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

half a billion reasons  to be optimistic

Entering the site of the 4,800MW coal-fired Kusile power station in the northeast South African province of Mpumalanga, one has to clear the security checkpoint and forget about taking any unauthorized pictures. The site is large, covering 1,355 hectares, and buzzing with activity.
Abram Masango, the general manager of Kusile with a mechanical engineering background, started out at steel company Columbus Stainless before moving to state-owned power utility Eskom, working on the company’s Hendrina power station, one of the country’s oldest and the only one with 10 units, to establish the $2.4 billion Mpumalanga project. This included refurbishing power stations and constructing the Majuba Rail – running between Ermelo and the Majuba power station.
In 2004, a five-year, $13.1-billion investment plan in the country’s electricity infrastructure was approved by cabinet. This was changed to $22.2 billion for the five years to 2011/2012. Generation projects absorbed around 70% of the funds.
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More recently, state-owned enterprises were allocated $39.1 billion of the public capital expenditure for the next three fiscal years. The public sector’s energy infrastructure will get $18.2 billion of this.
Eskom’s major energy source is coal, but it hopes to bring down its share in the primary energy mix to 70%, from its original 88%, while increasing its nuclear energy portion to between 17 and 25%, all by 2025.
Masango was brought in to run the Kusile project in late 2007. A decision was made to build it in eight years, instead of the standard 10. The team went with a multiple contract approach, divided into 62 packages.
Eskom didn’t feel it had a choice in the fast-tracking of Kusile because of the power shortage the country is experiencing. As for elements falling through the cracks, the team is adamant that managing the project as a world-class one, as well as placing the necessary skills in place, has prevented quality being compromised.
The Unit 2 TG block had to be destroyed and redone because of a quality problem.
“As much as we are fast-tracking, we are not taking a shortcut. We do sometimes have some quality challenges, and we pick them up and then solve them,” says Masango.
“If we compromise on quality, we will kill people.”
Another Eskom project currently underway is the 4,400MW, $10-billion Medupi power station. It is the fourth largest coal plant in the southern hemisphere and the biggest dry-cooled power plant in the world. It was originally slated to start generating electricity in 2011 but there have been numerous delays, ranging from faulty welding to strikes. French company Alstom was contracted to develop the Boiler Protection System (BPS) and Balance of Plant (BOP) control systems which repeatedly failed testing. Siemens was then brought in to work on the BPS for Unit 5 and 6 with Alstom. Alstom’s BOP has since passed the factory acceptance test.
Masango says that Kusile also experienced strikes but managed them better than Medupi.
Both Kusile and Medupi are important due to the power shortage problem in South Africa. It was in 2007 that the country first faced countrywide load shedding. More power emergencies came this year, with load shedding and blackouts.
In 2010, Eskom encountered a funding problem and Kusile could only continue on a skeleton base, while long term commitments continued. Funds were also redirected from Medupi, while Eskom tried to find a solution. In April 2010, the Development Bank of Southern Africa announced a $2 billion loan to Eskom. The World Bank approved another for $3.75 billion.
“The loan is provided to South Africa’s power utility, Eskom, and was brought about by unique circumstances including South Africa’s energy crisis of 2007 and early 2008, and the global financial crisis that exposed the country’s vulnerability to an energy shock and severe economic consequences,” the World Bank said in a statement.
Three billion dollars of the loan was earmarked for Medupi.
The funding plan took two years. It was in 2012 that construction on Kusile resumed at full steam, but not all the components were ready due to contracts having been put on hold. This came with some engineering integration challenges.
Eskom had to take on some of the design elements of the project, while waiting to give out contracts, in order to get part of the project &#8211; mainly the foundation &#8211; to continue. Some contractors had been given limited notice to proceed &#8211; for example placing a contract on the design of a component so that the specs could be given to another company that is responsible for that part of the project.
Kusile faced what Masango calls political, stability and unemployment challenges. It established a contractor academy providing eight months of intensive training for emerging companies in order to equip them with the skills needed to participate in the project.
Black Economic Empowerment (BEE) was a big component to consider. Kusile had an agreement with contractors to only bring their core people and then employ 60% from the surrounding communities. With time the team realized a new strategy with procurement conditions, forming joint ventures between large and emerging companies. To date, 409 companies have, in some way, participated in the project at a cost of close to $6.2 billion.
The two weeks of heavy rainfall during March set the project back a month. At the end of April it was almost 60% complete and the working goal is to get the entire plant operational by 2018. Unit 1 will be commissioned the second half of 2015. As of the end of March, construction on Medupi sat at 61%, with $7.4 million of the budget spent. Unit 6 is expected to be synchronized in the second half of 2014.
Due to growth, infrastructure is needed for capacity regardless of whether it’s coal, nuclear or otherwise. Last year a reported $130-million loan from France was granted to Eskom, to help finance its solar power projects. The trick, according to Masango, is trying to have a balanced mix – while bearing in mind that South Africa is still reliant on coal-fired plants.
According to Masango, Kusile has tried to ensure it is environmentally friendly &#8211; incorporating flue gas desulphurization, fabric filter plant, and supercritical design boilers which all decrease the air pollution that the plant emits. Medupi, and possibly some of the other plants, will in the future get these technologies as well.
A lot of the criticism of Eskom is about how the company has been managed.
“I think it’s also time that we [Eskom] go out and tell the public that they have to trust us because we’re doing our utmost best to deliver and make sure we keep the lights on,” says Masango.
Eskom has a lot to prove and only time will tell whether they can truly deliver this time.

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