Into Africa

While still at an early stage of development, the IT markets of North Africa - Libya, Tunisia, Algeria, Morocco and Mauritania - are an attractive option for Middle East distributors and resellers looking for new opportunities.

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By  Stuart Wilson Published  October 26, 2005

Regional reach|~|africasukant200.jpg|~|Sukant Mishra, CEO at DigiMasters|~|While still at an early stage of development, the IT markets of North Africa - Libya, Tunisia, Algeria, Morocco and Mauritania - are an attractive option for Middle East distributors and resellers looking for new opportunities. Doing business in North Africa is far from easy with major hurdles to overcome in terms of logistics and financing. The channel-to-market remains unstructured but canny resellers have the opportunity to make decent margins if they get their business model right. The regional reach of distributors and re-exporters operating out of Dubai is impressive. With vendors now working overtime to build up comprehensive in-country distribution and reseller networks in major Middle East markets such as Saudi Arabia, re-exporters and sub-distributors have started looking further afield. It is little surprise that North Africa has popped up on their radar as a region where there is still potential to add value and serve a channel that most vendors cannot reach directly. The channel remains unstructured in North Africa with IT vendors using a variety of models to serve the region. The fact that some vendors manage North Africa out of Europe, some from South Africa and a growing number from the Middle East, merely adds to the confusion. Throw in a variety of product flow routes and coming up with a clear overview of each individual market’s size and potential is almost impossible. “If you look at North Africa now, there is a substantial amount of product flow from Europe to Rabat in Morocco,” said Sukant Mishra, CEO at DigiMasters Distribution. “We have seen European distributors pushing product into Africa through this route. At the same time, we are also seeing product moving from Jebel Ali to North Africa.” The reality of the situation is that several geographic business units within a single vendor may in fact all be selling into North Africa, creating a pricing nightmare in the process. “There are different people selling into the same market at different price points,” said Amr Atef, general manager of Almasa IT Distribution’s PC and peripherals business. “In some parts of the region there is special pricing abuse that creates even more confusion.” Language, culture and historical links also play a major role in maintaining the complexity of the North Africa channel. In French-speaking countries of North Africa, it makes sense for customers to purchase products with French keyboards. This creates a market that the European channel can address. If vendors want this product to flow into North Africa from the Middle East, they need to ensure that these specialised products are available in the channel. For distributors in Dubai serving customers in North Africa, a key part of their strategy revolves around minimising financial risk and exposure. Ensuring payments are made can be a tortuous process and dealing with banks and customs in North Africa poses a number of challenges. To mitigate risk, many distributors sell on a ‘cash against documents’ basis. Alternatively, first-tier distributors will actively seek out the sub-distributors and re-exporters that can operate as the middleman, connecting them to the in-country resellers and taking on the financial risk. “The customer places the order and we agree on the price and the products. Then we send the kit from Jebel Ali. It can take 30 days to reach the entry port in North Africa by ship,” added Atef. ||**||Channel dynamics|~|africaatef200.jpg|~|Amr Atef, general manager of Almasa IT Distribution’s PC and peripherals business|~|When examining the channel dynamics of North Africa, it is important to understand the uncertainty and risk that hampers authorised distributors from investing heavily in these markets. At present, it is difficult for a distributor to justify setting up a local stocking point or putting a significant number of people on the ground in the region. Vendors would love for this to happen, but the markets are still not quite ready in terms of business processes and even critical mass. This situation opens the door for several categories of channel players to stake a claim and come up with innovative business models. “To be totally honest, quite often it is not the authorised distributors doing business in North Africa; it is actually the tier two resellers that have the relationships in North Africa. Some companies will have purchasing operations in Dubai and close links to other companies in North Africa,” added Mishra. While re-export volumes to markets such as Saudi Arabia and other GCC states from Computer Street in Dubai are declining — as vendors step up their in-country channel development and major distributors start serving resellers on the ground in these countries — the opportunity for traders to carve out a significant chunk of business in North Africa remains. “I would say that the market for branded PCs is approximately 100,000 units per year in Tunisia, and probably similar volumes in both Algeria and Morocco,” added Atef. “Most of the business is in the corporate or government sector and is driven by tenders. Often the tenders request that an in-country partner supplies the product. One thing that I have seen in North Africa, which I haven’t seen in the Middle East, is customers placing large orders on the web. Typically, they do this through European websites.” While the corporate and government sectors still drive the majority of IT demand in North Africa, vendors and distributors are pinning their hopes on further development of the nascent consumer sector. At present, spending power is limited and financing IT purchases remains an issue for vast swathes of the population in these markets. Government-driven ‘PCs for homes’ initiatives are starting up and local assemblers in North Africa are looking to ramp up their operations and serve this market as it develops. “Because there is not yet a genuine reseller or consumer retail channel in many of these markets, it is difficult for the channel to achieve a clear structure,” added Mishra. “This also prevents authorised distributors from moving in-country. What we have now is a situation where a channel player in Algeria is a dealer, retailer, distributor and corporate reseller rolled into one. Typically, the product is sold to this company in Jebel Ali and everything after that is left to them.” ||**||Consumer demand|~|africaschell200.jpg|~|Christoph Schell, HP ISE SPO manager|~|The consumer segment is showing the first signs of development in North Africa, according to Mishra, with clusters of IT shops starting to develop in the major cities in the region. However, whereas in Dubai traders are serving the whole region, the dealers setting up showrooms in North Africa are solely focused on developing the local market. Serving North Africa effectively can pose a number of headaches for major vendors. Christoph Schell, HP ISE SPO manager, explained: “The whole process of monitoring grey requires us to have strong control on standard pricing and promotional pricing and ensure that there is regular dialogue between the Middle East and African teams within HP. We have this in place and are now looking at controlling the big deals and also keeping a close eye on currency fluctuations. This is especially true in North Africa where you can have partners buying in euros from Europe and dollars from Dubai. Distributors like Redington and Dynatech are doing well serving Africa and purchasing from Jebel Ali. We are also in talks with established HP Middle East distributors to see if they can cover the Maghreb region as well.” Distributors are keen to tap into the channel opportunities that exist in North Africa, but they also remain wary of the risks involved. “We are very careful in terms of the partners we work with in North Africa,” added Atef. “You have to make sure that you get the payments and have to put rigorous processes in place. Is it worth the effort? The margins are there because of the effort involved and these are sizeable economies with significant growth potential.” Finding a trustworthy partner on the ground and building a long-term relationship that offers mutual benefits to both parties involved is the path that several major distributors are taking. Semi-formal affiliations with local companies — while complex to set up — offer one route to facilitate market entry. “It does take a lot of time and resources to set up a strong operation serving North Africa,” explained Mishra. “We have to look at it very carefully and make sure that the margins do compensate for the risk. All of the vendors and the distributors need to do a great deal of work to develop the markets in North Africa, but it can be difficult to generate interest when you compare it to opportunities in markets such as Iran and Saudi Arabia.” The governments also have a role to play in accelerating the development of the channel in North Africa. Customs, duties, banking and business processes need to be streamlined in order to attract genuine inward investment from vendors and distributors alike. Typically, these companies are a risk-averse community — especially the distributors working on wafer-thin margins. “Logistics and financing are the biggest issues that need to be addressed in North Africa. The day these processes become clearer and more efficient, the conditions will exist for significant growth in North Africa,” concluded Mishra. “You have to show a certain amount of caution in North Africa,” added Atef. “However, in this industry, the harder the task is, the better the rewards tend to be.” The markets of North Africa will continue to grow and the current trend suggests that channel players in the Middle East will play a critical role in driving this development and serving the region’s reseller community. ||**||

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