VENTURES AFRICA – A consumer market study conducted by McKinsey and Company, a global business consulting firm in conjunction with TBWA, has revealed that Nigeria, Kenya, South Africa, Libya and Ethiopia are among the fastest growing consumer marker in Africa. It shows that consumers have become a major economy drive on the continent and it is expected to drive growth at an average of 5% in the next 10 years.
The report known as the “The Challenging Face of The African Consumer” indicated that majority of African urban consumers are spending their income on disposable incomes like groceries and clothing. It says the growth of the youthful population in these countries is expected to bring the African economic growth at 5% over the next decade.
It is projected that food and consumer goods will account for $185 billion (Sh15.44 trillion) of Africa total gross domestic product over the next 10 years. Food and beverages, which offer the most lucrative opportunities, currently yield $ 406 billion but this figure is expected to increase to $543 million over the next decade. 10% said they spend it on clothing and 6% on telecommunications.
This figure is higher than BRIC nations where only 23% of their incomes are absorbed by groceries, clothing takes 10% and telecommunications is 4%.
The report, which covers from September last year till February this year, was conducted among 15,000 households in 10 cities in the most rapidly growing African economies. It predicted that the wholesale and retail sectors would increase the value of consumer-related industries to over the next 10 years. It focused on groceries, apparel, telecommunications, financial and health services.
This is the second of such report made by McKinsey to research into the African consumer market in a bid to understand their attitudes, behavior and how they make consumer decisions. The study will also make prospective investor understand the opportunities in the region.
The United Nations predicts that the continent will account for 40 per cent of the global population, thus it is expected to help grow the consumer market in the region. Africa has a young population, with 50 per cent being below the age of 20.
The report says the increase in youthful working population is expected to improve Africa’s economy at five per cent annually for the next 10 years while Kenya is expected to reap the benefits of this projected growth as a result of its strategic location as a gateway to many East and Central African countries.
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.
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 stimulated Internet growth in Senegal. 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.
The study showed that Africa has a high Internet penetration more than Brazil, India but is equal with China. Africa continued to have the highest Internet penetration with Kenya and Senegal ranked in terms of Internet penetration. Kenya came in first as a result of cheap Internet enable phones. The development is expected to change the perception of international companies on Africa. Many are already scouting to partner with locals to start their operation within the continent.
The report further shows that African economies have produced some of the highest profit margins in the world, but it warned that this would be diluted in the near future.
“Profit margins in Africa are some of the highest in the world, but the gap will narrow going forward as more big companies set shop in the continent,” said Mr Damien Hattingh, a partner at McKinsey. He said that the emerging middle class that is seeking more luxurious commodities has buoyed the rapid growth in the consumer market.
Mr Hattingh noted that 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.
The development is expected to usher in a change in the perception international companies have of Africa. “The consumer opportunities are real and reaffirming….and consumer goods companies are opening up fast in many African economies and are expected to fuel long term growth.” indicated the report.
Early entry into African economies provides an opportunity for global businesses to create markets, influence customer preferences, and establish brand loyalty.
The growing consumer market has created several opportunities for global companies like Wal-Mart and KFC.