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half a billion reasons to be optimistic

Published 7 years ago
By Forbes Africa

In recent years, African countries have steadily emerged as strong consumer markets at a time when emerging economies are struggling with sluggish local demand. Fast-growing economies have greatly improved household incomes over the years as reflected by the rising household consumption expenditure.

Already international consumer businesses have taken notice of this and are planning to invest. A recent Deloitte EMEA survey: Consumer businesses priority markets for 2014-2015 ranked Africa third, behind the European Union and China, as an important market for investment this year by European consumer businesses. The survey confirmed a growing trend since the close of 2013, retail and consumer sectors are among the top three investment sectors by foreign direct investments.

No doubt, more households with discretionary spending means Africa’s consumer market is poised for even greater growth. Data from the World Bank shows that between 2000 and 2012, Africa’s household final consumption expenditure grew at an average annual rate of 10.7%, rising from $360 billion and reaching nearly $1.3 trillion. Consumer demand is now projected to add around $ 1.1 trillion to Africa’s Gross Domestic Product (GDP) by 2019, with Ethiopia, Uganda and Mozambique expected to be the fastest expanding markets. Clearly, rising prosperity is slowly becoming an important component in Africa’s future growth.

It is widely believed that much of the increasing demand is attributed to the growing middle class. Owing to their ever expanding varied tastes and preferences, this group has served as an important force behind the current consumer boom. Over the three decades ending in 2010, the middle class has grown by 3.1%, compared with the overall population growth of 2.6% effectively accounting for 34% of Africa’s population or 355 million people by the end of that year. It is forecast that by 2030, about half a billion Africans will join this class and a further half a billion by the year 2060.

Another important factor contributing to the African consumption story is the rapid urbanization. Migrations to bigger cities have created large clustered urban centers which are supporting growth in domestic demand. According to the United Nations (UN), Africa’s urban population as a percentage of the total population stood at 40% last year, up from 27% in 1980. The same research projects that urban population will grow to 47% by 2030.

Closely tied to urbanization is the young population. Younger Africans who form a large share of the rising middle class, are estimated to number at more than 200 million, or just over 20% of Africans. This dynamic demographic is expected to grow to 321 million by 2030 which translates into a 57% growth from 2010. Potentially, young African consumers are expected to account for even stronger demand for consumer goods in the future. Already demand from the 15-year-old to 24-year-old age group is driving growth of the modern retail and sales of branded goods. Interestingly, a recent Deloitte survey of this group revealed that the majority of younger consumers use mobile phones to access internet. Investors need an effective channel to engage with this group, especially across large markets.

In view of all this, it is highly probable that as wealth, which historically has been concentrated within the elite, begins to trickle down to the masses, the region will become a magnet for international capital. Evidently, for companies seeking to invest, it is clear that Africa is not suffering from a lack of demand, but perhaps from a lack of supply. With growth projected by the World Economic Outlook at around 7.7% annually to 2019 (this is twice the rate projected for advanced economies in the same period), potential investors can rest assured of a sustainable growing consumption trend.

Presently, the region is the second fastest growing economic region behind Asia. Certainly, it is undeniable that Africa is indeed an attractive consumer market that is worth tak

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Related Topics: #Consumer, #Deloitte, #Economies, #Expenditure, #Growing, #March 2015, #Markets.