Wednesday, June 23, 2010

The Rise Of The African Consumer

Jun 17, 2010 - Business Monitor International - Risk Watchdog

Riskwatchdog recently attended a Bloomberg Africa focus day where several speakers discussed the potential offered by the African consumer in a challenge to the often-held view that the continent is a pure resource play.

My colleagues in the Africa team at BMI are equally excited by the prospects for private consumption growth over the coming years. The continent’s population is expected to reach 2 billion by 2040 and BMI’s Africa desk sees GDP per capita growing at a rapid clip as strong headline economic growth trickles down. Throw in the fact that the African consumer is coming from a low base (as a rough proxy, average mobile phone penetration stood at 46.3% in 18 Sub-Saharan African countries that BMI covered in 2009) and the prospects do look very compelling.

These are not lost on global firms: sticking with the telecoms example, there has been a dash for assets in the industry, the latest example being Bharti Airtel’s purchase of Zain’s African assets. Furthermore, beer giant SABMiller has invested heavily in its subsidiaries across the continent, believing firmly in the long-term potential on offer.

It would be foolish, however, to wax lyrical about the opportunities without being cognisant of the risks. Political instability, although improved from previous decades when civil wars ravaged countries from Mozambique to Uganda and Angola, still remains common. Basic infrastructure remains woefully inadequate in many countries, meaning that distribution of goods and services is expensive and difficult. Furthermore, the fact remains that most Africans are poor and spend the majority of their incomes on food rather than goods. As such, a sustained spike in food prices would significantly reduce disposable income, delaying the rise of the African consumer.

Also, Riskwatchdog is not one of those who see the entire continent as a single market and I acknowledge that consumer tastes and preferences will vary from country to country and from sub-region to sub-region. But the point that the continent as a whole is the final frontier in terms of growth potential and that the consumer will play a very large part in this story cannot be denied.