As South African Retail Outlets Swoop on Nigeria…

14 Apr 2013

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Game and Wallmart

The penetration of South African-owned retailers like Shoprite, Game Stores, PEP and Massmart into major Nigerian cities has been attributed to the favourable investment climate and the big market in Nigeria. When will South Africa reciprocate the gesture by removing all the bottlenecks Nigerian businesses in South Africa, ask Festus Akanbi and Affardi Catherine

Mr. Sanya Onifade  (not real name) who had lived in Ilorin, the Kwara State capital, until two years ago when he was redeployed to Lome, the Togolese capital, by a multinational company he works for, had cause to visit his old parents he left back at home last week.

After his arrival at the Murtala Mohammed International Airport in Lagos, Onifade who could not do shopping for his relations back in Nigeria before he left Lome took solace in the fact that Lagos, as the commercial nerve centre of Nigeria, parades an array of big shopping malls run by some South African retailers where he could buy a few household goods with the same qualities like those in Europe.

Having been to the Shoprite Shopping mall in Lekki twice before his transfer to Togo, Onifade had thought of the heavy vehicular traffic he needed to contend with before picking some items for his people based in Ilorin.
But the Togolese returnee’s surprise began when the airport taxi driver told him he could pick whatever he wanted at a nearby Shoprite shopping mall located in Alausa a few minutes’ drive from the Lagos Airport. Onifade never knew another shopping mall had sprung up in Ikeja.

However, another surprise awaited him on his arrival in Ilorin. Onifade, who arrived the town around 7.30 in the evening, met the shock of his life when he saw the customers’ traffic in and out of the sparkling edifice that houses the new Shoprite shopping mall along Sate area of Ilorin.

He was shocked because nobody had thought that such concept, which had been the exclusive preserves of big cities like Lagos, Abuja and Port Harcourt could be found in far-flung places like Ilorin and other towns.
Today, major towns in the country are playing hosts to the rampaging retail operators majorly from South Africa. In Lagos alone, such shopping malls can be found in Lekki, Surulere and Ikeja. Apart from Ilorin, residents of areas like Ibadan, Port Harcourt, Enugu and Kano also have access to such facility.

Some of the popular names of such big retail outlets that have found Nigeria very attractive for their businesses are Shoprite, Game Stores, Massmart, Nando, Woolworths, Spa. PEP and Foschini Limited, a South African clothing and household goods retailer. Their presence in any city is distinguished by their expansive, glittering shopping malls – which provide world-class shopping, dining and entertainment for people of all ages. True, while in South African cities these malls are the standard places for shopping and entertainment, in other countries, the malls operate like oases of “modernity”, in environments that are often otherwise run-down and overcrowded.

However, watchers of the rapid expansion of these South African companies said their presence in the area means roadside meat, vegetable and bread vendors have been dealt a deadly blow, in a city where the retailing of virtually everything is traditionally done informally.

Explaining the popularity of these retail outlets, analysts said going by the sheer buying power of these retail giants and their ability to source merchandise, patrons can be assured of relatively good prices for products of reasonably good quality. Indeed, Shoprite frequently boasts in its adverts that because of its “extensive buying power”, it sells products at “guaranteed” low prices. Some Nigerians have also wondered why the South African retailers are having a free reign in Nigeria whereas South African market is not friendly to Nigerian businesses. Apart from cases of xenophobic attacks on Nigerians resident in the former apartheid region, many Nigerians have continued to tell tales of hostile policies targeted at foreign business owners, especially Nigerians in South Africa.

Trade and Investment Ministry on the Alert

Questions were raised over the role of the Trade and Investment Ministry in the dominance of South African retail firms in Nigeria. However, the Minister of Trade and Investment, Dr. Olusegun Aganga said his ministry was already beaming its searchlight on the activities of retailers.

Speaking through his Special Adviser, Media and Publicity, Mrs. Yemi Kolapo, the minister said: “We have monitoring procedures in place and we are taking necessary steps to address the situation.”

Managing Director, Financial Derivatives Nigeria Limited, Mr. Bismarck Rewane, also said nothing could be done to stop the coming of the South African retailers into Nigeria. He believed that retail business has come to stay, explaining that it is one of the largest employers of labour today. He pointed out that in the United States and Germany, retail and post offices are the largest employers of labour.

“Ours is a country of shopkeepers. If you are able to manage your inventory properly, you will know how much you can sell.”
Rewane noted that world population is growing at an alarming rate, wondering how governments all over the world intend to absorb the growing youth population into schools.

He stressed the need to support the promoters of retail business, explaining that there is need to support the growth of retail business in the country, saying “If South Africans can come and revolutionise our retail business in Nigeria, let’s encourage them.”

The FDC boss believed that if people patronise these retail outlets, there would be demand for Nigeria products, which in turn will put money in the hands of the people. According to him, government can start to introduce some protectionist policies if it feels there is need to do so.

On the allegations that Nigerian business do not have it smooth in South Africa, Rewane said there is need for us to put our house in order first before we embark on moves to expand beyond Nigerian shore.
“Are Nigerian firms performing well at home? We need to get it right before we take our businesses to other lands.”

Catalyst for Local Initiatives
In a response to THISDAY enquiries, Head, Research and Intelligence, BGL Plc, Mr. Olufemi Ademola, said the rising profile of South African retailers in Nigeria is capable of spurring local investment and competition.

He said, “I think it is understandable for some Nigerians to be worried about the growing investment of South African companies in Nigeria’s retail businesses. However, I am of the opinion that it is a needed catalyst to spur local investment and competition. To come out of our economic woes of the 1980s and 1990s, the country decided to attract foreign investment into the country. We provide attractive incentives for investment in the country and allow full capital mobility/repatriation. And when we succeeded in attracting the investment, we introduced policies like foreign exchange liberalisation and independent monetary policy to keep them.

“All these actions signify that the attraction of foreign investment is a deliberate policy by the country to support economic activities, which in the present global economic integration, is not a bad idea. The low growth of the Indian economy has been blamed on the over-protection of domestic businesses, especially retail businesses like supermarket chains, which were hitherto reserved for local investors.”
On the alleged hostility against Nigerian businessmen in South Africa, the BGL official said no nation can survive without external investments.

“I don’t have any fact about the hostility of South Africa to Nigerian businesses. I have always believed that the country will allow any genuine and properly channelled investment at any time, even from Nigerians.

“However, investment opportunities in South Africa is limited (compared to Nigeria) due to the size of the population and the level of development in the country. In addition, the recent financial crisis, which hits the developed and emerging markets more led to protectionist reactions from several countries including South Africa. In my opinion, this is a temporary situation and the country (ies) would soon revert to freer markets. Nigeria has also tried indigenisation of companies in the past; at a time when we considered it necessary but reversed the policy when the country needed to attract foreign investment.

“In conclusion, the decision of whether or not to allow foreign investment would depend on Nigeria’s economic life-cycle and the requirements of the country at the particular time. If we believe that the domestic capacity is available (financial, infrastructure and human) to establish and run the businesses profitably and sustainably to meet the demand, we can introduce a control of foreign direct investment in particular sectors of the economy,” he said.

However, market sources said the retailers are cashing in on the prevailing low liquidity situation in Nigeria, which is said to be compelling Nigerians to place emphasis on food and essential household items above any other needs.  They also listed the existing investment-friendly policy in Nigeria which they said are rare some other African countries including South Africa.

A survey carried out by the global financial advisory firm, Renaissance Capital, for instance, showed that many of the retailers are already looking at smaller cities outside the key cities of Lagos and Abuja. It was gathered that Massmart, Woolworths and Shoprite, three leading retailers from South Africa recently opened new stores in Enugu, in order to register their presence in the eastern part of the country.

In their train could come a coterie of other retailers, because, if the plan is to do it the South African way, then Nigerians should expect to see shopping malls of different sizes and shapes in their neighbourhoods, and look forward to what could significantly alter retail landscape.

Shoprite opened its fifth shop in Nigeria at the end of June 2012, with many more underway. According to Whitey Basson, Shoprite’s CEO, the retail chain plans to open up to 700 stores in the country. Equally, Massmart (partly owned by Walmart) has announced that it intends to increase its presence from two to 20 stores; while, Spar has partnered with Nigeria-based Artee Group to tap into the local market. Going forward, the firms plan to increase their Lagos network and expand into Port Harcourt and other cities across the nation.

Large Market
In all these, one fact that remains sacrosanct is the allure of the population advantage, which Nigeria enjoys. “Several cities in Nigeria have populations of more than eight million people. I can’t say all of them have the same spending power, but Nigeria can support the same number of supermarkets as South Africa,” Shoprite chief executive Whitey Basson told Reuters in an interview last year.
“Even if you have 60 percent of the population living in poverty, 40 percent of the Nigerian population is still bigger than the South African population,” he added.

The expansion in the formal retail sector, analysts have pointed out, is on the back of Nigeria’s large population, the growth in particular of the urban population, positive macro-economic growth, the increase in disposable income among some segments of the population, and a strong appetite for consumer goods among the populace.

A 2012 global strategy report by Straplan (Research and Planning), for instance, revealed that Nigeria is leading the population boom as well as retail market potential in sub-Saharan Africa (SSA). According to the report, Nigeria accounted for 19 percent of Africa’s population in 2011 at over 160 million (compared to 51 million in South Africa), while the country’s robust trade (retail and wholesale) sector accounted for about 19 percent of its Gross Domestic Product (GDP) in the same year. The report noted: “Typical of the SSA region, Nigeria has a youthful population with over 65 million aged 14 and below, representing 40 percent of its population. Nigeria’s demographic play becomes more promising as its urban dwellers gradually rise beyond 80 million, supporting the gradual emergence of a middle class with significant financial resources and sophisticated demand.”

The efficiency of the Nigerian retail market, the report further said, would be reinforced by the rise in mobile technology expected to fuel the country’s integration with the global economy and also help to alleviate some of its challenges of doing business. It pointed out that beyond its natural resources SSA’s over 850 million people have become a strong attraction to investors, saying the continent has also announced its presence as an emerging frontier for retail investments.

Tags: Business, Nigeria, Featured, Retail Outlets

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