Emerging Africa

The African continent has long been seen as a difficult market to negotiate. However, as the sub-Sahara African market begins to embrace mobile technology and the internet, a growing number of Middle East distributors are tackling the uncharted territory.

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By  Paul Barthram Published  December 23, 2003

I - Introduction|~||~||~|Ask any vendor whether they have a presence in Africa, and they'll probably point you in the direction of the South African office or the letters after the company name, where Africa comes right after the Middle East and Europe in the MENA acronym.But Africa is not a European or even Middle Eastern channel, it's a convoluted channel existing on a huge continent, separated into three territories. While vendors have created a comfortable and mature presence in the South African channel and North Africa finds itself generously served by the countries of Europe and even America, it is sub-Sahara Africa where you'll find the Middle East channel is currently concentrating its efforts. Nigeria, Kenya, Ghana, Ethiopia and to a lesser extent Tanzania and Uganda are the countries experiencing the lions share of the IT business within the sub-Sahara African market, with Nigeria taking 50% of the business and the rest evenly distributed between the other sub-Sahara African countries.Stretching from the South East to the West coast, sub-Sahara Africa has always been a difficult market to cater for. Barriers faced have included political instability, fluctuating currencies, economies based on volatile changing industries such as oil and agriculture, erratic geographical changes when it comes to areas of business and other problems ranging from terrorism to bounced cheques."There are many inhibitors to the business. Most of the African countries have been unstable, it's hard to find a country there that has been stable over the last twenty or even ten years," says Elias Boughosn, country sales manager, Acer. "But one of the most important [inhibitors] is the financial situation, you find a lot of projects happening, but you won't [necessarily] find the right finance to go with it, be that the government or at the private level," he explains.Sukant Mishra, country manager for Reddington Africa, agrees that the financial difficulties of doing business in Africa often throw up some interesting challenges. "Banking as a business is a very open business there [in Africa], so it's very difficult to develop trust in a bank. There are so many banks that are fighting bankruptcy, it makes it very important to get backing from an international bank, [for] third party bank confirmations," Mishra says.||**||II - Internet & mobile revolution|~||~||~|Despite the difficulties, business has started to grow with the presence of large oil companies and diamond merchants creating IT opportunities across the region. An explosion of the mobile phone market and the mushrooming of internet cafes in certain regions has also fuelled the market boom."Mobile has really taken over now, and many of the people who were doing 100% IT are now doing 50% computer business with 50% mobile, and some of the smaller players have completely dropped their computer business for mobile, because they have found they make better profits, and they are shifting faster than computers," explains Benedette Mutoko, of African IT traders Ben's Computers. "But definitely there has been an emergence in the past five years in IT, mostly because we're told the students are expected to work more with computers. Most students will work from the cyber cafés, which have become a major customers for us, and the explosion of this business has caused the business to grow," she adds."Internet cafes are mushrooming over there, but the quality of the connection is not good due to the infrastructure of the bandwidth. And if you go outside of most of the capital cities, you don't really find service providers, or computerised schools or internet cafes," says Boughosn.Considering the geographic structure of Africa, and the difficulties of laying fibre optic cables, its not surprising that the internet service is not as finely tuned as it could be, nor that the mobile phone market has taken off in such a big way. This has, in turn however meant IT advancement has restricted itself to the urban areas, however it has not stopped the regions of sub-Sahara Africa adopting IT and developing a thriving regional channel."One of the main drivers is the internet revolution that has happened there. It's not as obvious as in a very developed economy but its there, its happening and more and more people are getting aware of what a PC is and what office equipment can bring in productivity to an organisation," says Navin Tikoo, regional sales manager for Aptec Gulf.||**||III - Business on the ground|~||~||~|Along with the cyber cafés, governments and the multinational corporations have been among the big buyers. But this isn't all infrastructures and solutions breaking through, this is a channel that revolves around personal computer sales, and one that has seen a rapid ascent in IT adoption from Pentium 1 to Pentium 4 since 2000.The PC market tends to see a 70%-30% split between the built up machines and brand led. While no big infrastructure contracts are coming through the local channel, locally branded PC have started to make a mark through various governments' incentive schemes. However the local brand names are still seen as insignificant when compared to more developed market standards.Multinational vendor presence in sub-Sahara Africa is often limited to product awareness and sales representative offices in a few countries, but despite efforts to readdress this, channel management has fallen to Middle East distributors and the local channel players."We've gone ahead and started our local operations in Nigeria and we're putting up an office in Kenya with further representation in Tanzania expected sometime in 2004, followed by Ethiopia, and this is because we see this region as a real growth engine for the company. In my opinion you're probably going to see sub-Sahara Africa grow over the next two years the way the Middle East has grown in the past five," says Mishra.Aptec Gulf started addressing the sub-Sahara Africa market in 2000, and after an initial year understanding the needs and the requirements of the market, the company has also proceeded to develop a strong business within the region."From the second year onwards we saw the revenue streams growing at around 100%. That's not because the market was growing [incredibly] at 100%, it's because the market was unattended from this part of the world. And it was more unorganised, being taken care of by small resellers, traders, and freight forwarders. There was this gap and we spoke to some vendors and they believed what we believed, which is that we can service the market from here efficiently, and that's where it all started," says Tikoo.||**||IV - Fragmented channel|~||~||~|In fact, from Nigeria to Kenya and the surrounding countries, it is the Middle East distributors who have shown the strongest signs of investing in organising the channel. They are slowly but surely being supported by vendors such as Intel, Acer and Fujitsu Seimens, all of which want to establish official channel presence for their products in the sub-Sahara through channel conference initiatives, and the creation of partner programmes. The emphasis however remains on the distributors to entice the sub-Saharan channel to mature their business.While there are no dominant African distributors or resellers in the market at the moment, the channel has made its way by seeking out IT products from whichever source will cater for it. Some will of course come to Dubai, for immediate purchase of items such as memory, processors and other components. Some have followed North Africa's example and bought in products from Europe and to a certain extent America - for heavier items due to the difficulties of shipping between Dubai. Others, who have grown their business over the years, are now in a financially sound position to go direct to sources. But any sub-distribution in the sub-Sahara Africa is nearly impossible due to the strict rules put on imports by most African countries. Even so some of the African resellers have always found ways around this.Mutoko who's main dealings have been with Nigerian resellers has seen a lot of this side to the trade, she says in some cases resellers have pooled resources together to buy warehouse space, from which they'll distribute their goods. With those who have increased their businesses sufficiently -and not necessarily from IT -their distribution channels have developed to include direct trade with China, in turn becoming sub-distribution businesses for their region. But Mutoko believes despite the growth of some regional resellers the market still remains very open."I'd say the market is quite fragmented there. Even with the big players who go to the Far East they will not be just one or two people, there could be hundreds of them, it's a very competitive market," Mutoko says.||**||V - Bringing Value|~||~||~|Tikoo believes the current channel structure as it stands is one built on need rather than direction, and argues that it is no match for Middle East distributors. "You have that competition definitely from this disorganised sector, but that's basically addressing a very desperate need rather than a regular business cycle. A bank with a three million dollar project does not see the value of flying somebody [to Dubai] to pick up 500 PCs. So this is where Aptec comes in."Mishra also feels the service that a Middle East distributor can supply offers the African channel a better deal. "Whichever vendor we have signed we have also signed service contracts with, and for Redington, service is our competitive advantage," he says.Aside from the big vendors who have been able to establish service centres in Nigeria or Kenya, African countries are otherwise poorly serviced when it comes to their products, and this presents one of the many future opportunities for channel development in sub-Sahara Africa."Generally it has been a very bad scenario. There hasn't been much focus on the service sector. Products that go bad have to be shipped back, and you'll have a lot of dissatisfied customers in hand because of that. So service is something that should be addressed in those regions, and from January 2004 you will see a service centre run by Redington in Nigeria" agrees Redington's Mishra. "You cannot today find in Africa independent service providers, because it doesn't make sense from a finance point of view that he does only service, unless he's able to build up a company that can service all the brands. I see that as an opportunity [for the channel]," Acer's Boughosn adds.Service is not the only area of opportunity for the channel in the emerging market of sub-Saharan Africa though. As logistics to the countries improve through either more direct flights, or increased security on shipped products, vendors can continue to increase their presence in the channel, be it through distributor ground operations, further joint incentives or new agreements with regional channel partners, and other potential opportunities can be found in the thriving mobile sector."There's a long way to go, there's a lot of improvements required, because still the sales of IT products are happening on a marketing [basis], rather than real requirement based business. And by that I'm talking about more of a SoHo consumer sector. Awareness is yet to improve. Centrino has almost no presence. 90% of the population still needs to be educated on how different Centrino is to the P4. Speed is the name of the games," says Mishra."We believe in educating this market," adds Boughosn. "Our message is very clear, in Africa we're going to invest, we're going to do a lot of activity, and it's a market very important for us." ||**||

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