Lagos in Nigeria and Nairobi in Kenya can offer global retailers new revenue opportunities in an increasingly saturated consumer world.
Populous and nerve centers of their respective countries' super-charged economies, the cities are the "hidden heroes" that are operating below the radar screens of global investors, according to management consultancy Deloitte.
Lagos, teeming with as much as 15 million people across the wider metropolitan conurbation, is the commercial center and key beneficiary of the Nigerian economy, which is set to surpass South Africa as the continent's largest economy.
Deloitte notes that the city's GDP per capita stands at USD 3,500, which is 60% higher than the national average, suggesting strong purchasing power and a decent-sized middle class even though Lagos is one of the most expensive cities to live in Africa.
The consultancy links the city's inevitable rise to the heavy investments in the oil sector along with telecom services, real estate and financial services.
"The small, but growing percentage of comparatively well-off people in Lagos means there is a decently large market for modern retailers already in terms of absolute customer numbers," Deloitte noted.
Efforts made by the authorities to restrict street trading and upgrade city centers also build the case for organized retailing in the city. While open markets will continue to remain popular, Western-style shopping centers will increase their market share in the city and the wider country, says Euromonitor International in a report.
Retail deals
"In 2011 and 2012, Retail Supermarkets Nigeria Ltd, the national brand owner of Shoprite, opened four more stores in Nigeria, thus widening its national presence, while Artee Industries Ltd, the Nigerian partner of Internationale Spar Centrale BV, opened another Spar outlet in 2012," notes Euromonitor.
"Meanwhile, following the acquisition of Game's Massmart Holding Ltd by Wal-Mart Stores Inc, the company has begun its own expansion, opening its second store at the end of 2011. There was also a great deal of activity in the apparel specialist retailers channel as new international players entered Nigeria in 2012."
In addition, South Africa's Public Investment Corporation (PIC) is also partnering with South African retailers to develop shopping centers across the continent, while the Rebosis Property Fund is creating a USD 2 billion private equity fund to build centers in Kenya and Nigeria, apart from other African destinations.
Real estate consultants Jones Lang La Salle (JLL) considers Nigeria as a 'frontier market', full of promise but with opaque laws that are bound to frustrate investors.
"In sub-Saharan Africa, South African investors/ developers in partnership with retailers are likely to accelerate their move across the continent," JLL said in a report on the global retail sector.
"The focus will be on Nigeria, the region's largest consumer market, oil-rich Angola, Ghana and Mozambique, and some of the more stable markets in Southern and Eastern Africa such as Zambia, Kenya, Tanzania and Uganda."
Nairobi: The making of a hub
At the eastern end of the continent, Nairobi offers its own charms. At five million, the city is much smaller than Lagos, but is enjoying the benefits of one of the most best-performing economies in the region.
The city is the regional home to a number of multilateral agencies such as the United Nations and World Bank and is also a manufacturing and distribution center for many Western companies. It is also the gateway to Kenya's natural wonders and exquisite wildlife that attracted 1.2 million tourists last year.
Like Lagos, Nairobi has large swathes of land dotted with informal shelters and is firmly out of the domain of the organized retail sector.
"Looking ahead in the immediate future, any relevant investment for the modernization of Nairobi's mass market retail sector will primarily focus on supermarket and neighborhood stores, with retailers having to increasingly target the small but fast-growing middle class of the city, rather than relying on high-income households almost exclusively," notes Deloitte.
But the market is ripe for the taking. Local players like Nakumatt, Tuskys and Uchumi have less than 20 outlets each in the city and are considered dominant.
While the market is absent of international players and boast only a handful of South African retailers, Walmart announced last year that it plans to rent retail space in a shopping center set to open in 2014.
"This can be seen as a sign that Kenya, and especially Nairobi, is appearing on the radar screen of foreign retail companies," said Deloitte. Further investments can be expected - albeit just on a small scale at this point in time and largely with a view to getting an early foothold in a city, which is expected to develop into a strategic market in the long term."
Like other sectors in key African states, retail offers tremendous promise on the back of rising wages, a more sophisticated and aspirational middle class with rising purchasing power.
© alifarabia.com 2013
