Tuesday, 03 July 2012 02:00

Rising incomes and investors in heavenly match-up in Nigeria- Dianna Games

(Business Day – South Africa) - AS IF more evidence was needed of Nigeria’s attraction as a major consumer market, the opening of the new Shoprite store in the capital, Abuja, a fortnight ago was an unprecedented success. Shoppers told me amid the crush that the prices were much lower than the local markets and they relished the choice of goods.

More than 15000 people visited the store on the first day and the company described it as the best opening to date in Nigeria. Similarly, last year Mr Price said its first Nigerian store, in the Ikeja City Mall in Lagos, enjoyed the second-best opening in turnover terms in the group’s history.

A number of South African retailers, including Pep Stores and Foschini , are expected to join the ranks of other local brands, such as Woolworths, Mr Price and Truworths, in setting up shop in Nigeria, although Pep, with plans for 50 stores, has opted for a street retail model rather than the malls because of high rentals.

The new Shoprite is located in the Grand Towers Abuja Mall, developed by SA-based Novare Equity Partners with its Nigerian partners. Once it is fully occupied, the centre will have 44 shops and restaurants, with the usual mix of local and international retailers, restaurants, pharmacies, cellphone companies and banks.

Abuja is one of Nigeria’s fastest-growing cities, with a relatively large and rapidly growing middle class of public servants, diplomats and others with average incomes higher than those elsewhere in the country.

The Abuja supermarket is Shoprite’s fifth store in Nigeria, where investors are clamouring for opportunities in the fast-moving consumer goods sector and customers with rising incomes are ready to part with their money. It’s a match made in heaven.

Coincidentally, on the same day as the mall launch, I also attended a dynamic presentation at the Lagos Business School on the Nigerian consumer market. Research, we were told, has found that the growing middle class has about 40-million people. That is almost the size of SA’s total population and more than the populations of most African countries.

The fast-moving consumer goods sector grew by 17,9% last year compared with 2010, with the food segment contributing more than half of that market. Telecommunications accounted for 29,3% last year.

Aspiration for top-end labels is a key factor in Nigerian retail, driven by a desire for status and exposure to international brands. Nigeria has more than 45-million internet users, making it the 11th-most "connected" country.

The experts predict 1000% growth in per capita retail sales by 2016, with very high growth in restaurants and bars as well as kiosks over the next five years. Modern retail is expected to grow by 25% over the period, from about 145 outlets to about 500. At the same time, banking and payment systems are destined to become more efficient, particularly with the growth of cellphone banking.

Despite this explosive growth, analysts seem to believe it will take about 10 years for Nigeria’s formal retail sector to resemble SA’s because of strong competition from other forms of shopping, such as markets.

There is also the question of rising poverty in Nigeria, where more than 80-million people are regarded as poor and living a subsistence existence. Incomes are also expected to be affected by government reforms in the fuel and power sector, where the rising cost of services is a byproduct of making the economy more efficient.

Other constraints to growth include the high cost of finance, difficulty in securing land, the poor operating environment for local industry, as well as government-imposed import bans and supply-chain challenges related to infrastructure deficits and stifling bureaucracy.

One often hears that the way to stimulate an economy is to pick winners by exploiting natural competitive advantage. In this case, the Nigerian government has a clear winner in plain sight and what it needs to do is remove the aforementioned obstacles to its further growth — in some cases by getting out of the way.

• Games is CEO of Africa At Work, a consulting company focusing on African business.

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