Two-thirds of the economic growth we are seeing in Africa is coming from other sectors including transportation, retailing, telecommunications and manufacturing. With this expansion in these African economies comes the ever increasing size of the middle classes and the rise of the urban consumer.
Citing the McKinsey Quarterly - Quote
'' Africa’s long-term growth will increasingly reflect interrelated social and demographic changes creating new domestic engines of growth. Key among these will be urbanization, an expanding labor force, and the rise of the middle-class African consumer.
In 1980, just 28 percent of Africans lived in cities. Today, 40 percent of the continent’s one billion people do—a proportion roughly comparable to China’s and larger than India’s (Exhibit 2). By 2030, that share is projected to rise to 50 percent, and Africa’s top 18 cities will have a combined spending power of $1.3 trillion.
And urbanization is spurring the construction of more roads, buildings, water systems, and similar projects. Since 2000, Africa’s annual private infrastructure investments have tripled, averaging $19 billion from 2006 to 2008. Nevertheless, more investment is required if Africa’s new megacities are to provide a reasonable quality of life for the continent’s increasingly large urban classes.
Meanwhile, Africa’s labor force is expanding, in contrast to what’s happening in much of the rest of the world. The continent has more than 500 million people of working age. By 2040, their number is projected to exceed 1.1 billion—more than in China or India—lifting GDP growth.'' -
There are still lots of obstacles and risks, no question, but the rewards are highly justified. One has to take a long term view, but with the increasing investment flows into Africa it is wise and prudent to take the plunge and get involved.
Consumers big contributors to Africa’s growth
A woman checks on the children's clothing at a shopping centre. FILE PHOTO
By Daily Monitor Correspondent
Posted Tuesday, May 1 2012 at 00:00
A new report by research firm McKinsey dubbed ‘The changing face of the African Consumer’ shows that consumers have become key drivers of Africa’s economy, which is expected to grow at an average of five per cent in the next 10 years.
The consumer market study that was carried out jointly with TBWA says steady growth of Africa’s population, expansion of the middle class and rising optimism about the continent’s future will play a crucial role in determining the continent’s fate.
“Africa’s economic growth is creating substantial new business opportunities that are often overlooked by global companies,” said Damian Hattingh, an associate at McKinsey & Company.
He said that although natural resources remain important to the continent’s economy, an emerging middle class is crossing the threshold of pursuing basic needs to having discretionary spend.
“The consumer opportunities are real and have been reaffirmed.” The report shows that early entry into African economies provides an opportunity for global businesses to create markets, influence customer preferences, and establish brand loyalty.
“Profit margins in Africa are some of the highest in the world and as more players come into the market the gap will narrow down,” said Mr Hattingh. The Mckinsey study indicates that opportunities in for consumer goods companies are opening up fast in many African economies and are expected to fuel long-term growth. As Africa realises economic growth, the continent’s household spends are expected to expand and drive higher consumption in consumer-oriented sectors.
Economic growth in Sub-Saharan Africa remains strong and is expected to rise above the 4.9 per cent recorded in 2011, according to the World Bank. The continent’s growth, excluding South Africa, which accounts for a third of Africa’s GDP, is projected to be 5.9 per cent.
The McKinsey research, which began in September, 2011, surveyed over 15,000 consumers across 10 countries, concentrating on the cities that are known t o have a higher per capita spend.
The study mainly focused on groceries, apparel, telecommunications, financial and health services. It found that food and beverages offer the biggest opportunities for the consumer market in Africa as well as non-food consumer goods, including apparel. Healthcare and banking are also expected to grow rapidly in the region in the next decade.
It showed a large share of the household wallet goes to groceries (30 per cent) with 10 per cent going into clothing, six per cent in telecommunications and the rest to other needs. This is higher than the BRIC (Brazil, Russia, India and China) countries where 23 per cent is spent on groceries, 10 per cent on clothing and four per cent on telecommunications. “We are seeing increased spending across most consumer categories, in the region,” said Ade Sun-Basorun, an associate with McKinsey.
Food and consumer goods are expected to account for $185 billion by 2020, according to the report. Of these goods food and beverage, which currently stands at $406 million, is expected to grow to $543 million during this period. The study showed that Africa has a high Internet penetration more than Brazil, India and at par with China. Of the ten countries studied Kenya and Senegal have the highest penetration in the region. Affordable data and smart phone penetration are the main drivers in Kenya while cyber café prevalence has driven accessibility in Africa.
The study showed that on average most people in the region are using both computers and mobile phones to access the internet with social networking leading the activities online. Majority of Africans access social network sites by phone (57 per cent) compared to 55 per cent on computers. Africa’s growing population, which will account for 40 per cent of the global population growth going forward, is expected to help grow the consumer market in the region. The region has a young population, with 50 per cent being below the age of 20. With the young being the consumers of the future, McKinsey sees an opportunity for consumer-based companies to start understanding this generation and talking to them. The youth want products that define the right image, and follow the latest trends including technology and clothes, the study shows. Mr Hattingh said the research will also help change some of the perceptions out there including that Africa is a dumping place for cheap goods and consumers are happy as long as the price is right.
Research showed that people in the region do not want cheap, “they want quality that is well prices,” he said. “The brands do not have to be international, they can be local as long as they are of good quality and well-priced.”
Kenyans, with 17 per cent, said they would buy local as long as the quality is good followed South Africa at 12 per cent, Nigeria and Ghana at 11 per cent. This is seen as an opportunity to build local brands, of good quality and price. The report is the second of its kind by McKinsey and was done to get into the minds of African consumers in a bid to understand their attitudes, behavior and how they make consumer decisions.
The organisation is looking start doing annual surveys to understand the opportunities in the region. The findings, which will be released in a full report next month, are expected to guide players in the consumer industry on the opportunities and what the market is looking for. It is also expected to influence policy makers on how to encourage consumer growth and opportunities in a sector that can be one of the highest employers.
By Ismail Musa Ladu
Posted Monday, January 2 2012 at 00:00
After years of sending remittances to relatives and friends, Ugandans living and working abroad think it is time to do more—venture into business back home..
According to Uganda investment authority there are plenty of opportunities that Ugandans in the diaspora-can seize in order to make a better contribution to the country’s socio-economic growth.
Uganda has consistently attracted Foreign Direct Investment in East Africa over the past years, attracting about $250-300 million annually, according to the World Bank.
In 2009, Uganda attracted FDI of up to $ 799 million due to the country’s good investment environment, liberalisation, strong resource base and government’s support towards private sector growth.
“People in Diaspora can invest in tourism, ICT, agriculture—especially in value addition, service industry, oil and gas and health services,” the Uganda Investment Authority director in charge of investment promotions, Issa Mukasa said in an interview.
The decision by Ugandans in the diaspora to invest at home is believed to possess the double advantage of creating employment and supporting families.
Although remittances, amounting to $768 million in 2010 and $778 million in 2009 more than all donor commitments put together or even higher than one single export, investing in business back home makes sense for it is much more rewarding in the long run.
“With the hard economic times in the diaspora, Ugandans living abroad should invest at home if they are to sail through hard terrain in Europe unhurt,” Mr Mukasa said.
I strongly echo the views of the Uganda Investment Authority director, a sentiment i have already alluded to. Its a no-brainer to invest in Africa, if you are a property developer for instance beach front or lake front developments are highly profitable and desirable, its a question of doing your research. The service sector is exploding with Africa's middle and upper middle classes demanding high quality services and willing to pay for delivery of western standards. Telecommunications is also booming all over Africa and those with specialist knowledge and can customise the technology for the African market will find a great base for success.