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Consumers take charge of Africa economic growth

         Date: 2012-04-28

           Tag: Africa economic, Africa economic growth

Summary: According to the report, Africa’s 10 fastest growing consumer markets include South Africa, Egypt, Angola, Morocco, Senegal, Ghana, Kenya, Libya, Ethiopia, and Nigeria

The report, which was released here this week is entitled ‘The changing face of the African Consumer’. It says that 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.

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.

“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.”

According to the report, Africa’s 10 fastest growing consumer markets include South Africa, Egypt, Angola, Morocco, Senegal, Ghana, Kenya, Libya, Ethiopia, and Nigeria

The Mckinsey study indicates that opportunities in for consumer goods companies are opening up fast in many African economies and is 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 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 areexpected 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 organization is looking start doing annual surveys to understand the opportunities in the region.

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