Consumer services and industries are overtaking resource extraction as the most attractive investment area in Africa, a trend that is being overlooked by many global investors.
According to the African Development Bank (AfDB), consumer spending amounted to $680 billion in 2008 – up from $150 million in 2000 – and comprising nearly a quarter of the continent’s gross domestic product. It is set to nearly quadruple to $2.2 trillion by 2030, with sub-Saharan Africa making up the lion’s share of spending.
This puts the region on course to become the world’s fastest-growing consumer market over the next two decades, says UK-based research company Capital Economics. Spending will be driven by the continent’s rapid population growth, rising real incomes, increased urbanization and better access to financial services.
Africa’s population is currently estimated at one billion and is expected to more than double to 2.4 billion by 2050, making it bigger than India and China combined. The key question is whether the continent’s strong pace of economic growth and development can create the employment and living standards necessary to support the anticipated surge in consumer demand. So far, the omens are good.
The AfDB believes that Africa’s middle class – those earning between $2 and $20 a day – will climb to 1.1 billion, or 42% of the population, by 2060. That compares to 350 million, or 34%, at present.
“Consumerism in Africa is a really big opportunity over the medium – to long-term – there are lots of people looking to buy lots of things. Huge parts of Africa are under-represented in terms of daily items – this is underplayed to some extent,” says Simon Venables, deals leader for Africa at PricewaterhouseCoopers.
Nonetheless, rapid growth of investment into consumer products and industries on the continent has already begun, according to Ernst &amp; Young (EY). In 2007, extractive industries represented 8% of foreign direct investment (FDI) projects and 26% of capital invested in Africa; in 2012, it was only 2% of projects and 12% of capital – despite the booming oil and gas sectors.
In comparison, services accounted for 70% of projects in 2012, up from 45% in 2007, while manufacturing activities accounted for 43% of capital invested in 2012, up from 22% in 2007. In an EY survey of 500 business leaders last year, mining and metals was still perceived as the sector with the highest growth potential in Africa, but the number who believe this, dropped to 26% from 38%. In contrast, interest in African infrastructure projects is increasing rapidly, with 21% of respondents identifying this as a growth sector versus 14% in 2012 and only 4% in 2011.
“These changing perceptions of relative sector attractiveness in Africa reflect the changing fundamentals of many African economies,” says Mark Otty, EY’s area managing partner for Europe, the Middle East, India and Africa. This included “the diversification of sources of growth – the increasing contribution of services and the growing consumer class – and of the actual FDI flowing into these economies.”
Overall, Africa’s appeal as an investment destination has been growing in recent years, in step with its average annual pace of growth of 5% during the past decade. FDI flows to Africa increased by 5% to $50 billion in 2012, while global FDI fell by 18%, according to the United Nations Conference on Trade and Development. The global financial crisis placed the continent on investors’ radar screens as its economic performance outshone many other global regions.
Global consultancy firms such as PwC, EY and KPMG have all reported a significant increase in enquiries about Africa’s investment potential in the past year.
KPMG Africa chairman Yunus Suleman says that telecommunications remains a big growth area as the continent still has the lowest teledensity rate. Financial services offer another opportunity – there are four bank branches per 100,000 people on the continent compared with up to 18 in other emerging regions. Health care is attractive, as is agriculture, since the continent has 60% of the world’s unused arable land.
Africa’s poor infrastructure is both a challenge and an opportunity for investment – the AfDB estimates that it needs $93 billion a year, mainly in transport and power generation. This has already taken off. In 2012 there were 800 infrastructure projects worth an estimated $700 billion in Africa.
Nonetheless there are other big barriers to investment on the continent, with negative perceptions still globally entrenched. The EY survey showed that 86% of businesses in Africa rate the continent as the second most attractive regional destination after Asia, while those with no business presence rank Africa as the least attractive.
“We are seeing some realism creeping in but distant and uninformed investors with no knowledge of emerging markets will find it difficult to get the risk/reward balance right,” says Venables.

More Middle Class Means Money

Oba Nsugbe isn’t your average stuffy British Queen’s Counsel (QC). He is a Lagos-born Nigerian for starters. He studied English law at unfashionable Hull University, often rides a mountain bike and is not adverse to relaxing in a hoodie and jeans on weekends. In fact, he’s the kind of mellow person you would happily go for a drink with after work.
Yet,it’s hard to underestimate the stir he created when, at the relatively tender age of 39, he became the first Nigerian practicing in Britain to be appointed as a Queen’s Counsel.
Today, he is head of Pump Court Chambers, based in the legal heartlands of London’s Temple district. He heads up a busy common law set of chambers with around 90 self-employed barristers (there were 30 when he arrived). Nsugbe, brought up in Lagos and Lusaka, in Zambia, operates at the very top of the legal profession in England and Nigeria. To get there he had to break through a ceiling of ignorance and prejudice.
Nsugbe is a specialist in commercial contracts and arbitration, with an emphasis on Nigeria, corruption and serious crime. He works for and against multi-national clients, sits as a judge himself, and advises and trains judges in Africa. As the Nigerian economy grows at 6 or 7%, so his practice thrives.
Many apply to become Queen’s Counsel, but few are chosen. As a matter of record, the lucky ones are listed in The Times newspaper. Nsugbe remembers his name appeared second from bottom.
“The list gets published in order of seniority and it was only then I realized how junior I was on the list, and that perhaps this was a big deal.”
In the ultra-conservative world of the English barrister, a 12,000-strong elite, merely one in ten take silk. Nsugbe remembers there were even those in his own chambers who thought that applying so young was: ‘being pushy and not the done thing old boy’.
“Today, I’m still introduced as Nigeria’s first QC, yet to me it feels like it happened a long time ago,” says Nsugbe.
“I hope you understand when I say I would prefer to be remembered for what I’m doing today?”
He has little desire to talk about it, but when pushed, he has fond memories of his appointment in the House of  Lords.
“Afterwards they give you the Queen’s Letters, and it’s a special moment in your life. I’m very lucky to be a barrister, it’s a unique world.’’
Eleven years on, Nsugbe has become a tireless advocate for all things African, and is passionate about Nigeria. He now understands how his father, an anthropologist and academic specializing in the history of African Man, has had a far greater influence on his life than he realized.
After public school in Oxford, Nsugbe studied law at Hull, where a large group of African students took Law and Economics. Many are still friends today.
“They made their mark in the UK and now most are back working in Nigeria. I was at a 50th birthday party in Lagos recently for a friend from the World Bank, and hear me, the world-class diaspora of talent is returning to join those already there.”
In 1986, Nsugbe studied at bar school, then went straight to Lagos to qualify in Nigerian as well as English law. It was a deeply unfashionable move.
“My friends were rushing to find pupillages in London, the final step to becoming a barrister.”
Today, only he and one other lawyer share the distinction of being both Queen’s Counsel and a Senior Advocate of Nigeria, the West African country’s equivalent. What seemed like career suicide in the 1980s has become the best move he ever made.
“The Nigerian economy is booming, and clients who are new to Nigeria like to be reassured that you have the right credentials, so this comes in very useful,” he says.
Life at the top of the legal pile can be difficult, with endless travel and long hours. But breaking into the profession was harder, with the blunt weapon of racial prejudice to be overcome.
Nsugbe had difficulty finding a London pupillage.
“It’s tough and competitive now, but there are more black lawyers in the system. When I was starting out, there were only a few black guys in total.”
At one job interview he was asked: “What would you do if you were prosecuting a black man in court, the gallery is full of black people and they were whispering ‘Uncle Tom, Uncle Tom’?”
“What? Needless to say that didn’t work out.”
Even when he did eventually get taken on for a pupillage by well-regarded chambers, he was told after six months: “You have done well, but we can’t keep you on. Solicitor’s can’t pronounce your name, they won’t instruct you… you won’t get any work.”
That just made Nsugbe more determined.
“Effectively he said you will never be a success at the bar. That same guy is now a QC and has been trying to attract me back to his chambers for the last five years—of course I’ve said I’m not going.”
Nsugbe works hard to make his voice heard, and increasingly in fields beyond the law. He says he chooses to sit on many committees which both talk and do. He champions the cause of black and minority ethnic (BME) lawyers, and founded the British Nigeria Law Forum of which he chaired in the past.
Nsugbe and his friends formed a business group which invests in Nigeria. He is a fellow of the Royal Society for the Arts. He is also quite rightly proud of his links with Tate Modern, where two years ago he became one of the members of the Africa Acquisitions Committee established to buy contemporary African art for the museum.
Although he doesn’t live there, Nsugbe swears Nigeria will always be home.
“My father sent us to good schools but in the long holidays he insisted we came home to Nsukka where he was teaching.”
Nigerians always rise to a challenge says Nsugbe, and they are the most resilient people he knows.
“It’s these characteristics which hold me in good stead when I’m abroad—and it’s what I call upon to advance in life.”

Tag: Economics

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More Middle Class Means Money

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