28 March 2018
The African continent’s economy is valued at about $US6 trillion. How do New Zealand’s export firms tackle this vast and complicated market opportunity? ExporterToday put the questions to New Zealand’s Trade Commissioner for Africa, Haylon Smith (pictured).
ET: The African continent has long been in the too-hard basket for Kiwi export firms – but from your observations, where are the best emerging opportunities for New Zealand exporters of goods or services right now? And what’s driving these opportunities?
Smith: Infrastructure, services and agriculture are three interesting areas.
Infrastructure development continues to be a big focus for many African countries. With that comes niche opportunities in areas like energy generation (off-grid solar and geothermal) and New Zealand has proven expertise in projects like these.
The most exciting area for me is services – the digitisation of Africa – and already there is enormous growth in this sector. Technology is driving Africa to leap-frog the traditional path of progress that Western countries have experienced, for example by-passing physical storage and going straight to the cloud. New Zealand companies like Seequent, Xero and Vista Entertainment are investing in Africa to meet the demand for smart technology that helps African companies be more cost-effective and reach a wider geographic area and customer base.
That said, the majority of New Zealand’s trade with Africa will remain commodity food products for some time to come.
ET: What are some of the latest facts and statistics coming out of African economies that provide some encouragement for Kiwi firms to visit or re-visit the markets there? Which markets particularly stand out?
Smith: With 1.25 billion people and growing at 2.5 percent per annum, Africa is enormous in both geography and people. Forty percent of the population is urbanised with an average age of 19 years old.
As a whole, the continent’s economy is valued at about $US6 trillion, with 3.5 percent GDP growth. The economies of Egypt, Nigeria and South Africa, known as the ‘Three Giants’, are together worth 3 trillion. These countries have surprisingly high disposable incomes, strong population growth rates, relatively stable governments, well established distribution networks and long standing multinational presence.
In markets like Tanzania and the Ivory Coast household consumption expenditure is increasing by ten percent or more, which goes hand in hand with an increase in demand for higher quality products, such as what New Zealand can provide. While Mauritius, a small island to the east of Madagascar, ranks relatively highly (25) in ease of doing business globally.
ET: What are some of the peculiarities of doing business there that Kiwi exporters should be aware of?
Smith: Like many emerging markets around the world, where transparency and access to information are a challenge, relationships are key. Finding the right advice from the outset is critical. Given the nature of relationship-based economies, if you start with the wrong person, you enter the wrong network, with the wrong information, and it will lead to a wrong decision for your company.
I was once told – and it has turned out to be very true – that everyone will claim to “know the president”, however the more important question to ask, is whether the President knows them. Undertaking due diligence and obtaining reliable information on people is just as important as traditional commercial due diligence.
The other thing to be aware of is that even though technology is advancing and distribution networks are improving, the traditional marketplace still plays a big part in the overall African economy. The majority of retail sales happen through independent sellers and store owners, so it’s important to have a strong understanding of market channels and logistics.
ET: What other general advice can you share with Kiwi exporters to increase their chances of successfully entering African markets? What are the best first steps to take?
Smith: Africa is generally more suitable for companies who have spent time in other markets and are looking to expand a successful export strategy in emerging markets.
A few pieces of advice:
- Talk to as many people as you can: at home this includes other Kiwi companies who are doing business in Africa, and when you visit the market it’s a good idea to meet a local law firm or business advisor.
- Be, open and friendly - but sceptical.
- Walk the supply chain.
- Cash is king. Prepayment or Letter of Credit is absolutely key for initial relationships.
ET: What assistance can NZTE and other government departments offer to expedite trade with African countries/companies?
Smith: NZTE can help you filter through the 54 potential markets to understand what opportunities may exist for your product or service. NZTE has a focus on 16 of those markets based on where we see the most potential.
We also work very closely with our partner agencies, particularly MFAT and their extensive network of honorary consuls. New Zealand has three embassies in Africa (Pretoria in South Africa, Addis Ababa in Ethiopia, and Cairo in Egypt) and so we rely heavily on our honorary consuls in all other markets. These “hon-cons” are also extremely useful for commercial contacts.
From the honorary consuls and beachhead advisors, NZTE (link is external)can put you in touch with our network of contacts in key African markets to support your market assessments or entry.
ET: How do you see the African market opportunity developing over the next five years?
Smith: Political and country risk will remain, but as the current infrastructure investments and foreign direct investment continue into markets, the outlook remains positive over the long term. In addition, most African markets are still beholden to commodity prices, particularly oil.
For New Zealand, our main food commodity exports will remain fairly stable and we expect to see greater interest from our services and technology companies. As our knowledge and understanding of the African market opportunity increases, our approach to doing business in the continent will evolve.
If you look at how our approach to Asia has progressed, we no longer say ‘we’re exporting to Asia’ as we’ve developed a more sophisticated understanding of the individual markets.
In time, New Zealand businesses will be discussing Egypt and Nigeria in the same way we currently talk about Singapore and Malaysia.
This article has been republished with permission from ExporterToday.