The point is not whether you should be doing business in Africa, but rather how. There’s a new gold rush under way for the African consumer, a campaign that spans the continent and aims to reach an emerging middle class. These are the people who indulge in luxury goods and leisurely lifestyles. Africa already has more middle-class households (incomes of US$20,000 or above) than India. Africa’s rising consumption will create more demand for local products, sparking a virtuous cycle through a growth in discretionary income. As a result, consumer-facing sectors such as retailing, banking, and telecom are set to grow fast. By 2014, the number of households with income of $5,000 or more is expected to reach 106 million.
According to Accenture, by 2050, almost 60 percent of people in Sub-Saharan Africa will live in cities, compared with 40 percent in 2010. This means 800 million more people will live in urban environments and they have identified five key segments as detailed below:
Five Key Sub-Saharan African Consumer Segments (source Accenture analysis):
1. Basic Survivors: the largest consumer group in Africa; characteristically low income consumers; tend to live in urban slum areas or rural areas and make day-to-day decisions based on basic needs
2. Working Families: the second largest consumer group; focus their spending on their children’s needs and they value stability and routine in their lives.
3. Rising Strivers: emerging from the first two segments, having built their purchasing power through access to credit or other resources. They value upward mobility and buy based on convenience, quality, or even more “expressive” factors.
4. Cosmopolitan Professionals: typically located in urban areas; busy with work but often have active social lives. As a result, these consumers value pragmatic products but are also brand conscious and influenced by the media.
5.The Affluent: have disproportionately high purchasing power, and are considered wealthy regardless of where they travel across the globe. This group is extremely small and very fickle.
This rise in domestic consumption has resulted in a battle between units of Britain’s Vodafone Group and India’s Bharti Airtel has driven down the consumers cost of a text message to a penny in Kenya. Yum Brands of the U.S. recently said it wants to double its KFC outlets in the next few years. Wal-Mart Stores agreed to pay nearly US$2.5 billion to buy 51% of South Africa’s Massmart Holdings, with plans to use the discount retailer as a foothold for continental expansion.
With consumer spending set to reach US$1.4 trillion by 2020 (it was US$860 billion in 2008), it is no surprise that some analysts believe a billion-person continental market already has arrived.
As we all know China is emerging as Africa’s formidable and dominant trading partner. Just a few months ago, the newly built African Union Headquarters (the largest Chinese project since the Tanzam Railway in 1976) was inaugurated in Addis Ababa, at a cost of US$200 million. The 100m high tower which dominates the skyline of the .Ethiopian capital was built entirely with Chinese support and financial aid. China called the African Union Headquarter donation was a “symbol of Sino-African friendship”. Now call me a sceptic, but US$200 million is a heavy price tag on friendship. So what’s in it for them?
African countries, which are by no means homogeneous, offer raw materials for export and potential markets for Asian products and services. China and India have been rapidly forging new economic partnerships in Africa. China has managed to penetrate the African market extremely well, a phenomena that has not gone unnoticed by its Western rivals, who at the moment are busy putting their house in order trying to keep the Euro and Dollar afloat. India’s bilateral trade with Africa has grown from around $1 billion in 2001 to about $50 billion in 2011, with a figure of £70 billion by 2015.
The urgency of improving Africa’s global economic competitiveness, coupled with pressure from local, regional and multilateral institutions, is forcing the continent’s leaders to prioritise viable free trade zones as a step towards regional integration.
President Jacob Zuma recently hosted 25 leaders from the Southern African Development Community (S.A.D.C), the East African Community, and the Common Market for Eastern and Southern Africa (COMESA) at a meeting in Johannesburg: they were seeking to endorse a bold plan for a free trade agreement cutting across the three blocs. Together the three blocs have a combined population of 590 million and a gross domestic product of US$860bn a year, which is expected to reach US$1-trillion by 2013: a big market by any stretch of imagination.
China has invested around US$250 million and in return it gets raw materials at heavily discounted prices. Exploitation? Yes, but for Angola, those infrastructure projects mean a lot in a nation devastated by civil war and largely ignored by the West. Well, ignored until recently as reports have surfaced that the former colonial master Portugal had to ask for a bailout from Angola in form of Direct Investment and providing jobs to Portuguese citizens who have moved to Angola in droves seeking new opportunities.
There is no doubt that Africa will continue to profit from rising global demand for oil, natural gas, minerals, food, and arable land. Fast growing demand for raw materials has both valuable and unfavourable effects. On the negative side, it may discourage or at least slow the build up of other sectors and contribute to environmental damage.
However on the contrary, it will induce Foreign Direct Investment not only to explore the resources, but also to develop infrastructure to reach and transport them which are bound to have positive spill-over effects.
In conclusion I cannot fail to notice that the lack of integration and barriers to trade between African countries is still a hindrance to growth which could benefit from free flow in capital and human resource across borders. Trade among African countries remains low despite individual countries increasing trade with the outside world, with some African countries sending up to 80 percent of their exports to with non-African countries.
Last year, World Bank researchers lamented the absence of a clear infrastructure development plan on the continent and that African countries would need to invest up to $93bn per year on infrastructure development, but I still remain optimistic and like Nelson Mandela said “we must use time wisely and forever realize that the time is always ripe to do right”. Considering the ever increasing domestic consumption and the continued growing investments from foreign companies and governments, I think the time is ripe for Africa’s growing middle-class (at home and in the Diaspora) to become serious investors in Africa’s growth.
Join us over the next few weeks as we look into the different opportunities available for Africans to in invest in Africa. Everyone else is doing it, why shouldn’t we?
Sean first shared this article on Bantu Observer
