Free Submission Public Relations & NewsPR-inside.com
Home
Deutsch English

Industries

Africa’s middle-class powers ahead


Print article Print article

2014-02-28 15:07:28 - How Africa’s middle-class is creating the world’s hottest emerging market frontier?

A continent once shunned as an economic basket-case is now back with a vengeance. Africa is well-established as the last emerging market frontier on the world map. Marketers are now speaking of Africa’s rising middle-class in the same way that they spoke of China and India’s middle class two decades ago. Will this growth be sustainable? Where are the low-hanging fruits?

Africa: The up-and-coming continent

Africa is the world’s youngest continent – a fact which augers well for future foreign direct investment (FDI). More than 50% of its population is under the age of 20, versus only 28% in China. The age group between 16 and 24 years is poised for rapid growth. And as we shall see, it is this segment

that is becoming very interesting for consumer marketers.

Africa’s middle-class’ spending patterns, lifestyle and wealth expansion are attracting global attention (the African Development Bank classifies an individual earning between USD2 to USD20 per day as middle-class). Africa’s booming consumer goods sector is expected to amount to USD1.4 trillion by 2020, an increase from USD680 billion in 2008.

The middle-class is widely seen to have changed the continent’s shopping behaviors. What are the factors that have influenced the dynamics of the African consumer market?

-The rise of brand consciousness and loyalty

More than half of the population aged 20 and below are brand-conscious

Research conducted across the continent revealed that more than half of the population aged 20 and below are brand-conscious. This is particularly evident in the purchases of groceries. Over half of African youths consider brands (54%) when shopping for groceries, as compared to 42% for older shoppers.

Africans are also becoming more brand loyal. For instance, 51% of the youth population in North Africa remains loyal to one brand. Half of African youths are also more willing to pay more for premium brands (50%) in general.

-The telecommunications industry matures

Africa has the world’s fastest growing mobile phone market and the second-largest number of mobile phone users at 600 million, trailing behind the Asia-Pacific’s 2.5 billion users. 71% of adults own a mobile phone in Nigeria alone.

Africa now accounts for approximately 7% of the world’s internet subscribers. Growth in internet usage has surged over the past decade, with 120 million users registering a 2,527% growth; way above the world average of 480%.

-What does Africa have to offer?

Africa is emerging as a star destination for investment. Some of the push factors include:

-Urbanization

Many cities are racing towards, or have already achieved, middle-income status; creating wealth and improving job prospects for their residents. 40 per cent of the continent’s population resides in cities. This figure is projected to swell to 60 per cent by 2050. The comparable figure for China in 2013 is approximately 55 per cent.

There are several urban projects in the pipeline that would create major business opportunities. For instance, the Kanzo Techno City of Kenya features a central business district, a university campus, parks and housing to accommodate 185,000 people, and create at least 100,000 jobs by 2030.

With urbanization comes an increased demand for healthcare, education, construction, water and sanitation, as well as internet, communication and business hubs. These spell business opportunities for international companies.

-Foreign direct investment

Another significant driver of Africa’s economic growth is the surge in FDI. Africa is seeing a 5% increase in FDI – reaching USD50 billion in 2012 from 2011’s USD43 billion. China, and to a lesser extent India, figure prominently among the nations investing in Africa.

Besides China, other global economic players are beginning to see investment potential in Africa. The US will be funding USD7 billion for electricity access, and providing funds to emerging energy-producing nations like Angola, Mozambique and Ethiopia. Countries like Japan and the Netherlands have also started investing in Africa’s energy industry.

The consumer goods industry is also proving attractive for foreign investors. In 2011, Swiss food company Nestle invested ZAR500 million in South Africa, including the construction of two new factories in the region. This would enable them to produce Milo and cereal products locally; creating more than 200 permanent jobs and more than 100 indirect jobs during the construction phase. Besides, the employees would also stand to gain advanced knowledge from overseas counterparts through training.

Out of the 48 least-developed nations worldwide that received FDI, 33 of them are African countries that obtained 41% of the total. These investments have fuelled the growth of African economies.

-Abundant natural resources

Africa’s natural resources are also playing a key role in its economic growth, attracting investment and creating multiplier effects for GDP. The continent is an untapped treasure trove – boasting 10% of the earth’s oil reserves, in addition to holding 40%, 80% and 90% of the world’s gold, chromium and platinum ores respectively. Furthermore, Africa holds 65% of the world’s diamond mines. The continent’s iron ore industry has also performed extremely well. South Africa has overtaken India as the third-largest iron ore exporter to China in 2012.

African nations have reaped the benefits from the abundance of these resources. The Republic of Congo benefited greatly when China invested USD16 billion in infrastructure in 2012 to build facilities such as schools, hospitals, rails and roads, in exchange for access to its copper and cobalt ores18. Oil-rich nations have also been rewarded with inflows of money, as seen in Tanzania’s near 39% FDI increase from USD1.23 billion in 2011 to USD1.71 billion in 2012 – a trend that is largely driven by oil and gas exploration.

-Where to invest – The emerging sectors

With the expansion of the labor force and increase in disposable income, African customers are increasingly demanding a higher quality of products and services.

A few sectors are now emerging as potential investment opportunities in Africa:.

-Technology

Africa has the world’s fastest growing mobile phone market and the second-largest number of mobile phone users at 600 million.

Technology trends are shifting towards the mobile and internet age, as well as reshaping the retail landscape. Telecommunication companies have seen rising numbers of mobile users, constituting 90% of all African telephone subscribers in 201121. Internet penetration stands at 25% in Sub-Saharan Africa, with room for further expansion. 2020 could also place Nigeria as the largest internet market in Africa, surging by 111% from its 45 million internet users in 2012.

Retailers such as Ferrero, Volkswagen and Samsung have cleverly taken advantage of social networking sites for their businesses in Africa. With about 17 million Africans glued to Facebook and the immense potential of online retailing, businesses are turning to social media marketing. A 30% revenue increase for online retailing in South Africa has been reported, compared to only 6% in brick-and-mortar retail outlets.

-E-commerce

E-commerce is on the rise in Africa as a result of mobile payments. Africa’s MTN Group and Telesom have introduced Mobile Money and Zaad services respectively. These services eliminate the use of cash and enable cashless transactions like money transfers, bill payments, salary collection and loans. Usage of Zaad services has been recorded to be as high as 34 transactions per month per person in Somalia. Businesses are also becoming more aware of such services. For instance, Coca-Cola reports that 80% of its sales transactions are processed via the Zaad service in its Somaliland branch.

E-commerce is on the rise in Africa as a result of mobile payments.

51% of Africa’s population is now shopping online. In Kenya, leisure items like movies and music (18%), and electronic books (24%) are some of the more popular items bought online.

-Education

Africa boasts a young population, with an average age of 20 years. 47% of Sub-Saharan Africa’s population was below the age of 15 in 2012, and this figure is expected to grow by more than 34% over the next 20 years. This means that the education sector has to be prepared to cater to more than 77 million new students in the coming years. Many schools have seen improvements in infrastructure, receiving water, sanitation and electricity access.

-Healthcare

The healthcare sector is looking promising, thanks to middle-class demand. Some African governments are providing subsidies for private hospital care for patients transferred from overcrowded public hospitals who would otherwise be unable to afford private treatment.

Additionally, both profit and non-profit enterprises are being urged to invest in private sector healthcare facilities. The International Finance Corporation estimates that USD25 to USD30 billion of new investment is required to meet Africa’s increasing demand for better healthcare.

Challenges in addressing the African market

Africa is bright with economic promise. But there remain challenges which need to be tackled.

-Corruption

Corruption continues to shackle the continent and hinder progress. This has led to challenges in alleviating poverty and improving the standard of living. South Africa in particular, has disturbed the continent’s progress by scoring 43 of 100 in the 2012 Transparency International ranking – scoring lower than average in transparency, accountability and integrity at all levels and across all sectors.

A prime example of how corruption blights economic development would be Africa’s diamond industry. In 2012, USD2 billion of Zimbabwe’s diamond revenue was unaccounted for. Anecdotally, it is known that much of the illicit gains of corruption are squirreled out of the continent, drawing away funds that are needed for economic development.

-Urban poverty

Poverty still stalks Africa, in spite of its current spate of economic growth. For instance, a 2013 report shows that 70% of the population in Lagos and Nigeria still live in slums. Much of the country’s infrastructure remains poorly developed, and many cities lack adequate electricity and potable water. There is still a lack of basic amenities such as health, education, water and proper waste disposal in many cities.

This not only limits the growth of consumer markets but throws up challenges for international companies wishing to invest in their own marketing or production operations.

This factor explains the popularity of South Africa as a regional and marketing hub for international companies in the Sub-Saharan Africa region. South African cities like Cape Town and Johannesburg possess a much higher quality of infrastructure and high levels of security compared to most African cities.

-Inequality

Uneven distribution of income is another factor posing a risk to Africa’s economy. Nigeria for example, the continent’s biggest oil producer, acquired USD400 billion in oil revenue, while 90% of its people live on less than USD2 per day. Furthermore, investigations have revealed fraud and mismanagement of state fuel subsidies; costing the nation a whopping USD8.6 billion loss from 2009 to 201140. These levels of inequality limit the breadth of economic growth while also fuelling law-and-order problems.

The African middle-class: In the forefront

Africa is certainly not out of the woods, in spite of the current fascination with the continent’s economic prospects.

However, for international companies seeking growth, it is impossible to escape the necessity to take Africa seriously. Increasingly, Africa will come to dominate the world’s supply of low-cost production for many product categories – for the simple reason of living standard and cost hikes elsewhere in the Emerging Market world.

Africa continues to face challenges of institutional weakness. The extreme example of this would be Somalia, which is basically a failed state with little progress in the way of a functioning system of government and law enforcement. However, as economies grow and political systems mature, institutions tend to strengthen themselves – as has been the trend in all other regions of the world. Institutional weakness may be as much an effect as a cause.

Africa’s great hope in the 21st century is also the focus of attention for international marketers – the middle-class. Africa is seeing the rise of a middle-class that is young, brand conscious and eager to earn and spend more. They will form the workforce and consumer market of the future.

The growth of mobile internet connections and e-payment will become a powerful lubricant of this growth, enabling sellers and buyers to connect in spite of the obstacles thrown up by institutional failure. The example of Somalia is instructive – one of the weakest states in Africa is registering one of the highest rates of utilization for Zaad e-commerce services.

If current trends are anything to go by, the rise of the middle-class may be a key part of the solution to the problems that Africa faces.





Press Information:
Spire Research and Consulting Pte Ltd

Unit 501-502, DLF City Court, DLF Phase III, Sector-24, Gurgaon - 122 002

Contact Person:
Nidhi Singh
Executive - Corporate Communications
Phone: (91) 124 421 6144
email: email

Web: www.spireresearch.com

Disclaimer: If you have any questions regarding information in these press releases please contact the company added in the press release. Please do not contact pr-inside. We will not be able to assist you. PR-inside disclaims contents contained in this release.
Latest News
Read the Latest News
www.newsenvoy.com

 


Terms & Conditions | Privacy | About us | Contact PR-inside.com