India in Africa: Expanding Opportunities in the Consumer Goods Sector
With more than half of Africa’s 54 countries expected to grow at faster than 5 percent annually in the next ten years, and its GDP projected to increase to $5 to 6 billion by 2025, Africa presents lucrative investment opportunities for foreign companies looking to expand into new markets. For years the focus has been on China’s investments on the continent, but India, which benefits from its long history of cultural ties to Africa, including vibrant diaspora communities in east and southern Africa, and has emerged as one of the fastest growing economies in the world, edging China out at 7.5% GDP growth in 2014, is uniquely poised to corner quickly expanding African markets. As economists predict that India could quadruple its revenues in Africa to $160 billion by 2025, Indian companies are taking note, particularly in the consumer goods sector where the demand for appliances, electronics, and personal care products is increasing.
Indeed, Indian companies including Tata Motors, Karuturi Global, and Godrej Group have sought to capitalize on the purchasing power of Africa’s growing middle class. Last month, Godrej purchased South Africa’s Frika Hair Care company through its personal care arm, significantly increasing its investment in the $1.5 billion dollar African hair extensions market. Gondrej has pursued a successful expansion strategy, acquiring African hair care companies in larger, more integrated markets such as South Africa and Nigeria and expanding regionally. Following this incremental approach, the company acquired Darling Group Holdings, a well-established Nigerian hair care company, over several years, purchasing 51% of Darling’s stock in 2011 and the remaining 49% in 2014. Darling, which sells its products in 14 African countries, generated $80 million in sales in 2012.
In large part, Godrej’s success can be attributed to its measured, localized approach. While it imports synthetic fibers and henna leaf powder from India and Asia, the company uses those materials to mix its colorants and weave its extensions in Africa and markets its products under African brand names that cater to specifically to African consumers. Similarities between the Indian and African business climates have helped as well. Godrej’s experiences in fragmented markets and with middle-income consumers have no doubt proved critical to the company’s impressive performance on the African continent.
From producing cut flowers to cars, Indian companies are expanding their businesses and raising their collective profile in Africa. India ranked sixth in Foreign Direct Investment in Africa in 2012 and shows no signs of slowing down. With the rupee solid, China’s growth slowing, and India’s relative economic stability in the wake of falling commodity prices, the stars are aligned for Indian companies seeking to do business in Africa. While investment in Africa will surely require patience, the future is bright for Indian companies willing to bet on long-term growth.