February 2011

Out of Africa: A generation of consumers on the rise

By Erika Ottela and Bill Russo

Africa is growing – almost 5 percent a year since 2000. This growth is broad: Of Africa’s 30 largest economies, 27 have grown faster since 2000 than in the 1990s. It is also deep: Higher commodity prices helped, of course, making up 24% of the total, but the wholesale and retail sectors (13%), tourism (12%) and transport & telecoms (10%) were also important. With about half a billion new Africans expected to be born by 2030, the continent is shaping up as one of the world’s most dynamic markets.

In the next 10 years, several big changes will shape African consumer trends—all in ways consumer goods companies should welcome.

A booming middle class

Right now, most Africans are earning barely enough to make ends meet—but strong economic growth is changing that. By 2020, McKinsey estimates there will be 128 million households making $5,000 or more a year (up from about 85 million now).

That’s the level at which shopping involves choices, not just necessity. Food and basic consumer goods will still take up most space in African shopping baskets, but there will increasingly be room for more interesting items. And since the continent will have the world’s largest working age population by 2040, this means a large cohort of young, active consumers – the brand conscious, aspirational demographic marketers covet.

A critical mass of city dwellers

These consumers will be easier to reach as more Africans move to cities. In the last 10 years, Africa has added 15 cities with a population of 1 million or more; another 19 will join this group by 2020 – by which time there will be 71 such cities. To put it another way, more than 117 million Africans have migrated to cities in the last decade. They bring with them problems to do with sustainability, water, housing and education. But they also make up a concentrated, critical mass of people. Already Africa is more urbanized than India, and not much less so than China. And urban Africans are generally richer than their country cousins – residents of Accra, for example, earn over 70 percent more than Ghanaians in general.

A cluster of megacities is a natural entry point for marketers. The top 10 African cities—four of them in South Africa, plus Cairo, Luanda, Lagos, Tripoli, Algiers and Alexandria—could generate almost $1 trillion in GDP by 2020.

A mobile phone in every pocket

One of the great business successes of the Information Age – and, not coincidentally, one of the great drivers of social change – has been the mobile phone revolution in developing countries. Deprived of cheap and easy communications by the difficulty of building an analog telecom infrastructure, Africans have enthusiastically taken to mobile phones. By 2015, there will likely be more than one cellphone for every African – that’s already the case in Gabon and nearly so in South Africa. Even in Sudan, a country whose already fragile economy has been devastated by war, mobile penetration is 45 percent.

The phone is far more than a means of conversation—it’s a way to deliver services and data. Mobile web use and social networking are growing fast, and all systems are go for more. Facebook, for example, has introduced a zero-cost initiative across 10 sub-Saharan African countries (Cote d’Ivoire, Sudan, Uganda, Rwanda, Guinea-Bissau, Benin, Congo, Madagascar, and Swaziland), allowing free access to mobile subscribers. Intriguingly, too, Africans appear willing to listen through their phones; 85 percent said they didn’t mind getting advertising over their mobiles. The commercial opportunities are only starting to be tapped.

Multinational companies are not blind to the African opportunity. More than 400 of them have African sales of $200 million or more. But potential is easier to find than profits.

For a start, Africa isn’t producing enough talent to service its own market. For another, economic infrastructure is significantly worse than in the BRICs (Brazil, Russia, India, China). Africa has one-fifth the road density and only about 40% of the rail and power infrastructure of the BRICs, and is not nearly as good at logistics like shipping and customs.

So making good in Africa won’t be easy. But private consumption on the continent has grown by $275 billion since 2000—more than in either Brazil or India—and the pickings are becoming too rich to be ignored.

Erika Ottela is a research manager in McKinsey’s Johannesberg office, where Bill Russo is a partner.

 

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