It is no coincidence that the fifth BRICS summit was held in Durban, South Africa, last month. The country is the gateway to a continent that is catching up fast.
Holding the summit in Durban, therefore, was a recognition of the changing dynamics of what was once a hopeless, strife-torn continent. Africa is now seen as the place where the next big opportunities are. A genuine middle class is emerging in the continent; its population of 1.1 billion has a median age of 18; and consumer spending, currently over $920 billion, is expected to grow to $1.4 trillion by 2020. Obviously, the growth potential is huge. For new and old Indian companies alike in the continent, the untapped demand for consumer durables, automobiles, medicines and mobiles phones offers a lucrative opportunity.
India and Africa resemble each other, says Chandru Chawla, head of corporate strategy (international business),Cipla, referring to the huge opportunity at the bottom of the pyramid in the two geographies. Cipla, the Mumbai-based pharmaceuticals company, went to Africa over a decade back and it is now trying to step up its presence in the continent. In February, it announced plans to acquire its South African distribution partner, Medpro, for $512 million.
Cipla could gaze into the potential of Africa's bottom-of- the-pyramid market early on. In 2000, Yusuf Hamied, the promoter of the company, decided to sell its three-drug combination for treatment of HIV/AIDS for around $800 for a year's dosage. At that time, patent-holding multinational corporations were selling the combination for $12,000 per patient.
Cipla could reap the benefits of economy of scale. Africa's huge HIV-infected population allowed it to cut costs further to $140 for a year's stock.
"We found these markets attractive despite the challenges. We find that the opportunity is increasing exponentially," says Chawla.
Cipla, which has a turnover of about $1.3 billion, is expecting its Africa business to contribute $1 billion by 2020. For the purpose, it is changing its distribution model. From getting into tie-ups with companies to market its products, it is setting up its own distribution companies.
India's Tata Group, which has a turnover of $100 billion, set up Tata Africa Holdings about two decades ago to identify development opportunities. Its Africa operations, which include automotive, chemicals, smelting, among others, had a turnover of about $2.3 billion in 2011-12. The group has so far invested $1.7 billion in various projects in the continent including a plant in Pretoria to produce commercial vehicles for the local market.
"The kind of growth that the Tatas have experienced in Africa in the last decade is a reflection of the potential and promise that this continent has to offer," says Mukund Rajan, the group's spokesperson. The group is looking at annual revenue growth of 30 per cent from its Africa business, Raman Dhawan, managing director of Tata Africa Holdings, had told Business Standard recently. The Tatas are also planning to get into business hotels in Africa, expanding from the luxury hotels that it operates in Lusaka and Cape Town.
Telecom is another sunrise sector in Africa, with Bharti Airtel leading the Indian charge. It acquired Africa's mobile telecommunication company, Zain, in 2010 for $10.7 billion (enterprise value). Since then its subscriber base has risen to 62 million from 36 million. Bharti also offers high-speed data service in 11 countries and mobile remittance service in 15 countries. Bharti has adopted a low-cost business model in Africa with the help of its global partners: IBM, Ericsson, Nokia Siemens, Tech Mahindra and Spanco. The low-cost model has helped the company expand its presence in the rural areas there.
"It may have taken us a little longer than we expected but if you look at the overall trajectory and direction, we are on the right track in a continent that is the market of the future," says a Bharti Airtel spokesperson. Africa is the fastest growing mobile market in the world. Over the past five years, it has seen a 20 per cent rise in the consumer base, according to a study by telecom industry body GSMA .
India-Africa partnership is not limited to companies setting up bases in that continent. In 2011-12, India-Africa bilateral trade was worth $63.1 billion, accounting for seven per cent of India's global trade. Bulk of this, about $43 billion, was still made up of Africa's staple: oil, gold and metals. However, in recent years, export of manufactured goods such as machinery, transportation equipment, food and pharmaceuticals to Africa has also been on the rise. In 2011-12, it was $20.1 billion.
"We see the growth trajectory in Africa is going to be higher in the years to come vis-a-vis other markets," says Mahendren Moodley, chief executive and India head of Africa's leading financial group, FirstRand Bank
Pune-based Bajaj Auto exports its two- and three-wheelers to 20 African countries. In African markets the primary usage of motorcycles is in the taxi segment. Its Boxer brand with its robust exterior and fuel-efficient engines is a hit in the continent, accounting for 28 per cent of the market. The company has assembly lines in eight African countries.
"For the last few years, Africa has been growing as governments are getting more stable. Also, demographics of the continent is such that it ignites consumption," says Rakesh Sharma, president (international business), Bajaj Auto.
For fast-moving consumer goods companies the story is no different. Africa presents a bright spot with its huge base of middle-income people. Godrej Consumer Products (GCPL) and Marico have been the flag-bearers of the Indian FMCG industry in the continent. "We believe that Africa can be a game changer for GCPL," says Vivek Gambhir, managing director designate, Godrej Consumer Products. But it is not just India that's looking at Africa to fuel growth. "Indian companies will have to compete with other global companies in this market and it is up to them to make the most of the opportunity," says the Bharti Airtel spokesperson.
Holding the summit in Durban, therefore, was a recognition of the changing dynamics of what was once a hopeless, strife-torn continent. Africa is now seen as the place where the next big opportunities are. A genuine middle class is emerging in the continent; its population of 1.1 billion has a median age of 18; and consumer spending, currently over $920 billion, is expected to grow to $1.4 trillion by 2020. Obviously, the growth potential is huge. For new and old Indian companies alike in the continent, the untapped demand for consumer durables, automobiles, medicines and mobiles phones offers a lucrative opportunity.
India and Africa resemble each other, says Chandru Chawla, head of corporate strategy (international business),Cipla, referring to the huge opportunity at the bottom of the pyramid in the two geographies. Cipla, the Mumbai-based pharmaceuticals company, went to Africa over a decade back and it is now trying to step up its presence in the continent. In February, it announced plans to acquire its South African distribution partner, Medpro, for $512 million.
Cipla could gaze into the potential of Africa's bottom-of- the-pyramid market early on. In 2000, Yusuf Hamied, the promoter of the company, decided to sell its three-drug combination for treatment of HIV/AIDS for around $800 for a year's dosage. At that time, patent-holding multinational corporations were selling the combination for $12,000 per patient.
Cipla could reap the benefits of economy of scale. Africa's huge HIV-infected population allowed it to cut costs further to $140 for a year's stock.
"We found these markets attractive despite the challenges. We find that the opportunity is increasing exponentially," says Chawla.
Cipla, which has a turnover of about $1.3 billion, is expecting its Africa business to contribute $1 billion by 2020. For the purpose, it is changing its distribution model. From getting into tie-ups with companies to market its products, it is setting up its own distribution companies.
India's Tata Group, which has a turnover of $100 billion, set up Tata Africa Holdings about two decades ago to identify development opportunities. Its Africa operations, which include automotive, chemicals, smelting, among others, had a turnover of about $2.3 billion in 2011-12. The group has so far invested $1.7 billion in various projects in the continent including a plant in Pretoria to produce commercial vehicles for the local market.
"The kind of growth that the Tatas have experienced in Africa in the last decade is a reflection of the potential and promise that this continent has to offer," says Mukund Rajan, the group's spokesperson. The group is looking at annual revenue growth of 30 per cent from its Africa business, Raman Dhawan, managing director of Tata Africa Holdings, had told Business Standard recently. The Tatas are also planning to get into business hotels in Africa, expanding from the luxury hotels that it operates in Lusaka and Cape Town.
Telecom is another sunrise sector in Africa, with Bharti Airtel leading the Indian charge. It acquired Africa's mobile telecommunication company, Zain, in 2010 for $10.7 billion (enterprise value). Since then its subscriber base has risen to 62 million from 36 million. Bharti also offers high-speed data service in 11 countries and mobile remittance service in 15 countries. Bharti has adopted a low-cost business model in Africa with the help of its global partners: IBM, Ericsson, Nokia Siemens, Tech Mahindra and Spanco. The low-cost model has helped the company expand its presence in the rural areas there.
"It may have taken us a little longer than we expected but if you look at the overall trajectory and direction, we are on the right track in a continent that is the market of the future," says a Bharti Airtel spokesperson. Africa is the fastest growing mobile market in the world. Over the past five years, it has seen a 20 per cent rise in the consumer base, according to a study by telecom industry body GSMA .
India-Africa partnership is not limited to companies setting up bases in that continent. In 2011-12, India-Africa bilateral trade was worth $63.1 billion, accounting for seven per cent of India's global trade. Bulk of this, about $43 billion, was still made up of Africa's staple: oil, gold and metals. However, in recent years, export of manufactured goods such as machinery, transportation equipment, food and pharmaceuticals to Africa has also been on the rise. In 2011-12, it was $20.1 billion.
"We see the growth trajectory in Africa is going to be higher in the years to come vis-a-vis other markets," says Mahendren Moodley, chief executive and India head of Africa's leading financial group, FirstRand Bank
Pune-based Bajaj Auto exports its two- and three-wheelers to 20 African countries. In African markets the primary usage of motorcycles is in the taxi segment. Its Boxer brand with its robust exterior and fuel-efficient engines is a hit in the continent, accounting for 28 per cent of the market. The company has assembly lines in eight African countries.
"For the last few years, Africa has been growing as governments are getting more stable. Also, demographics of the continent is such that it ignites consumption," says Rakesh Sharma, president (international business), Bajaj Auto.
For fast-moving consumer goods companies the story is no different. Africa presents a bright spot with its huge base of middle-income people. Godrej Consumer Products (GCPL) and Marico have been the flag-bearers of the Indian FMCG industry in the continent. "We believe that Africa can be a game changer for GCPL," says Vivek Gambhir, managing director designate, Godrej Consumer Products. But it is not just India that's looking at Africa to fuel growth. "Indian companies will have to compete with other global companies in this market and it is up to them to make the most of the opportunity," says the Bharti Airtel spokesperson.
