India to quadruple revenues from Africa by 2025: McKinsey report
India can aspire to quadruple its revenues from Africa to USD 160 billion by 2025 by developing its presence in sectors where India has a unique value proposition and African nations have high needs such as IT services, agriculture, infrastructure, pharmaceuticals and consumer goods, according to the McKinsey report, "Joining Hands to Unlock Africa's Potential A New Indian Industry-led Approach to Africa", released at CII Conclave.
According to the Mckinsey report, India can aspire to capture almost 7 per cent of the IT services market, 5 per cent of the FMCG space, 10 per cent of the power sector, and 2 to 5 per cent of the agri-allied services.
However, the report pointed out that to be a true solutions partner, Indian industry needs to continually engage with governments and businesses, proactively surface opportunities through sector and country studies, build an open consortia of interested companies in advance and use funding from low cost countries (like Japan) for large projects where Indian cost of funds is a disadvantage.
According to Mr. Noel Tata, Chairman, CII Africa Committee, "We believe India's strengths and experience of operating in similar capital constrained conditions will be of great value to Africa. Africa needs constructive foreign investment and holds the promise of long-term business for India."
Mr Rajat Gupta, Director, McKinsey & Company, said "IT services, agriculture, infrastructure, pharmaceuticals and consumer goods - these are the key to India boosting Africa revenues 4x to USD 160 billion by 2025"
Barnik Chitran Maitra, Partner, McKinsey & Company, said "In a partnership of equals, Indian industry could build relationships with African governments and businesses, identify opportunities through sector and country studies, develop an open consortium of interested companies in advance and ensure cost-efficiency through funding from low-cost countries (like Japan) for large projects"
Mr Arend van Wamelen, Partner, McKinsey and Company, South Africa- on the opportunity in Africa, said "At its current pace of growth, collectively the continent will overtake the Middle East as the second fastest growing market within the next decade. Africa's growth offers nations a place in its sun—it provides great opportunities for the world to contribute to its development"
The report notes that as African nations continue to grow, they need constructive foreign investment. Indian industry, as a "solutions-partner" to African nations, could greatly contribute to their development- creating employment, spearheading talent and skill development, and developing infrastructure. To do so, India can leverage its strengths, such as the experience of setting up successful distribution for fragmented consumer markets, and the entrepreneurial mindset required to navigate ambiguity.IT services, consumer goods, pharmaceuticals, automotive, agriculture and infrastructure are sectors where African nations' opportunity can be complemented by the Indian industry's strength.
According to the report, Africa poses multiple challenges to Indian companies looking to invest there.Challenges in Africa are inherent to any emerging market and include a fragmented opportunity with unfamiliar risks, infrastructure bottlenecks, lack of talent and a nascent financial services sector. Apart from the sector specific initiatives, Indian companies will need to adopt 10 common imperatives identified by studying successful and unsuccessful MNC businesses in Africa. These include:
1. Prioritise early — Identify priority sectors and countries quickly and set up strong business organisations there.
2. Go granular — Understand local nuances and adapt business models accordingly. Africa is one continent with 55 different countries, each with its own culture, customs and behaviours.
3. Expect to iterate — Customise approach based on continuous learning. There are no fixed answers to succeed in Africa; hence, companies should be ready for initial disappointments and tune their business model accordingly.
4. Choose distribution channels carefully — Understand and control the route to market for success in such a fragmented geography. This is a challenge which Indian companies have mastered on the home turf, and must now face in a geographically larger context.
5. Build brands aggressively — In Africa, brands are considered to be the clinchers in making purchase decisions. Hence, brand building, especially in the consumer goods sector, is critical.
6. Deliver value across price segments — Innovate to meet the entire range of needs as the landscape is still open for brands and whole categories. In the consumer goods sector, Indian companies can meet this challenge with their wide product ranges.
7. Think long term — Business in Africa cannot be built quarter-to-quarter-companies must be willing to invest for the long term, spend effort on setting up the business' roots in the country, and only then achieve success.
8. Involve locals and insiders as partners — This is necessary to get local insights, benefit from regulatory know-how and develop relationships. The ultimate aim must be to become the insider.
9. Partner with local governments — Governments in most African nations play an important role in business development, and partnering with them is crucial to creating opportunities.
10. Invest in building local talent — Given the relative lack of local talent, developing talent will play a critical part in scaling up any business, and must be invested in proactively.
(Posted on 10-03-2014)