Africa Beckons, but Is Electronics Ready?

I never thought I would see the day that a major Western research firm would tout Africa as a leading growth target for companies serving the consumer market with hundreds of billions of dollars at play.

The economy of Africa, the world's largest -- but largely forgotten -- continent, is rising rapidly, and after years of being a basketcase for war, political chaos, and deep poverty, its leading nations are growing almost as fast as their Asian counterparts and offering international enterprises huge potentials for solid sales and profits expansion if properly tapped, according to a recent McKinsey Quarterly report.

Electronics equipment manufacturers should take note. Demand for communications equipment especially is roaring in Africa with many countries skipping entire generations of hardware and going straight for the latest devices. Most African users, for example, have dumped telephone landlines and opted instead for mobile phones. They are also rapidly transitioning from personal computers as the primary means for accessing the Internet to tablet PCs, which offer a higher level of portability and are also generally cheaper. Chinese suppliers have been quick to tap into these veins and are selling millions of no-name tablet PCs across the continent.

McKinsey noted several factors that are making Africa a compelling attraction for OEMs and component suppliers. The consulting firm said it sees "consumer-facing industries" on the continent growing $410 billion between 2012 and 2020 and "representing the continent's largest business opportunity." Some of that growth will be concentrated in the electronics and communications infrastructure markets. The continent, McKinsey said, has the following characteristics that will help it continue to grow strongly over the next decade:

• Explosive population growth: Africa has the world's fastest-growing population and is projected to account for more than 40 percent of global population growth to 2030, according to the United Nations. Thanks to declining fertility rates, it is the working-age population that will have the highest growth rate. (In fact, by 2040, Africa's working-age population is forecast to surpass China's.)
• A youthful market: Africa has the world's youngest population -- more than half its inhabitants are under 20 years old, compared with only 28 percent in China.
• An emerging, optimistic consumer class: By 2020, more than half of African households are projected to have discretionary income, rising from 85 million households today to almost 130 million. Africans share the optimism of that forecast: 84 percent of those we surveyed said they expect their households to be better off in two years.
• Healthy urbanization: With 40 percent of its population living in cities, Africa is more urbanized than India (30 percent) and nearly as urbanized as China (45 percent). By 2016, over 500 million Africans will live in urban centers, and the number of cities with more than 1 million people is expected to reach 65, compared with 52 in 2011.
• A modernizing retail trade structure: Fragmented, informal retailing remains the norm in most of Africa. However, there are signs that the formalization of retail will dramatically increase in coming years. In Nigeria alone, international-store openings are growing by 36 percent a year.

Such promising numbers should have retailers and manufacturers salivating over the possibilities of higher sales in Africa, but the promising financial numbers are also coupled with enormous challenges, including a general lack of knowledge about the continent and its potentials. Many Western companies are simply unaware of the growing sales opportunities, and those that are conversant with the continent simply lack the resources to exploit it or have a deep fear of its many known and unknown challenges. McKinsey said further:

Africa's large, fast-growing population, combined with rising consumer disposable income, offers companies an enormous opportunity. Our research findings have important implications for enterprises new to the continent or for those seeking to expand there from an African base. The appropriate actions for each business will depend on a variety of factors.

In a future blog, I will identify and discuss some of the strategies suggested for serving the growing African consumer market and how electronic companies can leverage their current expertise and product offerings in the West to address the needs of the continent.