Going For Gold: Africa’s Sports Industry Gets Competitive

The London Olympic Games came as a rude shock to African athletes especially from Kenya, Ethiopia and North Africa, who only managed a few medals among them. While coaches ponder this unfortunate development, Sherelle Jacobs looks at the sports industry in Africa as a whole. Has Africa got a toehold in one of the world’s most lucrative industries?

Few would dispute the fact that the African performance at the London 2012 Olympics was disappointing. Only three African countries – South Africa, which came in 23rd place, followed by Kenya and Ethiopia, made it into the top 30 in the medals ranking.

Fortunately, the poor athletic showing at the biggest sporting event on earth does not reflect Africa’s sports industry from a business perspective. There are signs that failures at the Olympics could well spur on a new push to boost investment in professional sport and sports-related activities from gyms and leisure centres to sports nutrition and equipment retail business. The Olympics has been a wake-up call for Africa. Failure has acted as a stimulus for greater commitment to investment in professional sports, at least in rhetoric. Nigeria is a case in point. After the country failed to secure a single medal in this year’s Games, President Goodluck Jonathan ordered a “total and comprehensive” overhaul of the Nigerian sports industry.

Minister of Information Labaran Maku echoed these sentiments when he commented: “He [President Goodluck Jonathan] believes that what this nation needs at the moment is to take a sober look at what has happened and indeed change the scenario … to return the sporting sector to its past glory,” said Maku. The president is said to be keen to boost private and public investment in sports in order to improve Nigeria’s performance in various sports before Rio 2016. Nigeria in particular has also expressed interest in concessioning key sports to the private sector so that these sports are no longer dependent on the limited pot of government funding available.

“Concessioning will allow certain corporate organisations to concentrate and develop particular sports, because government cannot fund sports alone,” said Foluso Adefemi, President of the Gymnastics Federation of Nigeria (GFN) in August.

“Sport in Nigeria does not really have the support of corporate organisations presently. But I think there should be the creation of an enabling environment for corporate bodies to support sports. “Concessioning to particular private organisations to choose some particular sports, especially in Nigeria, will allow sports to develop. That is what is being done in most foreign countries,” said Adefemi.

A move towards private funding of sports is not only good for the sports themselves – it offers new business opportunities for firms interested in sponsoring sports in exchange for advertising rights. Advertising at sporting events is particularly valued in the advertising industry because it enables firms to target groups with remarkable accuracy. But in Africa the industry is extremely underdeveloped and large companies have in the past been reluctant to sponsor home-grown teams and talent. There are signs that this is steadily changing. Strong African brands are moving into this area with serious intent; these range from the drinks company Energade, which has just announced its three-year sponsorship of the South African national football team, to telecoms giant MTN, which sponsors a vast range of events in several countries, including the Nigeria Premier League and the Football Association of Zambia, to which it recently increased its funding.

The London Olympics has also inspired African nations to consider another sports-related business opportunity more closely – bidding for the 2024 Olympic Games. Kenya has been the first African country to openly articulate its desire to bid for the Games. The Kenyan Prime Minister Raila Odinga said during a visit to London in August that Nairobi was getting ready to bid. The South African city of Durban is also tipped to be preparing to bid for the 2024 Olympics.

Bidding for major sporting events has serious business implications. Hosting large sporting events is believed to catalyse economic development in host nations by stimulating large-scale infrastructural projects, bringing in visitors and boosting a given country or city’s image. Moreover, South Africa, which has, in the past, reaped the rewards of hosting high-profile international sports events, such as the Rugby World Cup, World Fencing Championships and World Junior Cycling Championships, the One-Day Cricket world championships and, of course, the biggest of all, the Fifa soccer World Cup in 2010 is perhaps proof that bids can pay off. Such events have given a real lift to the economy in South Africa, attracting tourists and prompting development projects.

But even South Africa has experienced its share of bidding failures, which throws up questions about the extent to which Africa can make successful bids for mega events. South Africa failed to secure the 2004 Olympic Games and the World Cup 2006 because of doubts over the country’s infrastructure, facilities an organisational capabilities.

This raises the question of whether African countries should spend money and effort on expensive bid campaigns for major sporting events that they stand only a slim chance of winning. On the other hand, much can be gained through high-profile bids – including insights into how to improve a given country or city’s infrastructure; such knowledge can prove useful for future projects.

Yet, some experts argue that the economic benefits of mega sporting events, once bidding has been successful, can be exaggerated.

“Ex-ante impact studies typically overestimate the gains and underestimate the costs involved. It is therefore difficult to explain in economic terms the intense competition among cities to hold such events,’ writes Jonathan Barclay in Predicting the Costs and Benefits of Mega-sporting Events: Misjudgement of Olympic Proportions? According to Barclay, one should not put too much emphasis on the economic advantages of building new sports facilities, such as stadiums for sporting events: “The writings of many academics… have found no correlation between sports stadia construction and economic development. Yet many studies consider the construction of stadia a benefit as opposed to a cost.”

“Although new construction may increase economic activity, it is also necessary to consider the vast opportunity costs, as public expenditure on such projects would mean a reduction in other public services, greater government borrowing or higher levels of taxation. Would the return on a sports stadium exceed that of an alternative use of resources?”

Barclay also argues that infrastructure development is not always beneficial for the population as a whole. Although there may be significant long-term benefits from schemes to improve city infrastructure, these may have limited effects on less affluent people. In terms of housing, as added up by Pillay and Bass in their assessment of South Africa 2010 Fifa World Cup development proposals, the positive effect on property prices in an Olympic area will have a negative effect on the poor who live there; rents may increase until they become unaffordable, he argues.

Many others have dismissed the ‘opportunity cost’ argument as a red herring. Anver Versi, editor of African Business magazine, argued that such arguments are based on the false notion that a pool of money exists independently and that the choice is to spend it on sports events or build housing, hospitals, etc. “In fact, government revenues are always overstretched – and the money for events is raised specifically for the events. Some of this is from the state but a lot comes from the private sector. That this revenue than often ends up in the creation of new infrastucture, such as additional housing, improved transport facilities, modernisation of existing infrastructure and so on is a bonus, not an alternative. The positive impact of a successful event on social psychology and motivation, is incalculable. This is the reason why the competition to host world events is so intense.”

Sport and leisure trends

The professional sports industry of course is only part of the sports industry as a whole from a business perspective. Leisure facilities, sports equipment and nutritional products and sports tourism are all lucrative and growing sectors in Africa that merit further analysis. A number of trends in the country are driving the popularity of sports and healthy living and, thus, stimulating the growth of several aspects of the sports industry. One is that Africans are becoming increasingly health and fitness conscious, in line with global trends. The young demographic in Africa, with 60% of the continent’s population under 25 years old, reinforces that tendency. Youth tends to be more enthusiastic about sports and more body-conscious.

The improved access to information of Africans, especially via the internet, is one of the reasons why people are becoming more reflective about their health and wellbeing. The internet has also made it easier for people living on the continent to find out what sports facilities and products are available to them. Another trend increasing opportunities for the consumer sports industry is the steady rise in the income levels of Africans, and the emergence of an African middle class, with money to spend on gym memberships, health spas and health products.

Although the leisure facilities industry is making progress on the continent, its exact size and the pace of its expansion is difficult to trace. According to experts, the area is underresearched. In South Africa, for example, information is limited, especially when it comes to smaller clubs, community centres and self-employed fitness workers, which dominate the industry, rather than larger chain companies. But few would dispute that gyms are becoming more and more popular.

Membership to gyms and sports clubs is probably partly responsible for the rise in sports equipment and nutrition sales. According to Data Monitor, between 2004 and 2009, the retail sales for sports items grew at a compound annual growth rate (CAGR) of 9.9% in South Africa. Adventure sports equipment did particularly well. Equipment accounted for 73% of the value of the sports and leisure sector as a whole in 2008 and 1.5% of the total value of retail sales in South Africa in the same year.

In Nigeria, retail sales for sports equipment grew at a CAGR of 9.4% from 2003 to 2008. Ball sports in particular led that trend, accounting for almost a third of the market in 2008, according to Data Monitor.

Similarly, the sports nutrition sector is flourishing, directly linked to the spike in gym memberships because purchase of these products is often encouraged in gyms through advertising. As a result, many well-known international brands have been doing well. Ultimate Sports Nutrition (USN), because of its aggressive marketing in South Africa, was able to dominate the market in 2011, with a stake of 48% in the country, according to Euromonitor.

“USN is currently sold in South Africa, Botswana, Mozambique, Namibia, Zimbabwe, Lesotho, Swaziland, Angola, Zambia, Ghana, Kenya, Mauritius, Seychelles, Tanzania, Nigeria, Ruanda, Burundi and Uganda,” says Millie de Villiers, Brand Manager at USN. “This is done via distributors in these countries and the business is doing well. There is great interest in African countries for muscle-building products and we have quite a few followers on social media platforms, like Facebook, asking for advice surrounding supplements and where to get hold of USN products in their country. These requests are mostly on hardcore muscle building.” In Nigeria sales of sports nutrition products are very positive too, partly because they are now more readily available in supermarkets and chemists. Market leader Vitabiotics increased its market share by 10% in 2011 to 91%. However, the path to growth in the industry is not without potholes. CAGR is anticipated to fall by 1% in Nigeria. And in Kenya, the lack of aggressive marketing and advertising of sports nutrition products means that outlook for growth in sales is lacklustre.

Crucially, in Kenya the absence of coordinated branding campaigns means that sports nutrition products are still largely seen as products for fitness freaks or professional sportsmen and women, rather than ordinary people living healthy lifestyles, which has serious implications for the mainstream popularity of such products.

Spas come to the fore

Finally, health and wellness tourism is also a booming market in some parts of Africa. Rising incomes and health consciousness coupled with the large number of hotels and sites of natural beauty have offered ideal conditions for the flourishing of the sector.

In Kenya the value of the destination spa market rose by 133% according to Euromonitor, due to the development of hot spas and mud baths in beauty spots. Wilderness health centres are also doing well. The fact that most new hotels in the country are being built with spa facilities adjoined is further driving the industry. In South Africa, which perhaps has the most developed spa industry, it has also experienced noticeable growth over the past few years. As the market matures, many spas are also trying to build eco-friendly brands and offer eco-friendly products and treatments to differentiate themselves in the market, a trend worth watching for the future.

The sports industry in Africa is vast and multifaceted and so are the business opportunities driven by more disposable income and a passion for health and wellbeing.