Lured by its clear potential – a large population, positive macro-economic growth and a strong appetite for consumer goods – chains both foreign and local are dramatically expanding their domestic retail footprint.
By the end of June, Shoprite – the continent’s biggest retailer – opened its fifth shop in Nigeria, and another two are on the cards for the middle of next year. Whitey Basson, the CEO of Shoprite, has outlined plans to open up to 700 stores in the country, and Massmart, South Africa’s second-largest retailer and partly owned by Walmart, has announced that it intends to increase its presence from two to 20 stores.
Meanwhile, Spar, Europe’s largest retail network, has partnered with Nigeria-based Artee Group to tap into the local market, cutting ribbons at a new outlet in Lagos and one in Abuja. Looking ahead, the firms aim to increase their Lagos network and expand into Port Harcourt and Ota in Ogun State over the next six months.
The lifting of an eight-year ban on the import of garments in December 2011 has also opened the door to foreign brands. The ban was initially aimed at stimulating domestic production, but critics claimed that it had led to the smuggling of cheap products from Asia. Moreover, local manufacturers struggled to benefit from it due to the country’s unreliable power supply and the subsequent need to run their operations using expensive generators, which priced their goods out of the market.
The lifting of the ban seems to have created new opportunities in other segments, however. For example, Artee Group is currently in advanced discussions with various US- and UK-based brands, with plans to open its first outlet before the end of the year, following the example of other chains such as Mango and Woolworths.
Growth in retail space and opportunity has been accompanied by rising purchasing power. Real GDP for the year is forecast to grow at around 7%, according to the IMF. This has had a positive impact on people’s ability to spend, with GDP per capita levels estimated at $1656, up from $1541 in 2011 and $390 in 2001, according to Renaissance Capital, a multinational brokerage. The firm also said that the country’s middle-class segment earns about $6000-7000 per year, bringing the purchase of modern household goods within range.
But as development of formal retail gathers momentum, investors are becoming increasingly attuned to factors that could limit growth. Firstly, retailers decry the lack of adequate space. As Haresh Keswani, the founder and managing director of Artee Group, said in a recent interview with local media, “Modern outlets are dependent on the standards of newly built, large shopping malls. However, cumbersome access to land, high costs and the short duration of bank financing is constraining developers’ appetite.”
Outside of Nigeria’s commercial centre, the situation is little different. In Abuja, despite the opening of four malls in the past five years, it has taken until June 2012 for the Grand Towers to open with the standards required by international retailers. Other cities, such as Port Harcourt and Calabar, have yet to see the arrival of their first city mall.
Inflation, currently at 12.9% and expected to rise to 13.57% by the end of the year as a result of higher prices following the partial removal of the fuel subsidy at the start of 2012, is likely to constrain purchasing power. Furthermore, with more than half of the population living on less than $1 per day, the inequality of income distribution is a potential impediment to the growth of formal retail, limiting the size of the consumer market.
However, scepticism regarding the potential of Nigeria’s modern retail sector has so far been brushed aside. “Even if you have 60% of the population living in poverty, 40% of the Nigerian population is still bigger than the South African population,” Basson said in a statement.
Retailers feel the government has a crucial role to play and have called for incentives for real estate developers, alleviation of land access procedures and a greater regard for retail in the country’s economic policies. “The government should encourage retail as an industry. It is labour intensive and accessible to workers with basic levels of education; it is the world’s biggest employer,” Keswani said in a recent interview with local media.
Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.
Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.
Register Here×La production marocaine de phosphates et de produits dérivés, comme les engrais, devrait connaître une hausse considérable. En effet, l’Office Chérifien des Phosphates (OCP), qui détient le...
To what extent has the Covid-19 pandemic changed the business environment, and how is Oman helping companies adapt to new realities?
The Turkish Prime Minister Bulent Ecevit has spent the last week in the US hoping to garner support for economic reforms at home and trade concessions for Turkish exports to the US.
