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Reaching Africa’s consumer class

06 Mar

Salman Siddiqui
By SALMAN SIDDIQUI

Growth is trickling down in Africa and people have more money to spend. With a young population, 62 percent under the age of 25, Africa has a guaranteed consumer base for years to come

According to the African Development Bank, economic growth over the last decade has expanded the middle class to around one third of all Africans. That’s over 300 million people. Investors and corporates looking to share in this tremendous growth want to get to know this middle class – who are they?

To find out more I visited Nigeria, a regular feature in the world’s top ten fastest growing economies and, according to Morgan Stanley, set to become Africa’s largest by 2025, leaving rival South Africa trailing in its dust. My first stop is the infamous Balogun market in Lagos where I wade through crowds of shoppers bartering with charismatic traders desperate to grab a bargain on everything from Maggi stock cubes to Motion shampoo (an innovative product from Unilever targeting African hair). Omo washing powder is another favourite, cleverly sold in tiny 30g sachets, appealing to shoppers with small homes and even smaller budgets.

As I manoeuvre my way through an endless stretch of fabric and shoe shops, I mull over all the debates and discussions on whether $2-$20/day (as defined by the African Development Bank) really constitutes ‘middle class’, and it strikes me that, whatever the label, behind all the headlines there is no doubt a new ‘consumer class’ is emerging in Africa that is ready to consume basic goods and services in large volumes. One mustn’t forget that 60 percent of the population still lives on less that $2 a day, so for companies seeking to expand their footprint on the African continent, for now the biggest opportunities lie at the bottom of the pyramid.

Growth is trickling down in Africa and people have more money to spend. With a young population, 62 percent under the age of 25, Africa has a guaranteed consumer base for years to come. The contrast to Europe, where our workforce continues to shrink, couldn’t be starker. It is no coincidence that Nestle invested $1bn in Africa last year while SABMiller plans to invest $2.5bn over the next 5 years to revamp and build new breweries.

As I interact with more people, I become more familiar with our consumer class. They generally don’t derive income from farming, they hold salaried jobs or are small business owners, they have bank accounts, have fewer children and have higher levels of education. Urbanisation is fuelling further growth of this segment. There is an unmistakable link between urbanisation and economic growth. While only one third of Africa’s population lives in cities, that segment accounts for 80 percent of total GDP. In the next 30 years, half the continent’s population will be living in cities.

My final stop is the Ikeja City Mall, an apt end to my day and a window into a future Africa where local brands mix with popular South African names, such as Shoprite and Mr Price leading the charge in Africa, sandwiching international players from Mango to Apple. It is here where I see the true potential of the African consumer. It is clear to me that, while it may take time to get there, African consumers want the same things as everyone else, a mobile phone, fashionable clothes, good food on the go, the latest Beyoncé DVD, all bought from a store, in a shopping mall. Africans are aspirational. And for those corporates able to understand local needs and preferences, the spoils are here for the taking.

Salman Siddiqui is Head of Middle East & Africa Equities at Nomura Asset Management U.K.

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Posted by on March 6, 2013 in African News

 

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