Looking at future population trends provides a compelling reason to consider how your company’s supply chain might work to serve Africa. United Nations data shows an obvious problem for companies, especially in consumer industries, who are too reliant on developed markets for their business. Saturation for such big categories as packaged foods, health and beauty products, apparel and most other consumer discretionary spending is a real issue when total populations in Europe, the Americas and even Asia within the next few decades flatten out. How much more toothpaste can we be persuaded to buy with great marketing?
Africa, in stark contrast, is looking at nearly 80 years of high growth rates and is projected to comprise more than 3.5 billion people by century’s end. The vast majority of this population still has minimal access to consumer products and thus huge amounts of unmet demand.
The ability to pay is also part of making Africa attractive as a growth market and data analysed by McKinsey & Co. points to a strong positive trend here also. Income distribution as recently as 2000 saw a clear majority of all households on the continent effectively too poor to have meaningful discretionary income. As of 2008, those numbers had changed enough that by 2020 a clear majority is expected to be classified as consuming households. This means that five years from now Africa will contain 127 million shopping families.
Supply chain leaders are beginning to see the opportunity. SCM World’s 2014 CSCO survey of over 1,000 supply chain executives found 115, or just over 10 percent of the total, who identified at least one African country among its top three opportunities for growth. Tops among those countries named were Nigeria, followed closely by South Africa, Angola, Kenya and Mozambique. The most active industries focused on the African growth opportunity are clearly in consumer industries with infrastructure builders in a distant second place.
For those global companies prepared to design a supply chain strategy for Africa several key lessons must be borne in mind. First is supply chain viability remains a serious challenge. Roads, power supplies, communications infrastructure, local production capacity and sales channels are all generally underdeveloped. Second is breakdowns in the rule of law and transparency of government can and do seriously impede work.
Companies who've been able to overcome these issues challenges include Coca-Cola whose micro-distribution system makes a virtue of necessity by cultivating small-scale local entrepreneurs to place product at millions of points of sale. Also interesting is the lesson learned by Diageo which has used modularized skid-mounted production facilities to limit the risk of stranded capital assets where governance breakdowns threaten business continuity.
Africa clearly offers hundreds of millions of new consumers and for those supply chain leaders with an appetite for longer term, high-risk, high-reward plans the continent is a must. Patience and perseverance, however, are essential as well as a willingness to work within the practical constraints of the region as it develops.
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