Rwanda emerges as first choice for retail businesses in Sub-Saharan Africa
The report predicted that by 2020, nearly half of all Africans will be living in cities, and, as disposable incomes rise, consumer spending will grow to almost $1 trillion. (Image: ARDI)
The 2014 African Retail Development Index (ARDI) launched on Monday by global consulting major AT Kearney highlighted that Rwanda is the leading business destination in the African continent for its focus on reforming the business climate and its ability to attract foreign investment.
The report predicted that by 2020, nearly half of all Africans will be living in cities, and, as disposable incomes rise, consumer spending will grow to almost $1 trillion. As Africa continues to grow, a rise in retail growth is inevitable.
“As retailers tiptoe into Africa, figuring out where to enter and how to begin is a daunting task. While Africa is becoming a serious investment option for retailers, questions abound on how to succeed there. It is with this in mind that AT Kearney embarked on its first African Retail Development Index,” said Mirko Warschun, a partner at AT Kearney and co-author of the report.
With an annual GDP growth of more than 8%, Rwanda leads the ARDI rankings and an efficient government and strong macroeconomic indicators are the factors which predict many opportunities for international retailers that can offer basic packaged goods in the country, although Rwanda is small in terms of land area.
A big challenge faced in Africa is the supply chain because although urbanization is taking hold, much of the urban growth in Africa is informal and uncontrolled, putting an overwhelming strain on delivering products and services with underdeveloped infrastructure.
Another challenge faced by global retail chains is that traditional, informal formats still dominate the retail landscape, even among the growing middle classes. As much as 90% of African commerce happens at these small kiosks, independent stores and non-organized, open-air markets. But, African retailers such as South Africa’s Shoprite, which operates in more than 16 African countries, and Kenya’s Nakumatt, present in neighbouring Rwanda, Uganda and Tanzania, have expanded successfully, and global retailers such as Wal-Mart and Carrefour are also moving in.
As African consumers are price sensitive and brand conscious, a retailer who enters an African country finds it difficult to put the right products on the shelves.
In such an environment, winning top place for offering a conducive environment to retailers is no mean feat, and Rwanda is increasingly leveraging a strong governance and conducive macroeconomic indicators to its advantage.
Other countries figuring alongside the East African economy in the top five places of the inaugural index are: Tanzania, Nigeria, Namibia and Gabon.
Besides, Ghana, South Africa, Botswana, Mozambique and Ethiopia round up the top 10, in that order.
However, the report notes that some of the biggest surprises in compiling the first ARDI was the absence of noteworthy names like Kenya, Uganda and Angola. Despite rubbing shoulders with top-ranked Rwanda in the East African Community, Kenya and Uganda find their rankings hampered by low growth rates for GDP and sales per capita for the first and a low urban footprint and subdued sales per capita for the second.
While many African markets are starting from low bases, making an immediate impact in these countries could lead to long-lasting brand loyalty and a growing advantage in coming years.
The 2014 African Retail Development Index showcases the top 10 countries in Sub-Saharan Africa for retail expansion as well as potential markets in the future by assessing 48 countries in the Sub-Saharan region and making use of 2012 data.