What the Failure of Target in Canada Means for Africa

As you may have heard, Target, a behemoth of an American retailer, failed quite miserably in Canada. The Walmart-like retailer did not collapse under its own weight; it did not face any direct rejection from obtuse Canadians – the Canadians actually loved the Target brand as much as their American bedfellows. Instead, because of supply chain issues, Target’s 133 Canada-wide stores would run out of popular merchandise – angering customers who knew, for a fact, that the same goods were cheaper in the United States. Ultimately, less than 2 years after the retailer launched in Canada, Target’s Minnesota-based home office will shell out close to $ 600 million to close down, lay off about 17,600 Canadians, and leave a real estate company holding over $ 1.2 billion worth of inventory it cannot offload easily.

But what does all this presage for Africa? Its quite simple: If the continent is going to attract viable investors into the retail space, Africa must concentrate on immediately sorting out supply chain and distribution network problems. For Africa to become the Far East of the 21st Century, it must also – immediately – take regional integration a little more seriously than it currently does.

Everyone knows that African countries are keen on what forefathers wanted to achieve with the Organization of African Unity (OAU). Bat-shit crazy as he may have been, Col. Qaddafi’s United Africa – where countries too small to be on their own received a leg-up from larger and more stable neighbors – was plausible. And in this regard, African heads of state continue to pay both lip service and their dues to be part of regional economic communities like the Economic Community of West African States, the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC). Africans are well aware of regionalism and its benefits; they embrace these organizations by sending their best and brightest to staff their respective regional entities.

So, what the heck is going on? Why does Africa continue to have non-tariff barriers and issues with cross border trade? Today, like a COMESA report suggests, Africans are bypassing border posts, concealing goods, under-reporting, falsifying documents and under-invoicing so they can evade taxes or fees imposed by governments – but especially to avoid the time consuming and costly sanitary and phyto-sanitary formalities; security and immigration. Of course, we must not rush to judge Africa. After all, in spite of Canada being part of the North America Free Trade Area/Agreement (NAFTA) alongside Mexico and the United States, Target’s failure in Canada is due to the issues rife in Africa: Merchandize not getting to customers on time and at appropriate cost. Thus, does Africa even have a candle’s chance in hell? Besides, if you can term Canada ‘an increasingly tough retail environment,’ what will you call various African countries where almost 45% of their cross border trade is informal and a loss to government revenue?

The answer to this quandary is just as complex as it is simple. Behind many of these non-tariff barriers to fluid trade are entrenched businesses and entities making super normal profits from the status quo. If Kenya does not get its cheaper sugar into Uganda, then Uganda’s sugar suppliers will continue to make their money. While there’s nothing evil about oligopoly, the key to benefiting Africa’s fast-growing middle class lies in increasing the amount of foreign direct investment in retail and manufacturing. External sources must start to work with current producers of basics like sugar, salt and even involve themselves in agricultural production and processing. With their capital investments in technology, the only thing that may prevent things from being even better is negotiations for mergers and acquisitions. Yes. M&As are going to be the reason Africa does well in the long . Investors must not go to Africa to reinvent the wheels that are already turning. They must buy firms that are already in place and ride their purchased good will to the benefit of Africa.

But more than anything else, investors must work with the regional economic communities. Not only are these specifically designed to help investors; they have ways of breaking down barriers – both tariff and non-tariff ones. You are much better off with COMESA as your advocate than going it alone. And while COMESA or ECOWAS may not insure you against problems like those experienced by Target in Canada, there’s no doubt that they’ll get their big brained people to work to benefit you.

Friday January 16, 2014
Washington, DC