Africa’s consumer industry to grow: Survey

continent, have little knowledge on how to translate the opportunity into action due to lack of research.
“It is not their fault, there has been lack of research about African consumer’s attitude, behaviour and needs historically,” said the research report titled “The rise of the African consumer”, published last month.
The report surveyed 13 000 consumers between 2011 and 2012 and concentrated on the largest African cities.
“To ensure successful execution, companies must address distribution challenges, invest in consumer research since data is scarce, and find and retain as many talented Africans as they can. And their (companies) approach to marketing should take into account the new reality of the digital consumer,” said the report. In addition, the report says innovative products and business-model strategies are also required to meet the needs of “highly value-conscious consumers.”
The McKinsey report mainly focused on five categories of household consumption-apparel, financial services, grocery, telecommunications and the Internet.
Some of the insights generated by the survey include optimisms by Africans about their economic future, with 84 percent saying they would be better off in two years.
It also came out that African consumers prefer high quality products and are brand conscious, bellying the view that the continent is a backwater where companies can sell second rate merchandise.
Further, the research established that the African consumers want the latest fashion and modern shopping experience.
It says the expected US$410 billion growth in the consumer facing industries would account for more than half of the total revenue that all businesses are expected to generate in Africa by 2020.
Apparels, consumer goods and food are expected to account for US$185 billion or 45 percent of this amount.
This is partly because most African urban dwellers spend a large share of their budgets on food and groceries than consumers do, on average, in Brazil, China and Russia.
According to the report, opportunities are largely concentrated in Algeria, Angola, Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, Sudan and Tunisia.
They accounted for more than 81 percent of Africa’s private consumption last year.
“For companies, it is important to know that 40 percent of the growth in spending power on the continent will be driven by households with an average income of more than US$20 000 a year, according to estimates. While this group currently accounts for just 1-2 percent of the total households, it is growing faster than the overall average, both in numbers and in the average income.”
Explosive population growth
Africa has the world’s fastest growing population and is projected to account for more than 40 percent of the global population by 2030, according to the United Nations.
Thanks to declining fertility rates, it is the age working population that will have the highest growth rate. By 2014, Africa’s working age-population is forecast to surpass China’s.
As a result, Africa is expected to experience a dramatic decline in its dependency ratio — the number of children and elderly supported by each worker.
As such, this development will contribute to continued increase in gross domestic product per capita in the next decades and comes at a time when the dependency ratio in virtually every other region of the world are increasing, with negative implication for the gross domestic product growth in those areas, says the report.
An emerging, optimistic consuming class
The report said that by the end of the decade, more than half of African households are projected to have discretionary income, rising from the current 85 million households to almost 130 million in 2020.
“Africans share the optimism of that economic forecast,” said the report.
“Eighty-four percent of those surveyed said they expect their households to be better off in two years. Sub-Saharan Africans are most optimistic — (with) 97 percent of Ghanaians, for example, saying they will be much better off in two years.
North Africans, on the other hand are generally less optimistic about the future with 10-15 percent of respondents saying they will be much better off in two years, which is unsurprising given the uncertainty generated by recent political turmoil in the region.”
Overally, the report says, consumers are increasing spending across most categories.
It further notes that up to 30 percent of more optimistic consumers in some countries said they were buying more frequently and purchasing new and expensive products, although inflation may also be a factor in consumer spending.
Healthy urbanisation
With 40 percent of Africans living in cities, the continent is more urbanised than India (30 percent) and nearly as urbanised as China (45 percent).
By 2016, over 500 million Africans will live in urban centres, and the number of cities with more than one million people expected to reach 65, compared with 52 last year.
This is already on par with Europe and higher than India and North America.
This development is critical for consumer companies in a number of ways such as.
l Urban spending is increasing twice as fast as rural spending and is projected to account for a disproportionately large share of the future growth.
l Urban per capital incomes are, on average, 80 percent higher that those of countries as a whole.
l Cities are more densely populated and as a result, consumers are easier to reach.
Understanding the African consumer
The report finds that multinational companies were beginning to take account of these trends. It cited example of the US clothing chain, Gap, which recently announced it was entering South Africa, following openings in Egypt and Morocco.
The Spanish retailer, Zara also opened shop in South Africa last year.
Another US retailer, Wal-Mart purchased a majority share in South Africa’s retailer Massmart.
Some African companies such as Standard Bank and the leading mobile telecommunication company MTN,  are expanding throughout the continent.