South Africa’s supermarket retailer, Shoprite, recently announced that following a re-evaluation of its operating model in Nigeria, it had started a formal process to consider the sale of all or a majority stake in its retail supermarket business in the Nigerian market. In Kenya, Shoprite has also closed seventy percent of its stores within a year of entry into the market. This is part of Shoprite’s review of its long-term opportunities in Africa as several challenges including currency devaluations, supply issues and low consumer spending in several countries have negatively impacted its earnings from its African operations outside South Africa.
Even though other foreign-owned businesses like Woolworths, Mr. Price and Nando’s had previously exited their operations in Nigeria completely, the news about Shoprite story was much more of a big deal. Shoprite is a well-known brand that has played a key role in making an organised retail shopping experience available to more Nigerians across the country. Also, Shoprite has operated for 15 years with 26 outlets across the country and is reported to have 2000 employees in its employment.
Understandably, the news was greeted with an uproar in the media. Shoprite clarified its position that it is not completely exiting the market but rather considering offers from Nigerian investors who share in their vision and in the process, create a truly Nigerian business run and owned by Nigerians for the Nigerian market. No one can honestly blame Shoprite for taking what it considers to be an informed business decision. Interestingly, in this same challenging market, more locally-owned brands like Hubmart and Ebeano Supermarkets appear to be thriving. It does seem like Shoprite’s decision is a candid admission that it’s operating model is ill-suited to the realities of the market and that more local knowledge; expertise and management will be more relevant in its operations at this point in time.
The United Nations Conference for Trade and Investment (UNCTAD) in its World Investment Report predicts that foreign direct investment (FDI) inflows into Africa will fall in 2020 by between 25 percent to 40 percent on account of COVID-19. Opportunities may exist for intra-African investments but this will be carefully considered in the face of the economic challenges across the Continent. At this time, more local businesses with deep local expertise and a much more nuanced understanding of consumer needs will be much better positioned to serve local markets.
Some traditional multinational FMCG companies in Nigeria structured to service the depleting middle class are struggling to compete with nimble local unknown brands who have effectively leveraged unique market knowledge, lower costs and targeted propositions to the widening lower rung of the economic class. The seeming lethargy of FDI into Africa at this time, presents an auspicious opportunity for stimulating local domestic investments (LDI) to grow local companies more adept to the economic realities of the time.
To do this, we have to start by addressing an African self-perception problem that denigrates anything local. We generally have more confidence in foreign than local products or services. Governments appear less supportive to local investors as they would be to foreign investors. Even though we have excellent World class African companies, it was quite telling that African brands accounted for an all-time low of only 13 percent of the top 100 African brands in 2020 as reported in the well-respected Annual Brand Africa Report. We need to start with re-engineering our mindset to respect our local African businesses as capable value creators and socio-economic growth vehicles comparable to any other business anywhere in the World.
Generally, we must rewire our economies, policy and regulatory structures to be more deliberately supportive of local investments in these challenging times. As a matter of priority, policy support including targeted incentives can be extended to stimulate bespoke local businesses in identified sectors of the economy. To this end, progressive Governments can engage with Africa Venture Capital players to explore what, if any, support can be provided to support specific investments in particular companies/sectors. All relevant investment capital available in the African Continent must be optimally deployed at this challenging time. Time to think without a box.
Shoprite has reminded us that wholesale application of operating models and best practices across African markets is challenged at this time. While we still need the right quantum of FDI to grow significant businesses in Africa, this is likely to be at risk without in-depth local market knowledge. We need a new African growth model which emphasises the right combination of external capital with local market knowledge, value chain development expertise and market building capabilities.
More foreign capital investment into promising domestic companies instead of the traditional FDI model that comes with operating models and structures not aligned to the operational realities on ground. A win-win partnership of foreign capital, governance systems into building well-structured local businesses more culturally-attuned to the needs of our respective markets.
This is how we build bigger bolder African businesses ahead of the post COVID-19 global economic recovery. Time to reset.
Michael Ikpoki is CEO of Africa Context Advisory Partners, an ICT, Africa Market Entry and Growth Advisory Company. He was previously CEO of MTN in Ghana and Nigeria.