Africa s local champions begin to spread out

Foreign consumer-goods companies including Coca-Cola Co., Nestl SA and Unilever PLC have been in Africa for decades without much competition from local players. Now, home-grown companies are expanding aggressively across the continent, eager to accommodate a growing middle-class among the billion-person population.

Among the most prominent of these consumer upstarts: African retailers such as Nakumatt Holdings Ltd. of Kenya, the top supermarket chain in East Africa, MTN Group Ltd., Africa's largest cellphone provider, and South African restaurant chain Spur Corp. Nakumatt has expanded into three neighboring countries while 348-restaurant chain Spur has opened in seven other African countries.

Nakumatt chose to emulate an American icon: Kmart. On a visit to Florida in the 1980s, founder Atul Shah, a former mattress salesman, wandered into a Kmart and marveled at its cleanliness. He was so impressed at how the store sold food, household goods and furniture under one roof that he hung out there for hours a day for eight months. He became such a fixture that customers asked him for assistance. "Everybody was happy to be assisted by me," said Mr. Shah.

When Mr. Shah returned to Kenya, he opened Mega, a small shop that offered food and some household wares. The shop was clean and had wide aisles for easy browsing, unlike the cramped stores that populated his home country. Each year he added a few more product lines, including furniture.

Mr. Shah is Africa's Sam Walton, who drew early inspiration for his Wal-Mart Stores Inc. from Kmart. Mr. Shah is furiously expanding Nakumatt opening five new stores in just the last three months where it today is the dominant supermarket in Kenya. Its 24 stores appeal to a middle-class that wants Kenyan-made products as well as imports from Europe, the U.S. and Asia. Revenue last year was about $350 million, up 76% from 2006, the company said.

Mr. Shah has expanded across Kenya and has one store each in Rwanda and Uganda. He soon plans to open Nakumatts in several cities in Tanzania, as well as Burundi. He see the Burundi store serving as a trading post for customers from neighboring Democratic Republic of Congo. "We'd benefit from the trade of those neighboring countries," he said.

Aiding Nakumatt and others' cross-border expansion is an African gross domestic product expected to grow 4.3% this year from just under $1.5 trillion in 2009, according to the International Monetary Fund, a clip that trails only China and India among the world's massive emerging markets. The growing investment and trade, from African companies in African countries, has helped cushion the continent from the shocks of the global economic crisis.

Commercial growth also is being fueled in part by the rise of young African banks that have opened branches across the continent, providing much-needed capital to local companies. Ecobank, from Togo, now has branches in 27 African countries and $9 billion in assets. In Nigeria, 10-year-old Guaranty Trust Bank PLC operates in five English-speaking West African countries.

Another local champion tapping Africa's youth market is South African media group Strika Communications, a private company that produces comic book SupaStrikas, about a fictional soccer team. It has grown in circulation from under 50,000 as a local newspaper insert to now selling more than two million copies a month in 21 countries, mainly due to advertisements placed inside the comic panels from African and foreign companies.

Big obstacles for businesses remain. Weak infrastructure means higher energy costs and trouble moving goods between countries. Cumbersome trade tariffs deter investment in new African markets. And the majority of people in African countries live well below the poverty line, limiting their spending power.

Yet many African companies are finding ways around these barriers. Nigerian fertilizer company Notore Chemicals Ltd., for example, has gone straight to governments to pitch the benefits of improved regional trade, and recently established a distribution chain that the company hopes will stretch across the 20 nations of Francophone Africa.

"There is a sense of solidarity within Africa," said Kola Masha, chief executive of Notore, which had about $35 million in revenue in 2009 and after a ramp-up in production expects 2010 revenue of $200 million. "Governments would like to provide patronage to other African companies."

Several countries are taking steps to reduce trade barriers. East African nations have agreed to create a regional trade zone, which should take effect this year, reducing the cost of cross-border trade. Johannesburg-based restaurant franchiser Spur, with $22.8 million in sales last year, has pushed north into resort areas of Namibia, Kenya and into the capital of Botswana.

MTN Group, Africa's largest cell phone-network provider, has become a regional powerhouse, with a presence in 17 African countries, in large part because it is based on the continent and was able to recognize and take advantage of fast cell phone growth. It has 116 million subscribers in 21 countries.

MTN's 2009 revenue were up 9% from the year-earlier to around $15 billion. To tighten its grip on the African market, MTN recently bid for the assets of Egyptian rival Orascom Telecom Holding.