Archive for the ‘Business’ Category

Top 3 Assumptions About the African Consumer Market

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Treichville Market, Abidjan, Cote D’Ivoire (Photo Credit: Niti Bhan)

Claims have been made about the Great African Market Opportunity – in retail, in real estate, in banking, and packaged consumer goods – that drive investment decisions and marketing strategies. Yet, reality has been less opportunistic than imagined – Nestle’s struggles in Kenya back in 2015 are one such example.

Here are the top 3 assumptions, if left unpacked or unquestioned, that can make or break a new market entry strategy in the African Consumer Market. For most of the continent, it’s safe to say that the majority of the mass market are primarily employed in the informal economy.

1. Price is the problem
Affordability is not a matter of price but access to payment means or method. Upfront lumpsum cash transactions will narrow potential customer base down, depending on the season, or the income source.

What this means is that there are whole categories of products that would have had a larger audience but do not due to barriers set up by their own transaction model.

Accessibility and Affordability are thus not a function of the Price itself but the lack of flexibility in the business model. Flexibility drives consumer segmentation in the African Consumer Market, as product purchase decisions get made based on cash in hand and cash flow patterns.

2. Consumer Segmentation Metrics are the Same
The factors that influence the segments of the population who have the potential to be consumers are the following:
– Urban or Rural
– Sources of Income

Factors that do not influence “poverty” (ref: textbook market segmentation)
– Education
– Location
– Employer

Example: Schoolteachers are considered part of the rural elite in Kenya, accruing community status and respect. Yet, they may be on a fixed salary within a lower pay grade, albeit teaching with a Master’s degree, with less purchasing power than a school dropout with a successful trading business.

Assumption: Demographic attributes traditionally used such as Education level or stability of Employer correlate to consumer purchasing power or disposable income.

3. Brand Loyalty is absolute and unconditional
Consumer insight reports on the African market opportunity tend to highlight the high degree of brand loyalty prevalent among customers, and leave it at that. Recommendations then emphasize first mover advantage or capturing customer loyalty, with the assumption that once locked in, this will create a committed customer for life. Why brands matter so much is rarely, if ever, asked.

The assumption is that this brand loyalty implies pricing blind consumption and status seeking behaviours. While this may certainly occur at the upper end of the income spectrum, these drivers are not likely to be as common for decision making among the mass majority audience. Demand drivers for brand loyalty more commonly noted are:

– the need to minimize risk (of loss)
– maximizing the return on the investment (in the purchase) including status signalling and reputation factors, which have a role in accrual of social capital leveraged for business activities in the informal sector.

Trade-offs are constantly being made in purchasing decisions, influenced by a variety of factors. Yes, compromises may be made on groceries in order to pay for a branded product, but simplistic interpretations of this behaviour lead to egregious errors in the design of customer experiences.

Implicit Assumptions commonly held about Informal Markets

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Woman owned and managed informal retail in Mozambique via Twitter

  1. “Informal Economy” always means illegal, shadowy, gray.
  2. High volume of low value cash transactions imply poverty, ignorance, lack of sophisticated money management.
  3. Operating with a lack of infrastructure and institutions implies ignorance, lack of ambitions and aspirations, and motivation.
  4. Lack of cash implies lack of purchasing power – particularly in rural settings.
  5. Lack of formal retail markets and packaged consumer goods implies lack of knowledge, information, and choices.
  6. Lack of competition, due to all of the above.
  7. Entering markets where informal retail dominates will be a cakewalk.

Mirror-Mirror, Who am I? The rise of African doll brands that empower Black girls

During the past few years, people of color all over the world have started challenging their absence in a positive light in the media, entertainment, books and toys. Black people, and Africans more specifically, feel invisible or highly under represented. The lack of visibility has severe effects on image, self esteem and success.

Experts say that self confidence starts at an early age. The images, words and overall culture we expose young minds to have a long term influence on the trajectory of their lives.  Who best than people of color themselves to produce and create articles that celebrate them and put them in the best light?

Several Africans, men and women, are active in the business of creating dolls or barbies that African girls can identify with through different skin tones, body shapes, hair texture or different outfits representative of various cultures. These dolls are mostly assembled in China, produced in low quantities and generally sold locally.

So far, five brands are emerging in both francophone and anglophone Africa:

Queens of Africa Dolls (Nigeria): The dolls and materials are designed, through fun and engaging materials, to subconsciously promote African heritage. Queens of Africa celebrates being an African girl in the 21st century by drawing on the strengths and achievements of ancestors and bring them up to date to empower and inspire today’s generation of African girls.

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Momppy Mpoppy Dolls (South Africa): Fashion forward with an afro, the doll seeks to be a trendy and attractive alternative to Barbie for girls of African descent.

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Sarama Dolls (Côte d’Ivoire): Dolls dressed in traditional Ivorian gear, they celebrate various cultures in Côte d’Ivoire.

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Naima Dolls (Côte d’Ivoire): A mix of dolls and barbies, with different shades of brown, hairstyles and outfits (modern and traditional) that exist in baby, male and female versions.
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Nubia Kemiat (Cameroun): The doll with natural hair is a cultural story teller that narrates tales in Africa and throughout the world.
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Local entrepreneurs are partnering with (department) stores or e-commerce sites to ensure greater distribution across the country and increasingly all through the world. Although, the middle class is  enthusiastic about such empowering cultural products, prices and availability remain barriers that brands need to address to develop mainstream products.

The East African Community is a hidden gem

eac-locator-mapEven as headlines shriek about “Africa”s economy undergoing some form of turmoil or the other, increasingly, indepth focused reports point out that the East African Community is performing exceedingly well. “Africa”, it turns out, is a vast and diverse continent made up of more than 50 countries. The IMF said:

…the multi-speed growth in the 1.4 % regional aggregate growth this year over-shadowed the prevailing diversity across the region. Almost half of the 45 countries in the region (south of the Sahara), including Côte d’Ivoire, Ethiopia, Senegal, and Tanzania, he noted, would continue to enjoy robust growth, with economic output set to expand by 6 per cent or more by this year…

while the World Bank chimed in with:

…the region’s economic performance in 2017 will continue to be marked by variation across countries.

eac-gdpIt was when UNCTAD’s Mukhisa Kituyi pointed out that in East Africa, intra-regional trade is closer to 26% – double the figure generally touted for the continent’s performance, that it struck me how much the current approach to considering metrics for the continent hid so much of the value. Either the entire continent is taken as a whole, or as “sub Saharan Africa” including South Africa. Once I’ve seen the use of SSAXSA – those parts of the continent that aren’t North or South. Perhaps its time to disaggregate our assessments even further?

While this post isn’t meant to be a comprehensive literature review, so much as an evidence based request for more focused and granular analysis of the opportunity spaces on the African continent, here’s a variety of areas where the EAC countries tend to rank in the top 10. Note that they’re all from different sources as well.

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logistics-secondFood for thought, isn’t it? In subsequent posts, I’ll be taking a closer look at the EAC as an attractive opportunity space for new market strategies and business development.

What will it take for African-made clothing to become available for mass market?

When we talk about fabric in West Africa, there is no doubt that wax (also called ankara) is one of the first thing that comes to mind. Vlisco, the Dutch fashion textile brand, has been for long THE fabric par excellence bringing prestige and elegance to those who wear it. As 2016 marks the 170th anniversary of the brand, a celebratory campaign has been launched in several West African countries to share the history of the brand, re-print classic fabrics with a modern touch and weigh on the stakes for the future.

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Vlisco’s campaign with 8 brand ambassadors

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Cocktail for the launch of the celebratory events around Vlisco’s anniversary in Cotonou

Speaking of stakes, competition from China has been the most damaging to Vlisco’s sales and image. Cheaper Chinese fabrics that happen to be look-alikes of Vlisco patterns have created two shifts in society:

  1. wax has become widely available to working class who can now frequently purchase fabric; and
  2. a rise of fashion labels creatively using wax for accessories, clothing, and shoe apparel.

Fashion labels using wax have flourished, at low scales, remaining more custom made than ready-to-wear. Yet whether they are designed with Vlisco or cheaper wax fabric, prices remain high. Let’s have a closer look:

Case 1: Woodin, part of the Vlisco group, boasts to be the “first African brand offering a contemporary and wholly African fashion range”. Vlisco owns two textile factories in Ghana and Côte d’Ivoire yet ready-to-wear designs remain expensive, according to consumers. Prices range between $50 and $120. Interestingly enough, Woodin aspires to produce ready-to-wear collections accessible to all.

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Case 2: newly launched clothing lines that produce small scale collections with (cheaper) wax prints. Designers work with tailors and seamstresses to produce their clothing/accessories items. Volumes produced depend on demand from customers, personal funds (access to funding) or requirements for expo/private sale designers are attending. Prices are also deemed expensive and closely mirror those of Woodin.

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Left: Nanawax from Benin who aspires to be the Zara of Africa; Right: Dakrol creation from Togo

Admittedly, despite the current trend in wearing wax, African consumers still have a hard time purchasing ready-to-wear wax prints because of alternative options such as buying fabric and sewing preferred design directly with a tailor or seamstress or second hand clothes. However, mindsets are changing and demand is rising, especially from the middle class.

So, despite the democratization of fabric, both cases highlight important points:

  • Cheaper fabric, even when produced locally, does not significantly reduce cost of clothing
  • Labor costs remain expensive
  • Economies of scale could be reached if demand rose significantly so mass market clothing in wax (or other locally made fabric) could be readily available

This begs the question: will manufacturing enable reducing the cost of ready to wear Ankara clothes and accessories in Africa?

Research Question: Why is the informal retail sector so persistent and resilient?

retail2Retailing in India is currently estimated to be a USD 200 billion industry, of which organised retailing makes up 3% or USD 6.4 billion. By 2010, organized retail is projected to reach USD 23 billion and in terms of market share it is expected to rise by 20 to 25%. (Sinha et all, 2007)

These claims of projected growth were made based on a 2005 KPMG report on the Indian Consumer market, while the chart itself with it’s aspirational forecast is from the IBEF website. I have been watching and waiting for more than ten years for India’s retail revolution to take place.

The consistent message from the beginning of the retail boom has been that since the organized retail sector (what we would call the formal) has only been ~2% of the total retail trade in India (the balance is informal retail) there was ample opportunity for growth in modern retail.

Yet if you look at the data from 2015, you’ll see that the forecasts were far too ambitious (or, perhaps, aspirational, in the push for modernization driving India’s recently opened markets) – formal retail has only reached 8% penetration in the past 10 years. Nowhere close to the 25% expected by 2010. Mind you, these were all the management consultancy reports bandying the numbers around.

I bring this up because I’m seeing the same kinds of projections happening right now for the African consumer market by the very same firms. And with very few exceptions, the majority of the SSA markets tend towards the same kind of proportions of organized vs unorganized retail  (formal vs informal, modern vs traditional et al are all variations on this theme with minor differences in definition).

And, even as the retail real estate development investments are booming, we are already seeing the very first signs of the same challenge that India faced – over capacity, low footfalls, and empty malls. Just yesterday, the news from Ghana – a firm favourite of the investment forecasters –  has this to say:

Ghana’s economic woes have translated into a variety of challenges for formal retailers who are competing for sales alongsidethe dominant and deep-rooted informal shopping sector. According to a recent report by African commercial property services group Broll – titled Ghana, Retail Barometer Q2, 2016 – overall sales in most modern shopping malls are well below historic averages, despite garnering sufficient foot traffic.
[…]
“International players are also looking at the market and re-adjusting their product/pricing mix to cater for the real middle class, whereby we are talking more in terms of value products rather than high-end products.”

And, retail developers are turning their attention to secondary cities such as Kumasi and Takoradi, as Accra reaches saturation point. The exact same pattern as we have been seeing in India. You would think people might pause a moment to take a look at similar markets and operating environments to assess patterns of market creation development.

This pattern is what gave rise to the research question I would like to frame – why has the informal retail sector been so persistent and resilient? What does this mean for modern trade? And, what are the implications for urban development and planning?

The trajectories of the Indian and the Ghanaian economies have taken different turns, thus, while one might point to these factors as the reasons for the challenges facing the mall owners and the retail brands, the big picture over the past twenty years points to something more fundamental in these operating environments common to the developing world.

That is what I would like to find out.

Japan’s Indian Strategy for the African Consumer Market

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One of the most high-profile events Kenya has hosted since independence begins this week when heads of state from across Africa and the Prime Minister of Japan Mr Shinzo Abe jet in for the Tokyo International Conference on Africa Development (TICAD). It will be the first time that Ticad has been held outside Japan and it is an honour to Kenya to have been picked to host this event. ~ Daily Nation editorial

The Nikkei Asian Review has been preparing for days with longform articles on the African consumer market, and other opportunities for Asian businesses. While Indian B2C investments have been closely analysed (and embraced), it is clear that the East Asians are eyeing each other as their closest competitors.

Africa was once dominated by Western investors, due to ties forged in colonial times. But Chinese companies have muscled their way in, and Indian, Japanese and South Korean players are arriving and thriving. This intense competition is no longer just about extracting minerals and materials. It is about tapping the next big consumer market.

Their articles are well researched and provide ample insights for businesses contemplating these new markets. Here are some highlights that caught my eye:

Vivek Karve has a clear picture of the ideal African market. The chief financial officer of India’s Marico, a maker of hair and body care products and other fast-moving consumer goods, said his company targets countries with “per capita GDP under $5,000, many mom-and-pop shops, low penetration of multinationals and political stability.”

There’s little handwringing over lack of data or missing middle class metrics. Inadequate infrastructure and informal retail in Africa is no different for your average Indian FMCG brand than their domestic market, thus the concept of the ideal market being one full of little mom and pop shops.

Marico’s strategy for achieving that includes promoting local brands familiar to African consumers, rather than pushing products that are popular in India. It uses multiple distributors to cushion itself against credit risks.

The Japanese, having already faced off with the Koreans in India’s large, diverse, and fragmented markets, are ready to take a leaf from the Indian playbook for their foray into the African market.

The gap between Asian and Western rivals is expected to narrow over time, with China making up much of the ground. About 3,000 companies from China — Africa’s largest trade partner since 2009 — are doing business in sectors such as infrastructure, resource development and telecommunications.

And even this focus on infrastructure development and large scale investments is changing. The Chinese idea is to boost purchasing power across Africa and turn the continent into a massive consumer market.

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Nissin Foods launched locally sourced sorghum noodles in Nyama Choma flavour in Kenya

The Japanese are preparing the ground to apply their own strengths in Africa. Japanese companies see Africa as a lucrative but daunting challenge — one they would rather tackle with a partner or subsidiary that is familiar with emerging markets.

This, again, is where India comes in. Toyota Motor, Honda Motor, Nissin Foods Holdings and Hitachi all export from their factories in India to Africa. The Japanese government is actively working to help companies make inroads in India as a springboard to Africa.

A couple of years ago, the Ministry of Economy, Trade and Industry compiled a list of potential Indian partner companies with strong African operations in 16 fields, including beverages, consumer goods, retail, electronic parts and auto components. Godrej Group and Marico were among them.

The lessons of the last quarter century are driving a new collaborative strategy. My rupees and yen are on Asia.

Will Direct Access to China-made Goods Disrupt Trade in West Africa’s Consumer Market?

jmsamallThe first e-commerce platform for direct trade of China made products has just been launched in the West African country of Togo. Squeezed together with the Benin Republic between the larger, and better known countries of Nigeria and Ghana, Togo is a small francophone country of around 7 million people. Per the article:

“We want to be the pioneer of e-commerce in Togo and to capitalize on the strong multifaceted cooperation between China and Togo, a premier trade hub country in West Africa”, Yuan Li, founder of JMSA-MALL, told Xinhua Friday in Lomé.

“We are promoting a direct trade of genuine Chinese products with fair price between the African customers and the sellers in China,” he explained.

From electronic devices to farm machines, the platform offers a wide range of Chinese products, which are sold in Togo as well as other countries like Benin, Niger, Ghana and Burkina Faso in the region.

All major credit cards are accepted for payment as well as the local mobile money payment system – Flooz. There’s a generous return policy, and shipments arrive at a local brick and mortar shopfront for pickup and returns. That is, if the item ordered isn’t already available in stock at their local warehouse. Furthermore, JMSA-MALL offers local SMEs an opportunity to sell their wares through their platform. On the surface, this looks good – by cutting out the middleman, they can offer lower prices.

Yacine Bio-Tchane, our Beninois colleague also has a footprint in Lome, Togo. She and I discussed the potential impact of this launch in the local context, as well the broader implications in general. Here are some thoughts:

Will this ‘Direct to Consumer’ (DTC) platform have impact on local traders who travel to China for goods?

Yacine made the observation that since the platform sells everything from electronic devices to farm machines, if some pricey and heavy items are not readily available in Togo but for which there is a demand can be bought online, users will take advantage of that opportunity. Going to China, identifying the right product at a good price and shipping it back to Togo is timely and costly (1). The e-commerce platform significantly reduces transaction costs, which makes it very interesting for local buyers.

Chinese products are known to be cheaper (in price and sometimes quality) than other products so they are highly competitive and accessible to many Togolese, especially given the low purchasing power. If, instead of going to the market and walking around in search of those products, anyone can buy it online, people will prefer doing so. However, while Togo has 67% penetration of mobile phones, less than 10% of the population has access to internet. This implies that few consumers have access to the ecommerce solution but it could trigger an increased use of internet from traders interested in China made goods. Although the article doesn’t say who the top buyers are (nationality), it would not be surprising to see that increase in demand is being pulled by Ghana.

Direct trade of China made goods

On the other hand, given the costs, time, and hassles of going to China to source and ship products back home for sale, this platform might be attractive to local traders themselves, both in Togo, and regionally. As Yacine observes, demand might not be from Togo itself but rather the neighbouring countries. As the founder of the platform says himself, Togo is a critical trade hub in West Africa for China.

China has increased trade and diplomatic relations with Togo in the past decade. It is even said that China has become the first financial partner to the country. Chinese companies operate in industries, agriculture, commerce and construction. They create employment and compete with local companies in selling certain products such as fabrics.

The fact that this e-commerce platform is a B2C marketplace backed by a local warehouse full of China made goods is a signal of this investment. For Yacine, the strongest message the launch of this platform has sent is that the Chinese are fully settled in Togo. That kind of long term investment, coupled with their increased investments in industries is a game changer. China is no more a simple partner coming in for projects but has now become an important actor with influence on consumer behaviour. This is a big pivot in its brand.

west_africa_2_storyGeographically, Togo is well positioned to easily access both anglophone and francophone West Africa. E-commerce has been taking off exponentially in the giant market of Nigeria, but has yet to gain traction in other neighbouring countries. Ivory Coast has seen some gains, but it’s in an early stage. Traditionally, the Chinese have waited for markets to mature before flooding it with their lower priced variations – the mobile phone market is one such example. The launch of this platfrom seems rather early from the e-commerce (and mobile payments) perspective but not from the point of view of global trade and market forces.

China’s manufacturing industries are feeling the pinch of shrinking global trade, and the problems of over capacity. The domestic market has been one major focus for development; this initiative seems like an attempt at creating another. Consumer goods trade between Africa and China has not entirely been under the radar – both African and Chinese airlines were the first to respond to demand. Further, there are other changes afoot that directly impact West Africa, as this recent article from CNN shows:

Over the past 18 months, although concrete numbers are hard to come by, hundreds — perhaps even thousands — of Africans are believed by locals and researchers to have exited Guangzhou.

A dollar drought in oil-dependent West African nations, coupled with China’s hostile immigration policies, widespread racism, and at-once slowing and maturing economy, means Guangzhou is losing its competitive edge. […] As China becomes less profitable, many Africans feel the downsides of living there more acutely.

If the mountain cannot support Mahomet, could it cut costs by building warehouses fronted by online marketplaces? Warehouse centres for China made goods are not new to the African continent, southern Africa has quite a few, while Tanzania’s China funded logistics hub has just been flagged off. The JMALL founder’s opening statement positions Togo as another such ‘trade hub’ in West Africa. Is this e-commerce platform a pilot to test regional B2C marketing cost effectively?

Chinese e-commerce giants like Alibaba have shown the way with their agent led efforts to open up the challenging rural markets of the mainland’s hinterlands. It’s only a matter of time before a different kind of intermediary springs up in Togo (and elsewhere) offering similar agent services to facilitate trade. This time, however, it’ll be from the comfort of their home countries, as they assist traders and consumers with online purchases. Taken together with ongoing investments in mobile money payment systems, financial inclusion initiatives, and the utilization of the agency model – China seems to have grasped an excellent opportunity space to begin exploring.

 

(1) Here’s a documentary following a Congolese trader during her shopping spree in Guangzhou, China, looking to fill her container with tradeable goods. It offers us insight on her customer experience.

This article has been translated into the French by Yacine Bio-Tchané

Emerging African women entrepreneurs #informaleconomy

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Ruth, the retailer who dreams of wholesale. Western Kenya Feb 2016 Photo: Niti Bhan

At the other end of the high tech geeky startup spectrum increasingly providing a platform for African women is the informal retail and wholesale trade sector. Like their West African sisters, the women traders I met in the border market of Busia, Kenya (next door to Busia, Uganda) and its nearby environs (~ 5km radius), and at Malaba, Kenya (also next door to Malaba, Uganda) are professional businesswomen, some with ties as far away as Egypt and Kampala.

They break the stereotype of the poor African woman who sells tomatoes as a livelihood activity to feed her 4 kids and send them to school. One company has a B2C outlet in Mombasa, while they sit in between Kampala and Nairobi, trading in women’s accessories and various accoutrements that are fun to own. Another imports clothes from Egypt, while also wholesaling eggs from Uganda. And ladies who are in the wholesale of staple agricultural commodities, documented evidence of which only began in the 2000s.

UNWomen would have it that the majority fall into the conventional description that doesn’t question its implicit assumption that operating in the informal sector automagically means you’re in the lower income category. Besides, the concept of “informality” in the English language causes more misconceptions around the sector as it exists in East Africa.

I’ll be honest, I cannot actually say without a proper market research study, at scale, whether the exceptions are the majority or minority. To be honest, as I noted in the previous post, it costs almost as much money to run an informal business as it would a formal. This whole topic of what is formal and informal is an entirely different, far more academic post. Income level does not really enter into the picture as a defining characteristic.

These are businesswomen with bank accounts and book keeping. They are invisible because their business can be conducted from indoors, by phone and mobile money transfer.

Infrastructure has a direct relationship to how much your rural business can scale

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Busia market, Kenya Feb 2016 (Photo: Niti Bhan)

This is a micro-wholesaler and retailer in a staple commodity. Infrastructural constraints limit the stock she can manage at one go – seen as the sack with her name on it. This indicates that it was sourced from some distance away, as this is the matatu’s informal package tracking service. It could have come from rural Uganda – some of the most productive agricultural land is in Eastern Uganda within 60km of the Kenyan border. Food is ridiculously cheap in Uganda and the fish in Busia was swimming a few hours before it landed on your plate with dhania sprinkled over it.

Similarly, that poor fish can only go so far, though the traders have built their own jua kali cold chain and can assure you of 24 hours freshness. Its the tomatos and the cabbages that wilt miserably in the searing sunshine and thus limit Mama’s daily income to the purchasing power in her neighbourhood market. She can’t wait for two days to sell her produce.

Its a natural cap on her ability to scale. Both volumes traded and distance supplied are a function of the quality of the cold chain at the very last mile of the farm to fork sustainable agricultural value chain. They need good logistics and reliable infrastructure. We can’t have the fish spoil during a power outage.

Therefore, you can see the economic importance of good infrastructure and also how such minor easy to implement tweaks can boost and trigger all sorts of emerging opportunities for entrepreneurs.