Inside Africas consumer revolution

Nov 16 2012, 03:00 IST
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SummaryNowadays, Africas economic potentialand the business opportunities that go with itis widely acknowledged.

David Fine

Nowadays, Africas economic potentialand the business opportunities that go with itis widely acknowledged. Poverty and unemployment are still more widespread than in other emerging markets, but accelerating growth since 2000 has made Africa the worlds second-fastest-growing region (after emerging Asia and equal to the Middle East).

With rapid economic growth have come more prosperous consumers and vice versa: 45% of Africas total GDP growth in the 2000s (before the financial crisis erupted in 2008) came from consumer-related sectors of the economy. It is expected that, by 2020, more than half of African householdsalmost 130 millionwill have discretionary income to spend (or save), up from 85 million today.

Moreover, Africa has the worlds fastest-growing populationand the youngest, with more than half under 20 years old, compared to 28% in China. The UN estimates that the continent will account for more than 40% of global population growth through 2030, with the working-age population expected to surpass that of China by 2040.

Given these trends, the continents consumer industries are expected to grow a further $410 billion by 2020more than half the total revenue increase that all businesses are expected to generate in Africa by the end of the decade. But, for many companies entering Africa or seeking to expand there from a local base, the challenge now is to obtain a better understanding of the market and its consumers.

In one of the first studies of its kind, the McKinsey Africa Consumer Insights Center surveyed 13,000 individuals from 15 cities in 10 of the continents 54 countries in 2011 and 2012. The ten countriesAlgeria, Angola, Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, Sudan, and Tunisiaaccounted for 81% of Africas private consumption in 2011. But, throughout the continent, market opportunities for consumer-facing companies are concentrated more in cities than in particular countries.

Indeed, with 40% of its population living in cities, Africa is more urbanised than India (30%), and nearly as urbanised as China (45%). By 2016, more than 500 million Africans will live in urban centres, and the number of cities with more than one million people is expected to reach 65, up from 52 in 2011 (on par with Europe and higher than India and North America). This development is critically important for consumer companies. Urban household spending in Africa is increasing twice as fast as rural spending, with urban per capita incomes, on average, 80% higher than those of countries as a whole.

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