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African retailers are facing an uphill battle. Across the continent, retail operators in all sectors are struggling to grow and expand. This holds true even for countries with relatively large economies.
As a result of the COVID-19 pandemic, midsize businesses have been hit hard, with retailers, in particular, suffering huge losses.
Measures to prevent the spread of the virus including all-encompassing societal lockdowns, have all but ground these small to medium-sized firms to a halt.
But even before COVID-19 struck, the retail industry was struggling. The types of challenges facing the sector cover a wide spectrum and each country seems to have its own unique difficulties.
South Africa has for years suffered from the overcrowded markets, or how economists often refer to it, market saturation, where the demand for products has tapered off due to slow growth of market size and/or too many competing businesses. A Global Retail Development Index released early last year showed that “the level of saturation in the market, combined with the rate of growth within the South African economy presents an opportunity for existing retailers to expand, and limits the opportunity for new entrants.”
In Nigeria, despite the country’s burgeoning digital culture, it is the e-commerce pioneers who are struggling. A decade ago, online sales were the go-to for new start-ups in the country. Yet over the past five years, a slew of Nigerian e-commerce firms have been forced to sell at a loss of fold completely, after failing to meet investor expectations. Even traditional brick and mortar companies that have attempted to inculcate e-commerce have begun to pivot away from the online option.
The trend holds true for other developing economies as well.
For a long time, Zambia was home to a large population of small-scale private vendors. However, the influx of foreign firms has upended the economic structure, making it exceedingly difficult for non-corporate retailers to survive. The retail food sector is one example that potently highlights this pattern. Market stalls were once common in Zambian cities and drew steady clientele from the commuting workforce. But with the introduction of modern, spacious, and often air-conditioned supermarkets in the capital Lusaka, such as Cheers, Pick n Pay, and Spar, stall owners are finding it difficult to survive in a once-thriving industry.
“There are very few Zambian and African entrepreneurs in the African business landscape with thousands of multinationals operating in Africa. What is necessary is a genuine inclusion of local expertise so that wealth is shared and we can see more wealthy Africans emerge in the future,” said Zuneid Yousuf, group chairman and a director of MBI Group and Chairman of African Green Resources.
“Governments and Africans need to wake up to this very important fact and take action to encourage Africans to return home and build flourishing economies,” he added.
Expanding the options of business owners in Africa to access capital could be the answer to the lingering problem of retail stagnation.
Over the past several years, entrepreneurs and private organizations have developed creative ideas to finance business ventures at the local level in a host of African countries. Leasing arrangements have bolstered private vendors by providing access to the equipment they need to begin operations. Venture capital firms with a focus on commercial vendors have been able to provide the initial investment necessary for small businesses to open. Loan providers have also begun to give those in underdeveloped African countries the basic financial services that up until recent years were simply unavailable.
In Kenya, retail chains are being forced to abandon operations in the East African country as profits have continued to stagnate over the past several years. Last April, ShopRite Holdings, one of the biggest retail players in Africa, decided to call it quits in Kenya. A few months later, Tusky’s, the largest supermarket chain in the country, began closing major branches. Observers at the time noted this was just the latest in a long string of once-robust retailers collapsing as markets dry up. Perhaps the most puzzling aspect of the struggling retail saga is that Africa, for the most part, seems to have many of the ingredients necessary for a thriving retail market.
Back in 2017, when the challenges of retailers were becoming more apparent, economists were shocked that this was occurring despite robust economic growth, a rising middle class, and increased purchasing power. It contradicted many of the bullish reports of the time by analysts touting the continent (especially the developing sections of East Africa) as the next growth frontier for the retail business, driven by an increase in pedestrian traffic and technological advancements.
While market observers have been trying to crack the question of why retail in Africa is failing, the answer seems to have been staring them in the face.
The banking sector, the very engine of commercial business, has always been underdeveloped and under-equipped in Africa. This has presented the single biggest challenge to African businesses as difficulties in accessing finance have consistently ranked as one of the biggest constraints to small business growth. This, in turn, has constrained the entire retail industry and hampered job creation as well as the wider economic prosperity that comes with a flourishing commercial culture.
Instead of focusing on market trends and other social factors affecting African retail, stakeholders have been ignoring the most fundamental of factors holding back small-scale commercial ventures on the continent. Continuing to expand the funding capacity for African business, the pattern of failure that has plagued the region’s retail sector can and will finally be reversed.
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