Africa set for consumer spending boom

27 August 2010

JOHANNESBURG: Consumer spending is set to rise dramatically in Africa in the next decade, offering significant opportunities for brand owners.

The McKinsey Global Institute argued the area is experiencing a sustained period of growth, as its collective GDP climbed by an average of 4.9% each year between 2000 and 2008.

Looking ahead, the consultancy predicted household expenditure in the region would improve by 4% per annum to 2020, equivalent to incremental gains of $520bn, to $1.4tn in all.

As a result of such a trend, the continent now boasts more than 1,400 companies listed on the stock exchange and over 100 corporations generating annual revenues of $1bn at minimum.

The telecoms sector has posted particularly impressive figures, with 316m subscribers signed up since 2000, a user base greater than the entire US population.

According to MGI, the "rise of the urban African consumer" should yield equally positive developments for a wide range of industries.

Currently, around 40% of citizens reside in cities, a similar proportion to China, and a total likely to increase rapidly in line with fiscal growth.

One example of how this will change the trading landscape is that there are 52 cities containing at least a million people a at present , matching Western Europe, and a further 32 are due to be added to this group by 2030.

"As in other developing economies, urbanization in Africa is creating jobs, boosting productivity, and lifting incomes," Charles Roxburgh and Susan Lund, authors of the study, said.

Given this, the number of households that possess discretionary income is pegged to expand by 50% in the coming decade, to 128m in all.

This should fuel a boom in spending almost doubling the amount of $860bn recorded in 2008 some 12 years later, while other demographics are also working in Africa's favour.

"By 2040, the continent will be home to one in five of the planet's young people and will have the world's largest working-age population," said Roxburgh and Lund.

"If Africa can give its young people sufficient education and skills, they could be a substantial source of consumption and production in years ahead."

Unilever, Standard Chartered and SABMiller are just a few of the brand owners already claiming a meaningful footprint in Africa.

"Executives and investors cannot afford to ignore Africa's immense economic potential. Nor can they assume that traditional ties will guarantee them an advantage in the competition," argued Roxburgh and Lund.

"There are many new players, but also many new chances to get in the game and gain some ground."

Data sourced from Business Week; additional content by Warc staff