Nigeria falls to 4th Position in African Retail Index
Kayode Ola . 9 years ago
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Article Summary: A.T. Kearney’s 2015 African Retail Development Index (ARDI) placed Nigeria in 4th position, two places lower than its ranking in 2014 as a result of comparatively low true spending and difficult business environment. The Index covers the top 15 retail markets in Sub-Saharan Africa (SSA), ranking each on a 0 to 100 point scale, where a higher ranking means…
A.T. Kearney’s 2015 African Retail Development Index (ARDI) placed Nigeria in 4th position, two places lower than its ranking in 2014 as a result of comparatively low true spending and difficult business environment. The Index covers the top 15 retail markets in Sub-Saharan Africa (SSA), ranking each on a 0 to 100 point scale, where a higher ranking means greater urgency to make an entry into the country. The scores were based on market attractiveness, country and business risk, market saturation and time pressure.
Despite the positive signs in Nigeria from increasing online retail sales, a pipeline of 25 new shopping centers, rising middle and upper class, and the potential upside from a 1% modern supermarket penetration, a fair share of negatives resulted in the drop in rankings. To begin with, the true spending in Nigeria remains comparatively low, as the segment that the report classifies the ‘true middle class’ in Nigeria is much lesser than the smaller countries ranked above it. The percentage of people living below the poverty line, makes it very hard for specialty retailers to thrive, meaning that only those with scale can grow aggressively in the big cities like Lagos and Abuja. Examples include South African grocery chain Shoprite, who currently have 12 stories in Nigeria with plans to open 14 more over the next 20 months. Other negatives include difficulty to do business and the effect of the oil price crash on the value of the Naira for customers and retailers. Many are now feeling the bite of the lower Purchasing Power of the Naira and restrictive measures from the Central Bank have not helped either. The price-and-brand sensitivity of the average Nigerian customer is also a very crucial factor for retailers to considers as Nigerian care deeply about where products originate.
Another African economic giant – South Africa took the 6th position even with its high urbanization rates and significant middle class. The country’s economic struggles (1.3% GDP growth) and retail market saturation have proved a big problem for retailers. Gareth Ackerman, Chairman of the South African grocery chain Pick ‘n Pay noted that Africa today is a much more dynamic opportunity and retailers/investors seeking an entry should realise that South Africa is no longer the only entry point, even though it remains an important purchasing base if you want to trade on the continent.
Overall, Sub-Saharan Africa’s economy is now suffering from a slowing Chinese economy and lower oil prices. For countries like Nigeria, Angola and Mozambique who are still dependent on oil and gas, middle class growth has slowed as a result. Gabon’s strong position was driven by a per-capita income that is the highest in Africa (~$21,000), an 86% urbanized population and a relatively stable business environment.
Read the report on the ei Research Report Centre.
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