markets

The problem with unstructured entrepreneurship

Taura Khuluma Say it!!, , , , , , , , , , , , Leave a comment

This is probably more of a problem in Harare more than the other cities but the explosion of on-street vendors in the CBD is interesting and worrying at the same time. Surely there is some money to be made otherwise why would all these people congregate there every day but when we say there is money to be made. How much is enough?

The laws of economics dictate that ultra-competitive markets selling homogenous products have little to no profit for the players of the market. So, by all being in the same place the traders are pushing their own prices before the market even demands low prices. This is a perfect scenario for bargain hunters but not for the traders. What’s the solution?

Here is a radical idea! Instead of 25 vendors all sitting on the same street selling the same things how about we think smart and form cooperatives and use our collective resources to widen the product range, economies of scale to lower prices and sell more and ultimately make more money. By reducing competitiveness from the market the cooperatives will be able to claw back some power in terms of setting prices on the market. Tomatoes can gain 10-15% margin by simply selling from 1 sales point instead of 25 points. But what will the other 24 members of the cooperative do?

Well the cooperative will need to be structured. People will be allocated different roles to match their skill sets. The traders have already show they have skills in sourcing, pricing, market scanning, administration and a host of other skills needed to operate on the streets successfully enough to make a living from it. Some of these skills will not be obviously know to them but they are there they just need sign posting. People will earn consistent wages, partake in profit sharing and benefit from a collective pool of resources to expand the scope of their business.

Once the cooperative is fully functional it can then look into market expansion, taking on more members and developing a retail model that is sustainable and profitable. I foresee green grocers developing from this idea but can we convince the traders to formalize their operations?

What are some of the barriers to selling the cooperative idea?

Single mindedness of Zimbabweans in general
Lack of trust
Short term thinking
Lack of Resources to cover incomes in the short term
Lack of Organizational thinking

But most of these barriers can be easily overcome if there is desire and determination to break new ground.

Fastest growing consumer market

Taura Khuluma Say it!!, , , , , , , , , Leave a comment

An October 2012 report by McKinsey Quarterly suggests that Africa is the fastest growing consumer market with more upward mobility up the consumer chain than traditionally wealthy markets like Japan.

africa economy

Now I know some of you will at this point, direct me to the fact that Japan is one country and Africa is a sum of countries. But, let story develop. If you look at it from a market perspective, a market can be without boarders and so the comparisons can work. The findings from the continent wide research also found that not all of Africa is experiencing this upward mobility in fortunes it is in the traditionally strong Africa economies like South Africa, Nigeria, Egypt and Morocco. While this is likely dampen any positive feelings about the potential for other African countries, I feel there is new opportunities littered everywhere in Africa for companies selling consumer goods.

The consumer population is growing with the number of people dependent on every working person falling every year meaning more people are earning an income and while they might not have a lot of disposable income, there will need basics and that’s where good market scouting can produce fantastic business opportunities for companies. Manufacturing will probably create the greatest profit margins but imports will probably out strip locally produced consumer products in terms of supply on the market. There is a need to recognise that Africa must add value to more of its produce because we are exporting crude oil and importing petrol and diesel, exporting cotton and importing clothes, exporting cocoa beans and importing chocolates  all which a more expensive than we got paid for the raw materials we exported.

While investment might be an issue when it comes to developing the capabilities to add value to raw materials, I feel the bigger issue is show term thinking amongst businesses in Africa because they a focussed on making a much money as possible it is impossible to go for cumulative approach in developing capabilities. So rather than thinking of building fully fledged manufacturing operations perhaps companies can consider building capacity gradually until they reach desired production level. This process will put less pressure on required investment and allow companies to develop efficient businesses that grow organically over time which is how all developed economies grew because they also developed through expansion in response to growing demand from their home markets.

So the opportunity is there for African economies to grow on the strength of their own demand but competition from foreign companies exporting cheaper product will also grow in response to the grow consumer market, how we overcome that and grow African enterprises will define the future of our economies. It’s my opinion that a long term strategy to growth, prudent profit margins, capacity building will deliver the potential being described by the report