African market beckons global builders and sellers

Coal ship

Companies around the world are locked in fierce competition to cash in on the increasingly promising African market, as they eye a continent of 1.2 billion people, rich in natural resources, as the last economic frontier.

While some global companies vie to build infrastructure, others are seeking to tap consumer markets amid a sharp expansion of Africa’s middle class. Taken as a whole, Africa’s population is forecast to exceed those of China and India, respectively, by the mid-2020s and top the 2 billion mark in 2040. According to one estimate, the number of African households with annual incomes over $5,000 will more than double from 57 million in 2000 to 127 million by 2020.

After decades of conflict and periodic famine, and despite ongoing challenges such as infectious disease and terrorism, Africa, once written off as “a lost continent,” is gradually becoming unlost — reducing its reliance on aid and drawing more trade and investment.

Building a presence

The Tokyo International Conference on African Development, sponsored by the Japanese government, has been held five times. The sixth TICAD, to be held in the Kenyan capital, Nairobi, will be the first in Africa. On Aug. 27 and 28, top government and business leaders from Japan and Africa will discuss issues concerning development.

Japan still lags other countries in terms of direct investment in Africa, according to the government-affiliated Japan External Trade Organization. But Mozambique, in southeast Africa, one of the world’s poorest countries, has emerged as a focal point of Japan’s drive to play a bigger role on the continent.
20160818Africa_article_main_imageOne area of interest is coal for steelmaking. The Mozambiquan port of Nacala, 1,500km north of the capital, Maputo, began shipping coking coal to Japan in May. Nippon Steel & Sumitomo Metal imports the coal at its Kimitsu Works in Chiba Prefecture, southeast of Tokyo.

Nippon Steel & Sumitomo Metal currently buys more than half its coking coal from Australia. “Securing new sources of supply is crucial to stability,” according to a senior company official. But there are only a few regions in the world that can produce high-grade coal used for steelmaking. Mozambique is one, and its resources are largely untapped.

The coal is transported by rail to Nacala from the Moatize coal mine, 900km inland. Brazilian miner Vale and Mitsui & Co., a Japanese trading house, are developing and operating the mine, the railway and the port in a huge project worth over $8 billion.

“We have total power as a trading house. We will use it to ensure stable resource supplies to Japan, and to promote the economic development of the sub-Saharan region,” said Motomu Takahashi, Mitsui’s executive vice president. Mitsui sees infrastructure as key to that development.

During his visit to Mozambique in 2014, Japanese Prime Minister Shinzo Abe pledged a total of 70 billion yen ($701 million) in official development assistance over five years. As part of the aid package, Japan will extend low-interest yen loans for the construction of a new terminal for general goods at the port of Nacala.

At the fifth TICAD in Yokohama in 2013, the Japanese government named 10 priority areas for wide-area development projects, including the so-called Nacala Corridor, a network centered on the port that spans several countries.

Despite headwinds for the development of resources in the form of low commodity prices, such integrated projects and new infrastructure should help the continent’s economies become more self-sustaining. They will also create new business opportunities.

Others are joining the African infrastructure fray. Like in many others, China is active in Africa as part of its Belt and Road Initiative, an effort to create an economic network linking China with Europe and Africa by land and sea.

The Northern Corridor transport network project is a high-profile project. It links the Kenyan port of Mombasa, a gateway to East Africa, to the landlocked countries of Uganda, Rwanda and Burundi.

While Japan is assisting with the development of the port and the creation of a special economic zone with yen loans, China will build a 450km rail line between Mombasa and Nairobi.

Expanding middle

Many global companies are hungry for a piece of Africa’s growing middle-class consumer market. In December 2015, a big shopping mall anchored by a Carrefour supermarket opened in Abidjan, the commercial capital of Ivory Coast. The Abidjan store is French retailer’s first foray in the region. It plans to open outlets in eight neighboring countries as well.

The mall is operated jointly by Carrefour and CFAO, a French trading company acquired by Japanese trading house Toyota Tsusho in 2012. “Africa has a huge potential because of its population. The swelling middle class provides us with business opportunities,” said Takashi Hattori, senior managing director with Toyota Tsusho.

Japan’s Yamaha Motor, together with Toyota Tsusho, is assembling 110cc motorcycles in Kenya, targeting owners of the motorbike taxis widely used in the country. To hold prices down, Yamaha Motor imports parts and materials from a plant in India.

To capitalize on the African consumer market, global companies must develop products that meet local needs, sell them at suitable prices and establish sales channels.

Article by: Nikkei Asian Review