April 30, 2012 ( FT Advisor) -- As companies go through their strategic planning processes, African cities should be a priority
Sub-Saharan Africa’s potential for economic growth is no longer a secret.
Companies will also be able to partner with the multinationals that are increasing investment allocations across the continent. Foreign direct investment (FDI) to Africa increased 10-fold between 1990 and 2009. Over the next few years, FDI is expected to continue its steep growth in markets like Ghana, Kenya and Nigeria in particular. As leading multinationals build their presence in Africa’s largest cities to capture growth, they are planning to expand to second and third-tier cities in the near future.
One of the biggest challenges that companies face in sub-Saharan Africa is the high cost of expanding into new markets due to deficiencies in infrastructure. As a result, eight out of the 10 cities often recommended to clients are among the region’s most accessible by land (Johannesburg, Nairobi), river (Kinshasa), and sea (Accra, Dar es Salaam, Lagos, Luanda, Mombasa). One of the remaining two, Ibadan, is a natural expansion target for companies active in Lagos because of its large economy and supply of cheap educated labour.
Household consumption growth in Dar es Salaam and other east African cities, like Mombasa and Addis Ababa, will average more than 7.5 per cent growth through 2015.
While poverty and an underdeveloped infrastructure reduce market size in Kinshasa, staggering population growth and consistently high economic output means rises in this 10m-strong city cannot remain ignored by multinationals. The city’s informal economy also makes it very difficult to accurately calculate the true size of its GDP.
As companies go through their strategic planning processes this spring, African cities should be a greater focus than ever. Companies that fail to take this bold step will be crowded out by competitors fighting for the last great fast-growing market in the world.
Firms that move first can capture a generation of emerging consumers and keep them loyal to their brands.
Matthew Spivack is a practice leader for the Middle East and Africa at Frontier Strategy Group