Innovation, under conditions of resource scarcity

When Mkulima Young, a social media community for young farmers in Kenya tweeted this photograph of a motorcycle modified to pump water, I was delighted. It had been a long time since I’d seen such an excellent example of innovative product development under conditions of resource scarcity.

REculture, the group blog hosted by the now defunct Posterous is gone, though Makeshift magazine still keeps the spirit alive. Afrigadget rarely updates these days, and I, too, have moved on in my interests in the past 5 years since Mikko and I first went to Nairobi for Maker Faire and research.

Retail ranking metrics vs Readiness for formal retail #AfricanConsumerMarket

Continuing the thoughts expressed by Yacine in the previous post, I’d like to explore these rankings and their value. We’ll use the example of Tanzania, ranked 5th by AT Kearney in their 2015 African Retail Attractiveness Index (ARDI).

The ARDI states:

Tanzania is starting from a low base: With only 30 percent urbanization, high poverty levels, and less than $2,000 GDP per capita, Tanzania is in the early stages of development. Therein lies the opportunity—the unsaturated market has one of Africa’s fastest growing retail sectors, boosted by new shopping malls. Compare this with Kenya, which has one of Africa’s most developed markets—but also one of its most saturated.

By the less than clear metrics used in this Index (Kenya, for example, has surprisingly never managed to be ranked at all), Tanzania is a high potential market for a long term retail investment strategy. Yet nowhere is there any mention of local consumer behaviour or purchasing patterns.

The ARDI assumes that a “shopping culture” attractive to modern retailers will emerge organically as these nations develop economically and infrastructure wise.

Last year, South African retail giant Shoprite pulled out of Arusha in Tanzania. Arusha is a major international diplomatic hub, thus no less attractive to supermarket chains than Tanzania’s commercial capital Dar es Salaam.

Here’s some insight from the local paper, that offers some food for thought, and a clear signal that one cannot rely on metrics and rankings alone when considering an opportunity in these attractive yet challenging markets.

With many of Arusha residents still living in single rooms, thus few can afford to buy groceries in advance due to lack of storage space and therefore choose to shop when the situation arises then consume whatever was bought on spot.

A child will be sent to buy things like sugar, rice, cooking oil and charcoal for fuel three times a day; for breakfast, lunch and dinner, the shopping trend will again be repeated on daily basis.

As the result, the city is now dotted with hundreds of small grocery stores capable of breaking their stock down to the last grain in order to accommodate the economy and space conscious customers.

Boasting a population of 500,000 residents and additional 100,000 daily visitors, it comes as surprise that ever since it was made a township in 1948, Arusha has had only one supermarket to date.

Even worse, the one and- only supermarket, which opened here in 2002 courtesy of South Africa’s Shoprite- Checkers, has just fled from the city citing the lack of supermarket culture among Tanzanians but especially those living in Arusha.

[…]

But come 2014 and Shoprite, the supermarket which started it all, announced that it was closing shop, complaining that the large store business had totally failed to pick up even after 12 years of operating in the city.

The South African Supermarket chain somehow did not conduct any research prior to venturing into the Tanzanian market especially Arusha where people buy their groceries only during the time when they need them.

Supermarket shopping usually means walking into the large department store, pushing a cart and then loading one item after another onto the basket before checking out through the computerised counters handled by bored ladies.

It also means that a person or family has to make their weekly or monthly purchases once, and then store everything in the house until the next shopping date. That may require special storage cellars at home, refrigerators, deep-freezers and cabinets, not forgetting the cars required to carry everything home in the first place.

However, in Arusha where accommodation space is hard to find, most residents are forced to live in single rooms or cubicles that serve as living rooms, bedrooms and kitchen at the same time.

With hardly any space to store rice, flour, oil and other groceries, for future use, few ever think of practicing supermarket shopping.

It is the unquestioned assumption that lack of modern retail or formal economy institutions imply lack of an existing shopping culture – local & relevant & appropriate to its context and conditions. The real question is whether a region or country is ready for formal retail culture.

This newspaper article isn’t hard to find, supermarkets in Tanzania would uncover it easily, were the analysts working on these indices and reports considering the entire ecosystem of the operating environment in which retail would operate rather than easily measurable indicators.

These insights are not enough on which to base one’s market entry strategy but more than sufficient to make one pause and evaluate whether a more qualitative and exploratory market survey offering consumer insights and buyer behaviour might actually be worth investing in far more in the first instance than years of losses later. This is exactly the kind of moment you’d want to call us in to help you craft your strategy.

African consumer market insight from Chinese flip flop manufacturer in Tanzania

This recent interview of the Chinese owner of a flip flop factory based in Tanzania offers some interesting insights into the mindset of the East African consumer.

Trade in commodities has been the dominant feature of China-Africa relations over the past 20 years, but many traders, particularly those who arrived in Africa early, are now well aware that there must be more to the relationship than that.

“It’s very important to set up a factory in Africa to ensure that one’s products have staying power in this market,” says Wu Quanman, owner of Li Lai International in Dar es Salaam, which makes flip-flops.

He first came to Africa in 1998, to Rwanda, and moved to Uganda in 2000, and set up the factory in Tanzania in 2006.

With a bit of search, I was able to dig up this BBC article from 2006 about the state of the flip flop market in Tanzania.

But at Tanzania’s only flip-flop factory, these are dog days.

A few years ago 3,000 people worked at OK Plast and their wares were exported to 22 countries across the region.

Today the factory employs just 1,000 and Fadl Ghaddar, the Lebanese general manager, told me it was struggling to break even.

All but a few varieties of Africa’s flip flops now come from China and local companies cannot compete.

Yet, Mr Wu says they average a 100,000 pairs a day in his Tanzanian factory:

“If we wanted to grow this business, building a factory in Africa seemed to be the only solution, and it was certainly ideal for us. After thinking carefully about the possibilities, we decided to build the factory in Tanzania, given that Rwanda is landlocked and the Ugandan market was limited.”

It made me wonder whether he’d purchased the struggling factory mentioned in the older BBC article and how he turned it around? Even if he didn’t purchase that factory, his business was apparently booming as the interview quotes him on his plans to invest in local manufacture of the materials required for making flip flops.

The key seems to be consistency – of quality, of supply, a matter of reputation. As Mr Wu says:

“Another thing that prompted us to open a factory here was the significance of brand in the market. African customers are very keen on well-established brands, but previously our products in this market were very random, with various brands from China, so we need our own brand and reputation.”

One valuable lesson Wu learned in Uganda came directly from the customers. Wu says they complained every time they were given products that they were unfamiliar with, and it was decided that if the business was to be sustainable, it needed to sell a well-known brand.

There are a couple of insights here that are interesting. The first is the importance of a brand, or rather, a reliable way to identify a consistent product that had been “tried and trusted” i.e. the familiar and known.

This also makes me wonder why the original local factory was unable to compete and was struggling. Was it that they were accustomed to pricing high in a seller’s market and then unable to offer a wider range of patterns when the market first flooded with Chinese imports? Or was it that they had not invested in building an established brand? We may never find out but the snippet leaves me with the feeling there’s a story behind it.

The other interesting insight from this interview is the fact that customers “complained every time they were given products that they were unfamiliar with” … there is nuance in here whose further exploration will be critical for consumer product companies accustomed to pushing “New and Improved” every so often to increase their market share.

If this reluctance to embrace the unfamiliar and/or unknown is simply a matter of unreliable product quality – a common factor of bulk Chinese imports sourced primarily on price – then global brands can rest assured their systems are in place to meet the expectation of this emerging consumer market.

But if this preference is for the tried and trusted, the familiar and known, and may possibly imply that the consumers are not enamoured of the “new and improved” then this characteristic is worth noting for those seeking to enter these markets successfully.

The Role of Livestock Data in Rural Africa: The Tanzanian Case Study

Kilala livestock market, Eastern Kenya (photo: niti bhan)

The World Bank finally notices the humble goat, four of which will buy you a new Nokia featurephone in Malawi. Funded by Bill and Melinda, this report takes a closer look at the domesticated animal as a financial instrument and investment vehicle. Here’s a snippet with some points I’ve made bold:

Some of the most revealing findings of the Livestock and Livelihoods in Rural Tanzania study, which is a based on the most recent national survey, are about the contribution of the livestock sector to the economic growth of the country, productivity of the sector itself and gender differences in terms of livestock ownership and access to input and markets.

From an economic standpoint, the data collected indicates that smallholder farmers dominate the Tanzanian agricultural sector and are involved in some form of subsistence agriculture. Furthermore, most rural households report some income generated from livestock activities, earning up to an average of 22% of total household income. Poor households tend to own smaller livestock, specifically chickens and goats, while wealthier ones tend to own larger animals, especially cattle.

Inputs such as animal fodder and hired labor tend to be scarce among smallholder farmers in Tanzania, while livestock diseases are widespread. Both of these factors hamper productivity of the sector and thus represent a missed opportunity. Data reveals that less than one-third of all family-owned livestock is vaccinated and approximately 60% of all the animals suffer from some type of preventable disease. On the positive side, 25% of the households that own livestock use organic fertilizer for crop production, a practice that if taken to scale can potentially increase overall agricultural production.
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The Tanzania study confirms that investing in smallholder farmers who own livestock in rural Africa is a catalyst for economic growth.