Economic growth

U.S. clothing chain the Gap to open stores in South Africa

Famous U.S. clothing chain and brand the Gap to open first stores in South Africa.

Gap Inc. is opening its doors to Africa. On Tuesday, the U.S. clothing chain unveils its first store in South Africa, in a swanky mall here. Another store will open in Cape Town this month, followed by Pretoria, the country’s political capital, later in the year.

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Executives see the openings as a steppingstone onto a continent where the average economic growth is faster than 5% and the average age is 19—a nice fit for a chain catering to the young and hip at subluxury prices.

At a launch party Monday night, guests sipped from champagne flutes next to a “Hello South Africa” banner. Models clad in Gap denim worked the crowd while a DJ played techno music. Personal shoppers were on hand to assist consumers.

“The next big market for us is Africa,” Stefan Laban, the head of Gap’s franchise business, said at a rack of pink kids’ leggings at the Sandton-district store. “There is an emerging middle class and more and more tourism here.”

Gap’s expansion in Africa comes as the company is opening outlets in other emerging markets and closing stores in North America. The San Francisco company has struggled in the U.S. and Canada, where the company’s sales fell a combined 5% for the year ended in January. Elsewhere, sales rose 11%. The company opened its first store in Panama in February and plans to expand in Colombia, Uruguay and Peru over the next two years. A Lebanon shop is slated for this year.

Gap is entering South Africa following research that began around when the country hosted the World Cup in 2010. The company opened its first stores in Morocco and Egypt last year. Gap’s shares rose 69 cents, or 2.7%, to $26.08 at 4 p.m. Monday on the New York Stock Exchange, just off their 52-week high.

Gap in South Africa has a partnership with Stuttafords department stores, which have been selling Gap items since 2007. Stuttafords will be Gap’s franchise operator in South Africa.

Mr. Laban said Gap has received inquiries from other prospective operators in Africa but that it will be at least a couple of years before the clothier ventures beyond South Africa, the continent’s largest economy. Nigeria, for example, has a large pool of consumers and a faster-growing economy but lacks South Africa’s mall culture.

Gap isn’t the only clothing retailer moving into South Africa. Spain’s Zara, owned byInditex SA, opened its first South Africa store at the end of last year in the same mall where Gap is making its debut. Luxury retailers Gucci and Cartier also have boutiques in the mall.

Other consumer-goods companies also are seeking to tap a growing middle class, the highest-profile deal being Wal-Mart Stores Inc.’s acquisition last year of a majority stake in South African retailer Massmart Holdings Ltd.

For Monday evening’s party, Gap invited about 200 South Africa trendsetters. Guests sorting through pink skinny jeans and Gap-emblazoned T-shirts were served trays of sushi and, in a country where whiskey is popular among the aspiring middle class, Johnny Walker Black Label.

Gap research indicates that Joburgers favor a relaxed look, company executives said. “Our brand of casual American lifestyle is a good match,” Mr. Laban said.

The trick was finding the right blend of apparel in a reverse climate to that of the Northern Hemisphere. In the Sandton store, shoppers can buy the same spring line that’s on the racks in London or New York but also find pieces from last’s fall’s selection. That pattern will continue, Mr. Laban said.

Gap owns and operates its own stores in several markets, including North America and China. For other regions, including South Africa, it runs a franchises with local partners.

One of South Africa’s disadvantages is high import duties, Mr. Laban said. Since all clothing must be imported, a pair of jeans can be less expensive in the U.S. than in South Africa.

“We will do Gap here first and then think about the next phase,” he said, alluding to the possibility of bringing the company’s other brands, such as Banana Republic.

The investment comes after the Virgin Brand owned by British billionaire Richard Branson intends to open new clubs throughout South Africa. With a growing middle class throughout the continent, the retail sector will gradually expand to meet the growing demand by African consumers. The return on investment is too high to pass up for any company looking to expand, and increase revenue.  Looking to Africa simply makes business sense.

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South African Economy Grew By 3.2% in Fourth Quarter

Africa’s largest economy had better than expected economic growth this past quarter.

South Africa’s economy grew 3.2% in the fourth quarter compared with the preceding three-month period, with manufacturing providing a big boost, but the improvement still comes against the backdrop of government forecasts for slower 2012 growth.

The fourth quarter figure was slightly better than the 3.1% that economists had predicted and better than the disappointing growth in the third quarter, revised up to 1.7%. Overall growth for 2011 was 2.9% from the year before.

Despite the quarterly improvement, albeit from a low base in the preceding months, many economists continue to remain cautious on South Africa’s growth outlook. Gross domestic product could be constrained by problems in the euro zone and the general uncertain global financial market as well as South Africa’s own struggle to reduce its 23.9% unemployment rate.

The unemployment rate, combined with concerns about government overspending and an uncertain policy environment, led Moody’s Investors Service Inc. and Fitch Ratings to lower the country’s debt outlook to negative in the past six months.

The fourth quarter figure comes on the heels of the treasury’s 2012 budget preview last week, where Minister Pravin Gordhan revised down his growth target for 2012, predicting GDP to be 2.7%. The move follows a downward revision by the country’s reserve bank.

“Today’s GDP figures confirm that the economy remains vulnerable…. Performance remains uneven, with consumers providing the momentum and producers struggling to move forward,” economists at Nedbank said.

South Africa’s key manufacturing industry contributed 0.6 percentage point to the growth, the country’s statistics agency said as it released the data Tuesday. But Investec analyst Ilke van Zyl said manufacturing and mining still remain below their peaks reached in 2008 and 2007 respectively, in terms of value added at constant prices.

Protracted strikes across industries in 2011 dented manufacturing and mining output in the first months of the year and the risk remains for a repeat this year, analysts said.

“The many headwinds faced by the production side of the economy cannot be ignored: global demand is slowing, business confidence remains low, cost-push inflation remains rife and local industrial action is likely to emerge once again in 2012,” said Barclays analyst Gina Schoeman, referencing a continuing strike at Impala Platinum Holdings Ltd.’s Rustenburg operation.

The South African economy outweighs its three closest African rivals combined.  The wellness of the South African economy is of vital importance to the region and continent.  What happens to South Africa has reverberations across the continent.

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Nigeria to have strong economic growth

Nigeria’s economic outlook for the year looks positive.  Solid growth is forecast for the year.

Nigeria’s economy is expected to grow around 7 per cent this year and next thanks to solid performance in industries outside of its bedrock oil sector, a Reuters poll showed last Thursday. The forecasts, based on a poll of 11 analysts, paint a strikingly positive outlook for Africa’s most populous nation of 140 million people, which has started 2012 on a decidedly shaky footing.

President Goodluck Jonathan was forced to row back on the removal of costly fuel subsidies after a wave of strikes and protests, and Islamist group, Boko Haram has dramatically stepped up a three-year insurgency. The group, whose name means “Western education is sinful” in northern Nigeria’s Hausa language, has killed nearly 1,000 people since 2009, including at least 178 this week in a series of gun and bomb attacks in Kano, Nigeria’s second biggest city.

“The political battle to end the petrol price subsidy in January is in many ways a microcosm of the wider political battle within the political elite over the reform process,” Citibank said in a note.

“Its eventual outcome will be a clear indication of the potential speed with which the current government can implement structural reforms in 2012.” GDP growth in Africa’s most populous nation dipped to 7.4 per cent in the third quarter of 2011, a year earlier, from 7.7 per cent in the second quarter. The government’s forecast for 7.0 per cent in 2011 is in line with  Reuters consensus. Despite the political instability, analysts said the allure of such a huge consumer market will continue to attract investment.

“We expect to see strong growth in Nigeria, bolstered by robust expansion in the non-oil sectors, particularly retail, telecoms and construction,” said Gregan Anderson of London-based risk consultancy, Business Monitor International.

Nigeria has under performed economically last few years.  It has yet to reach its full potential economically given its size and demographics, all which are good solid foundations for growth. Political instability and region tensions among its states, provinces have held back growth and development..  Until Nigeria gets a handle on this, robust growth year after year will be hard to come by.

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Increase in travel bookings to Africa

Figures from Expedia, the world’s largest online travel company, show a 27 percent increase in the number of travel bookings being made to Africa in the past year. Expedia, which also owns the Hotels.com travel website, said the majority of international consumer demand coming from travellers in the UK, the US and France.

Expedia, Inc. released data showing a 27% increase in the number of travel bookings being made to Africa and the Indian Ocean regions on Expedia and Hotels.com travel sites worldwide over the past 12 months, with the majority of international consumer demand coming from travelers in the U.K., the U.S. and France. The number of Africa and Indian Ocean region hotels currently working with Expedia has also increased, growing well over 100% during the same period of time.

“We’re confident that recent influx of travel demand seen by our Africa hotel partners is indicative to the value Expedia brings to its supply partners throughout Africa and on a global scale,” said Diego Lofeudo, Expedia Market Director for Africa. “Ultimately our goal is to bring Africa to the online travel marketplace, and online travel to Africa, and as such we’re very much looking forward to further developing relationships with hotels throughout Africa and assisting them in developing more effective online distribution strategies to achieve their occupancy and revenue goals.”

Today Expedia offers more than 135,000 hotels on its travel booking sites, making available those hotels on the more than 100 localized Expedia and Hotels.com online travel sites in over 60 countries across the globe. Collectively, these sites attract more than 50 million travel shoppers each month, vastly extending the global reach for a hotel far beyond what they could otherwise likely achieve on their own.

In addition to its expanding presence throughout Africa, U.S.-based Expedia also has operations in North America, Europe, Asia-Pacific, the Middle East and South America. The company also employs a global supply team comprised of hundreds of travel professions placed in local markets around the world whose focus is on developing relationships with local hoteliers and counseling those partners on creating effective strategies to drive incremental demand using the numerous merchandising and promotional opportunities Expedia offers. Expedia plans to expand this team further by establishing South Africa-based operations later this year in an effort to assist an even larger number of hotel partners throughout Africa and the Indian Ocean regions interested in extending their reach to an ever-increasing global audience of travelers.

Representatives from Expedia will be in Durban, South Africa later this week to exhibit at the fifth-annual Indaba Travel Show from May 7th-10th. Expedia and Hotels.com delegates from across the Hotel, Tour and Transport, Technology and Media lines of business will also be in attendance to meet with local travel suppliers interested in learning more about the benefits of becoming part of Expedia’s global online travel marketplace.

Travel has always been a bright spot for many African nations since they have much to offer in the field of tourism and adventure.  The increase of visitors and tourists will continue solidly especially from Asia as more people from that region of the world move into the middle class.  The increase from Europe and US is not a surprise since visitors from those regions have traditionally gone to Africa, the real growth for the long term will come from Asia.

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South Africa’s economy continues with solid, better than expected growth

South Africa’s continued having solid economic growth this past quarter.  Economic growth unexpectedly accelerated to the fastest pace in a year in the first quarter as the lowest interest rates in three decades spurred manufacturers to restock to meet rising demand.

Economic growth in South Africa picked up more than expected in the first quarter, rising to 4.8%, compared with a revised quarterly figure of 4.5% in the fourth quarter of 2010, official data showed Tuesday.

The rate of growth in seasonally adjusted gross domestic product was above economists’ expectations of 4.2%.

The largest driver of the economic expansion in the first quarter was a strong improvement in manufacturing, which contributed 2.2 percentage points to the overall quarterly growth figure, Statistics South Africa said.

This was followed by growth in finance, real estate and business services, which contributed one percentage point to overall growth, and the wholesale, retail, motor trade and accommodation industry, which contributed 0.5 of a percentage point, the agency said.

By contrast, agriculture, forestry and fishing output fell 2.6%, largely as a result of the impact of floods earlier this year on field crops.

Manufacturing growth was led by a strong expansion in the production of gasoline, chemical products, rubber and plastic products, basic iron and steel, nonferrous metal products, metal products, machinery and furniture, the agency said.

Unadjusted real GDP rose 3.6% compared with the first quarter of 2010.

This is good news for the South African economy and investors.  It shows once again that the county is on the right track economically and sound management of the economy is being exercised.

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Economic growth has tripled African middle class

The number of people in the African middle class has substantially grown over the decades due to good economic growth.

Strong economic growth and a move towards a stable, salaried job culture and away from traditional agricultural activities has caused the number of middle class Africans to triple over the last 30 years to 313 million people says African Development Bank (AfDB)

The Bank Group in a report ‘The Middle of the Pyramid: Dynamics of the Middle Class in Africa’, however, warns that despite this phenomenon income inequality in Africa remains very high, and that the overall middle class figure includes large numbers of a ‘floating class’ whose hold on status is insecure.

In a statement announcing the report, the Bank said, “Over the decades, the numbers have steadily risen from approximately 111 million or 26% of the population in 1980 to around 151.4 million (27%) in 1990. The 2010 figure, however, shows a significant surge of 60% from the 2000 figure of 196 million or 27.2% of total population.

“The report defines middle class largely in terms of higher income relative to the average. That average is of course lower in Africa than in the west. The report notes: “the middle class is usually defined as individuals with annual income exceeding USD3,900 in purchasing power parity terms’.

“However, the report acknowledges that other factors come into play when defining who is middle class, saying: ‘other variables such as education, professions, aspirations, and lifestyle are also important features that help establish who is in the middle class’.

“Overall, it is economic growth that determines the rise of the middle class, but economic growth is in turn driven by social and economic factors. The report notes: ‘Africa’s middle class is strongest in countries that have a robust and growing private sector as many middle class individuals tend to be local entrepreneurs. In a number of African countries, a new middle class has emerged due to opportunities offered by the private sector’.

“Other determining factors include the establishment of stable, secure, well-paid jobs, and higher levels of tertiary education.

“Geographically, middle class levels vary a great deal across African countries. North Africa has the highest. Tunisia has the highest concentration at almost 90%, followed by Morocco at almost 85% and Egypt with almost 80%. But a significant number of these belong to the ‘floating’ category with a strong danger of falling into poverty due to economic shocks.

“Other countries with high percentages of the middle class include Gabon, Botswana, Namibia, Ghana, Cape Verde, Kenya and South Africa. Countries at the bottom end include Mozambique, Madagascar, Malawi, Rwanda, Burundi and Liberia.

“The report maintains the growth in the middle class is good news for the future prosperity of Africa, but also points out the continued high levels of income inequality on the continent. The continent has a extremely rich elite: ‘About 100,000 Africans had a net worth of USD800 billion in 2008, or about 60% of Africa’s GDP or 80% of sub-Saharan Africa’s’.”

This is further continuing what i’ve been saying and posting about.  Africa’s future looks very bright and promising, but it has to be managed well and competently.  That calls for good leadership both from the public sector and private sector.  This chance is too good to be wasted.

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