The Dynamic African Consumer Market: Exploring Growth Opportunities in Sub-Saharan Africa Grant Hatch, Pieter Becker and Michelle van Zyl Contents Introduction 4 Why is the African consumer an attractive 7 proposition? Where should companies focus? 15 1 Basic Survivors 19 2 Working Families 21 3 Rising Strivers 23 4 Cosmopolitan Professionals 25 5 The Affluent 27 How can companies unlock the potential in 31 Sub-Saharan Africa? Conclusion 41 Appendix 42 2 Africa consumer key facts • Africa is a diverse continent, • Consumer expenditure in SSA with an estimated 1,500 languages equaled nearly $600 billion in grouped into six linguistic families. 2010, accounting for almost eight percent of all emerging-market • In 2010, sub-Saharan Africa spending, and is expected to reach (SSA) was populated by more nearly $1 trillion by 2020. than 856 million consumers. The region will have more than 1.3 • Consumer spending in South billion consumers by 2030. Africa and Nigeria accounts for 51 percent of SSA's total expenditure. • The most populous country in SSA is Nigeria, with a population • Poverty in SSA is decreasing of 151 million, while the smallest, rapidly—from 40 percent in 1980 to Seychelles, has just 100,000 people. less than 30 percent in 2008—and is expected to fall to 20 percent by 2020. • While the global economy is predicted to grow by two percent to • By 2050, almost 60 percent of three percent between 2011 and 2020, people in SSA will live in cities, SSA is poised to grow by five percent compared with 40 percent in 2010. to six percent, making it one of the This means 800 million more people world’s fastest-growing regions. will live in urban environments. • African countries received $72 • By 2012, over 50 percent of all billion in foreign direct investment Africans—or more than 500 million in 2008, which is five times the people—will own a mobile phone. amount received in 2000. While lower By 2014, this portion is expected to than China’s investments ($92.4 increase to 56 percent (more than 600 billion), this amount exceeds that million people), giving Africa one of received by other emerging markets the world’s highest mobile usage rates. such as Brazil ($45.1 billion). 3 Introduction For companies looking for growth via diverse nature of opportunities emerging markets, Sub-Saharan Africa in Africa can be challenging. As a looms large. The continent’s sheer size result, many executives planning on merits attention: Since 2000, Sub- entering Africa want to know why Saharan Africa has experienced rapid Africa’s consumers are an attractive growth in consumer spending of four proposition, which segments they percent Compound Annual Growth should focus on, and how they can Rate (CAGR), reaching nearly $600 capture the market’s potential most billion in 2010. Consumer spending is effectively. expected to rise to nearly $1 trillion by 2020. Accompanying the growth In the pages that follow, Accenture are rapid improvements in income presents an in-depth analysis and levels, infrastructure and the business segmentation of the Sub-Saharan environment that promise continued African consumer market that can growth as a consumer market. help guide companies as they consider how and where to enter the market. Companies will have to adjust their We also provide concrete steps and strategies and expectations when recommendations on how companies entering Africa. Logistics can be can tailor their strategies to the unreliable and infrastructure lags challenges and opportunities in Africa. much of the developed world. Furthermore, understanding the 4 FigureMajor 1:African Sub-Saharan Cities Africa: A Large and Compelling Opportunity Addis Ababa Dakar Kampala Accra Lagos Nairobi Douala Dar es Salaam Kinshasa Luanda Maputo Windhoek Johannesburg Cape Town 5 6 Why is the African consumer an attractive proposition? The new African consumer While mineral resources will undoubtedly continue to be important, is a force to contend the most significant contributors to with and represents an growth are changing, with less reliance on exports and more reliance on opportunity no company domestic demand (consumer spending can afford to ignore. and imports). Despite current low per capita incomes in Africa, average Since 2000, consumer spending in income is growing, giving rise to Sub-Saharan Africa has grown at a an emerging middle class that will steady four percent per year, reaching become more demanding as income nearly $600 billion in 2010. The levels and spending increase. market is expected to be worth $1 trillion by 2020.1 Figure 2: Sub-Saharan Africa Consumer Expenditure* ($ Billions) 1,000 1990 – 2000 2001 – 2010 2011 – 2020 900 4.3 % CAGR 800 700 600 3.9% CAGR 500 $ Billions 400 3.2% CAGR 300 200 100 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Eastern Hub Southern Hub Western/Central Hub *Historic / Forecast - US$ mn - Constant 2010 Prices - Fixed 2010 Exchange Rates’ Source: Euromonitor 2011 7 Figure 3: Structure of Demand (% of GDP) 80% 70% 60% 50% 40% 30% Percentage of GDP 20% 10% 0% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Consumer Spending Imports Government Spending Exports Business Investment Source: EIU 2010 (An average of % GDP figures were taken for the following countries: Algeria, Angola, Egypt, Kenya, Libya, Morocco, Nigeria, South Africa and Tunisia) 8 “At JD Group, we look for two predominant characteristics before considering entry into any market, inclusive of the African market. Firstly, we look at current and projected potential in terms of demand forecast in the short, medium and long term, assessing the sustainability of the underpinning drivers for demand carefully. Secondly, we closely evaluate the capacity and capability of the market to enable core business processes such as logistics, infrastructure, regulatory and legal policies, financial systems and political stability to ensure effective service delivery to the envisaged client base.” Dr. Henk Greeff, Director: Strategy and Human Resources, JD Group 9 Figure 4: Africa Population Size (Millions) 2,000 1,800 1,600 1,400 1,200 1,000 800 600 Population Size (Millions) 400 200 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Age (Years) Age 2010 2050 0-14 416m 40% 546m 27% 15-65 582m 56% 1,320m 66% 65+ 35m 4% 142m 7% Total 1,033m 100% 1,999m 100% Source: UN Population Division, 2010 Figure 5: Sub-Saharan Africa (SSA) Poverty 1980 - 2009 50% 3000 45% 2500 40% 35% GDP Per Capita (Dollars) 2000 30% 25% 1500 20% 1000 15% 10% 500 Poverty Rating (Share of population below $1 a day) Poverty Rating (Share of population 5% 0% 0 1980 1987 1994 2001 2008 Poverty Rating GDP Per Capita (PPP) Source: Maxim Pinkovskiy, Massachusetts Institute of Technology Xavier Sala-i-Martin, Columbia University and NBER, 2010 10 Figure 6: Africa Urbanisation Rate (Percentage) 100% 90% 80% 38% 70% 60% 50% Urbanisation 40% 30% 62% 20% 10% 0% 2000 2005 2009 2010 2015 2020 2025 2030 2035 2040 2045 2050 Years Urban Rural Source: UN Population Division, 2010 The rapid and sustained rise in • Significant decrease in poverty.4 more goods and services, and will consumer spending is being fueled by By 2020, Accenture estimates that make it easier for companies to reach three key forces: poverty levels in Africa will fall to 20 consumers with products, services, and communications. Rapid growth • A population forecast to reach percent from nearly 45 percent in the in population and urbanization almost 2 billion by 2050.2 In 2005, 1980s. Poverty fell for both landlocked will place additional constraints Africa had an estimated population as well as coastal countries; for on the infrastructure requirements of more than 920 million, which mineral-rich as well as mineral-poor of Africa. This will require greater increased to an estimated 1 billion countries; for countries with favourable planning and urban investment in 2010. By 2050 the population is or with unfavourable agricultural which will require both public and expected to increase to almost 2 resources; for countries regardless of private sector participation. billion. Furthermore, between 2010 colonial origin. GDP in Africa is growing and 2050, Africa’s economically active even faster than the continent’s population will grow from 56 percent meteoric rise in population.5 of the continent to 66 percent—a • Rapid urbanization. Africa’s striking contrast to more mature growing, increasingly wealthy continents whose populations are population is becoming more aging and moving into the dependent urbanised. By 2050 almost two- category (i.e., 65 years or older).3 thirds of the population will live in Expansion of the economically active cities, compared with 40 percent population will lead to increased in 2010.6 Urbanisation, in turn, will demand for goods and services. lead African consumers to purchase 11 Figure 7: Trade Zones UEMOA CEMAC ($1,917 Exports 2007) ($304 Exports 2007) Benin Cameroon ECCAS Burkina Faso Central African Republic ($385m Exports 2007) Coted’voire Chad Guinea- Congo Bissau Equatorial Guinea Djibouti Mali Gabon Eritrea Niger Ethiopia Senegal Angola Sudan Togo Dem. Rep of Congo Cape Verde Burundi Liberia Tanzania Rwanda EAC Gambia Kenya ($1,587m 2007) Ghana Uganda Guinea Nigeria Mauritius Comoros Reunion Sierra Leone Madagascar Seychelles Malawi Zambia ECOWAS Zimbabwe IOC ($7,341m Exports 2007) Swaziland ($204m 2007) Botswana Lesotho Namibia South Africa Comesa Mozambique ($4,587m Exports 2007) SADC ($11,952m Exports 2007) Source: Unctad, Econonomic Development In Africa, 2009; Worldbank Africa Development Indicators 2010 Three key trends will further enable has created a booming industry that regional and international trade is consumer to buy more and allow employs and provides income for forcing African countries to open up companies to reach these consumers: large numbers of people.