New Markets: Central Africa

In the second of an occasional series on emerging markets neighbouring the Middle East, we look at another traditional destination for traders from the Gulf, sub-Saharan Africa, and the hubs of Kenya and Nigeria.

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By  Mark Sutton Published  January 2, 2002

I|~||~||~|T o the IT industry, at least from the outside, the central mass of Africa from the Sahara down to the southern tip of the continent, poses something of a problem. The north is within easy distance of Europe, the south has South Africa to act as a hub, but in the centre, the markets remain a mystery. Traders from inside and outside the region ship plenty of product in, but the big vendors have, for the most part stayed out, leaving the markets to their own devices.

Two of the larger countries in particular stand out, Kenya in the east, and Nigeria in the west. Both have been doing business with the Gulf for some time, with distributors and re-exporters forging strong links with traders in these countries. Now however, several of the larger vendors have begun to establish bases in these countries themselves, governments are showing an interest in IT, and channels are becoming formalised. But it is still early days.

“Africa is a big mystery. We don’t know how many hundreds of thousands of PCs are sold, we don’t know where these parts go, but they go to Africa, whether it is Gabon or Chad or Botswana—nobody knows. It is a very complex and little known model,” said Tanguy de La Horie, business manager for Intel.

Intel is not content to let Africa remain a mystery however. The company has identified both Kenya and Nigeria as of strategic importance because they have local consumption of products, and re-export to neighbouring countries, de La Horie explained. To get a foothold in the market, Intel has appointed authorised distributors for both, and is moving to support those distributors.

But Intel is only formalising a channel model that is already in existence. For years there has been a thriving market in components, serving the local assembly market in the region. Local assembly makes up 80-90% of the market, and although figures are estimates, Kenya has a market of around 25,000 new PCs every year, Nigeria has somewhere from 180,000 to 250,000. The market is also quite distinctly split between the multinational companies and some government departments, who can afford the best; and the local companies, who buy almost solely on price.

To service the market, buyers travel to the Gulf, buy in cash, and take shipments back as luggage on commercial passenger flights; they also visit re-exporters such as those in Dubai, and buy for regular import.

The process of getting goods into the country can be tortuous. Redington, Intel’s official distributor for Nigeria, has a long history in the country. Its parent company, the Kewalram & Channai Group has been in Nigeria for more than 110 years, in textiles, commodities, automobiles and other businesses. Even with that pedigree, import is difficult, said KV Narayan, business manager for Redington Gulf.

“Logistics is a very elaborate and cumbersome process today,” Narayan explained. When selling to buyers in Nigeria, the seller will provide a pro forma invoice including freight rates. From the pro forma invoice, the buyers in Nigeria then draw up an import approval form, called a Form M, that certifies the products could not have been obtained within the country. Once the form is completed, the buyer has to get cleared funds to the seller, either by an advance wire transfer, or most commonly a letter of credit from a bank, preferably not a Nigerian bank. Only once the seller has cleared the funds can the Form M be sent to an inspection agent in the port where the goods are shipped from, who has to verify that the goods comply with the form.

||**||II|~||~||~|The process does not get much better once the goods are shipped. Air freight is the preferred method for most distributors, but even then, said Narayan, there is no direct flight to Lagos, so the shipment has to go via a transit point, meaning even air can take from ten days to three weeks. Sea freight for bulky items to western Africa takes a minimum of 45 days. The situation is better in eastern Africa, simply due to proximity, but customs paperwork is a massive burden everywhere in Africa.

The lengthy shipping times create problems, as well as inequalities between markets. In Kenya, 1Ghz processors are the norm, and the market keeps pace with the Gulf; western Africa lags behind.
Aptec deals with both Kenya and Nigeria for its components business and normal IT lines. In order to handle RMA, said Sukant Mishra, product manager for Aptec Components, he has to supply resellers with their own buffer stock, at Aptec’s expense, because he could not otherwise get them RMA replacements in time. Naturally support is also a selling point, both with corporate buyers and SOHO buyers.

“Institutions are looking for branded products, where they have a few brands to chose between, like IBM, Acer, Dell or Compaq; or they are buying unbranded products, where the prime qualification is price, and how the seller is going to support them,” he said.

The market is extremely price conscious. “East Africa has graduated to 1Ghz [processors], the simple reason is they are closer to Dubai, and communication is easy, but in Nigeria, I am still catering to Celerons,” Mishra said. “10GB is a good hard drive to my customers, they are very satisfied with 64MB of RAM, 14” monitors still sell. One dollar means a lot in the African market, so anything cheap is regarded as best.”

The channel is improving though. Both Redington and Asbis, Intel’s official distributor in Kenya are recruiting resellers for the Intel Product Integrator (IPI) program, and both are aiming to educate the market, both towards better assembly and handling, and away from buying just on price. “10GB hard drives will sell a lot quicker than 20GB drives, but resellers have to understand that it is better to be competitive, and be aggressive selling 20GB drives,” said Amil Kumar of Asbis.

||**||III|~||~||~|The impetus for change is not all coming from the outside though. Nigeria in particular has moved to embrace IT, with a wide range of initiatives to encourage development. The moves that the government has taken to boost IT are drawing in the whole country. Among the projects are a government IT policy for schools, that is getting local companies to adopt schools, donate PCs and training to them; IT professionals are being encouraged to register with professional organisations so that there is a better idea of the skills resource in the country; there are IT trade shows springing up in most major centres; there is even a nationwide IT awareness program, broadcast on state television and radio. “The government is really gearing up the challenge,” said Dele Ajisomo, publisher of the magazine PC World Nigeria, an IT magazine covering the whole of western Africa. “The oil companies are getting involved, the local companies are working on projects, the uptake has been good.”

The local assembly market is also gaining ground. While many big name vendors are coming into the market, such as Microsoft, Novell, and IBM, the local brands are being accepted for education departments, there are even moves towards establishing an OEM. The oil companies, who drive much of the IT deployment, are working on CRM and workflow projects that compare to anything in the Gulf, and they are providing employment opportunities to the thousands of Nigerian engineering graduates, who constitute a very large skill resource.

There are still hurdles to overcome. Infrastructure is a major drawback. GSM has only just launched in the country, and although it is proving to be hugely popular, it is still very expensive, restricting it to the middle classes. There is a huge shortage of phone lines, which makes using the phone difficult, letting alone attempting e-business. Internet use is effectively restricted to using wireless satellite loops, this makes even Internet cafes prohibitively expensive, at around fifty cents to one dollar per minute. “Some banks are interested in going on line, but it is going to be an uphill battle because of the infrastructure,” Ajisomo said.

But even the infrastructure looks like it may be improved. In November, the government sold a 51% stake in the state telco provider, NITEL, to Investors International, a Portuguese telco backed by international investors. Ajisomo said that hopefully the new management would do a better job than the old.

He is not the only one that is hopeful for the future of the region. Aptec is among the companies that are investing in the region. Navin Tikoo, operations manager for Africa said that the company has had a growth in revenue of 600% in the past year, and he sees plenty of potential in the market. “Nigeria produces two million barrels of oil per day, it has the same federal government revenue as the UAE, the only difference is it has 130 million citizens—but Nigeria has taken over from South Africa as the largest African economy,” he explained. “There is a lot of focus on development, it is a highly subsidised economy, with money from the IMF, the World Bank and so on. A lot is going into communications and IT infrastructure, there is obviously money to spend, which means more for the channel.”||**||

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