It’s small, with just 1.7m people, but Gabon named ‘hottest’ sub-Saharan Africa’s retail nation

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Botswana is strong too. Angola, which imports 90% of its food, and Tanzania, are interesting possibilities. Rwanda's fortunes are mixed.

GABON is the most attractive sub-Saharan African country for international retailers to target due to strong economic growth and a stable middle class, according to A.T. Kearney’s African Retail Development Index.

The study, which evaluated 48 countries in the region, ranked Gabon ahead of Botswana, Angola, Nigeria and Tanzania. The index, published by the U.S. consultancy on Tuesday, is compiled based on factors including the size of the urban population, business efficiency and risk of investment.

The study’s authors point to the continent’s young population and a growing middle class that is “still deciding on its favourite brands – in short, it is brimming with potential,” A.T. Kearney consultants including Mike Moriarty and Jaco Prinsloo say in the report.

However, winning in Africa requires more than just knowing that the future of its markets is bright.

With the recent currency turmoil on the continent, contagion from the China slowdown, and a dip in both oil prices and investor confidence, it seems that there’s a need for more deliberative, long-term thinking, and determination to tough it out through the turbulence.

Selecting the countries in Africa to expand in is more difficult than ever, the authors say; “there are no safe bets any more – if that were ever the case at all.”

“Although the long-term growth potential is truly breathtaking, the short-term returns are unlikely to be amazing; India in 1933 probably wasn’t an attractive short-term play for Unilever, either.” But the long-term view paid off in the end.

Gabon’s prospects are boosted by its healthy economic growth projections of 5.5% next year, compared with an average of 5.1% for sub-Saharan African countries, according to the International Monetary Fund. 

About 86% of the central African nation’s population is urbanised, Kearney said, while “its stable middle class is exactly what is lacking in so many other sub-Saharan African countries,” according to the report.

But the country’s small population of just 1.7 million is its biggest downside, Kearney said, which would deter retailers seeking larger populations and potentially higher sales volumes, the consultancy said.

In second place is Botswana, also a small market of just 2 million people, but its modern retail sector is well developed, led by a number of active local and South African players. Local chain Choppies has more than 70 stores in Botswana—along with big African expansion ambitions; four malls have opened in the past four years.

Although the market is saturated in terms of players and market share, the market is still growing in absolute terms.

“Considering Botswana’s proximity to neighbouring attractive markets Namibia and South Africa, this Southern Africa gem could be an interesting entry point, if you have something new to offer,” the authors say.

Angola comes in at third place, and although it has been battered by the recent slide in oil prices, there could still be an opportunity for a retail investor with an eye on the horizon.

“Currently, more than 90% of all food products [in Angola] are imported, which results in higher prices compared to other markets. With a specific proposition and a strong sense of the target market, a retailer can still find a strong opportunity here.”

In East Africa, Tanzania has a lot going for it as an attractive retail market; it is home to a relatively stable political climate, 50 million people, and more than 7% annual GDP growth.

However, Tanzania is starting from a low base: With only 30% urbanisation, high poverty levels, and less than $2,000 GDP per capita, Tanzania is in the early stages of development.

Therein lies the opportunity, the authors say—the unsaturated market has one of Africa’s fastest growing retail sectors, boosted by new shopping malls. Compare this with Kenya, which has one of Africa’s most developed markets—but also one of its most saturated.

As Tanzania’s growth continues, the time may be now to establish a footprint and a brand. The country is large enough for a mass-market concept, entering today would require a basic value proposition and a long-term view to be successful.

In the first ARDI in 2014, Rwanda was the surprising “small gem” at the top of the rankings, buoyed by robust retail sales growth (roughly 20% a year), and similar strong growth in retail spending per capita, though the country was starting from a low base, with high poverty levels.

But over the past year, growth slowed down a bit, and global risk indicators have increased a little compared to last year.

Rwanda ranks highly again in terms of low levels of corruption and crime, but “the financial and political risks have increased slightly and the window of opportunity is starting to close.”

Ultimately, scale will come to sub-Saharan Africa only when a few things happen, particularly the development of a shopping culture, the analysts say.  

“The first priority in most markets is for basics and dry goods, but over time fresh supply chains and modern shopping space will be increasingly needed.”

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