Brave brands could flourish in Africa

14 October 2011

JOHANNESBURG: The number of middle class consumers is set to rise rapidly in Africa, presenting major opportunities for brand owners able to overcome certain obstacles, a study has argued.

A report from the African Development Bank, the international financial body, estimated the amount of middle class shoppers – with daily incomes ranging from $4 to $20 – currently stands at 355m people.

This figure can be broadly equated with those recorded by both China and India, and is expected to reach 1.1bn, or 42% of Africa's projected population, by 2060.

One driver behind this trend will be an economic growth rate of over 5% per year during this period, possibly reaching 5.8% if the correct policy decisions are successfully implemented.

The African Development Bank also argued that a third of local citizens would still be living in poverty, on less than $1.25 a day, by 2060, versus the current 44%. Only a GDP expansion topping 7% a year would yield a more rapid improvement here.

Other issues yet to be tackled include encouraging the faster development of industry and commercial models, especially in the agricultural sector, and reducing the fiscal reliance on natural resources.

Demographic shifts could also pose problems, as the proportion of working age individuals rises from 39% today to 74% by 2060, requiring better education systems to equip people with the relevant skills.

Wal-Mart is one firm pressing into Africa, having bought Massmart, a South African retailer, for $2.4bn. Ford, the carmaker, and Yum Brands, the fast food group, are also planning big investments.

Unilever, the FMCG specialist, recently made Africa one of its eight global operating regions. The firm's sales are growing by 10% a year in this market, and could double in the key outlet of Nigeria in the next five years.

"There are huge opportunities," Frank Braeken, head of Unilever's African arm, said. "There's a buzz … Procter & Gamble, Nestle and L'Oréal are all piling in, as they did in China five years ago. Competition will develop fast. The big battle will be between the global giants."

However, Charles Brewer, the sub-Saharan Africa managing director for DHL, the delivery firm, warned the comparatively high cost of labour and doing business often served as a disincentive.

"When China and India were developing, they were extremely low cost," he said. "Africa has very high costs and very low productivity levels."

Data sourced from Wall Street Journal; additional content by Warc staff