd say no more than 55:45.

2) If available, goods must be brought from local producers.


Hmm, well does Ethiopia have any large retailers? I don't think barring foreign entrance is a good idea, but if the sector is severely underdeveloped in terms of local companies present in it, then allowing foreigners in would only lead to their domination at the expense of local competitors.
I think some countries need to be cautious with outright banning FDI in sectors of the economy. It could work in favor of local companies who may grow larger, employ more, etc. And also it could turn sour.

I think Kenya has done a good job with development of its retail sector. If I'm right not many foreigners have invested in Kenya's sector, with most of the local giants grew on their own, and some even buying out other rivals.

I like that idea. A lot of countries have done so. I think China, Thailand and India did the same with Tesco.
 

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I like that idea. A lot of countries have done so. I think China, Thailand and India did the same with Tesco.
China requires all foreign corps. operating in China to be in JVs, if I'm right. If not all then most in majority of its economic sectors, and that has contributed to the growth of local companies and of course helped industrialization boom.
 

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African retailers have a hard time competing with their neighborhood Chinese vendors, Wal-Mart is going to ravage the continent. We can't just let every European/American innovation walk into our homes as if its all positive.
 

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Walmart...boring...what special skills are they bringing to Africa? Africans dont know how to operate supermarkets?

Foreign investment is good in things like industry where Africa may not have the technical expertise but this is something else.
Exactly what my problem is. What is the value addition to a country by allowing Walmart to operate?
In African countries case, there is the short-term benefit of cheap goods for the middle class. Outside of that, it's all downhill. Local retailers will be driven out of business, local suppliers will be drowned out completely in favor of Chinese crap products. The only winners will be China and Walmart.
The only countries that may remain unaffected are South Africa, maybe Namibia and Botswana.

In industry, I think FDI in any industrial field should be welcome. It brings:
- a HUGE amount of jobs, and we know how important this is in our countries
- expertise, technology transfer
- value-added products for export, which is excellent for countries like Ethiopia with no oil to bring in forex
- value-added products for local consumption, which again, helps with retaining forex, but also strengthens the industrial sector
- stimulates investments in infrastructure (to manufacture and transport said goods), in services (banking, insurance, IT, retailers, transportation and logistics, etc), in agriculture (e.g. to provide cotton for textile plants), in other industrial plants (e.g. a car manufacturer will encourage the formation of satellite companies around it to provide parts), etc.
 

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Walmart is looking for growth outside the US. And they want to be able to grow quickly with minimal resistance. They met a wall of resistance in Europe; they opened stores in China but must deal with a lot of barriers there; and in Latin America they have a lot of competitors that know their customer better and can source goods far better than walmart. So now Africa. My guess is that they may do well in a few countries but I doubt they would be able to roll out across the continent and do to local stores what they did here in the US. And yeah, practically everything they sell is made in China...except those items that can be made more cheaply elsewhere. ;)
 

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In South America- Carrefour is king. Im VERY surprised they havent been expanding more into Africa but im guessing they have a presence in the Francophone nations.

In Ghana, there is not one single supermarket chain- I think there are some with 3 or 4 stores but nothing else. The attitude in Ghana, and a lot of Africa is, if I have 2 stores and Im making good money, why bother expanding?
 

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In South America- Carrefour is king. Im VERY surprised they havent been expanding more into Africa but im guessing they have a presence in the Francophone nations.

In Ghana, there is not one single supermarket chain- I think there are some with 3 or 4 stores but nothing else. The attitude in Ghana, and a lot of Africa is, if I have 2 stores and Im making good money, why bother expanding?
Carrefour has shops and hypermarkets in Egypt, Morocco and Tunisia...
Carrefour is only since a couple years in this countries..
 

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Mutu ya Chuma.
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In South America- Carrefour is king. Im VERY surprised they havent been expanding more into Africa but im guessing they have a presence in the Francophone nations.

In Ghana, there is not one single supermarket chain- I think there are some with 3 or 4 stores but nothing else. The attitude in Ghana, and a lot of Africa is, if I have 2 stores and Im making good money, why bother expanding?
I don't think its because they don't want to expand, but because of low purchasing power in many areas. It also has to do with the store owner, "The vision".

retailers like the Kenya Nakumatt has is now in Kampala Uganda, Kigali Rwanda and Dar Tanzania.
 
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