The Rise of the African Consumer

Image: Yenkasssa
Flickr, creative commons for commercial use

Africa’s economic and consumer activity are rapidly expanding. Over the last decade, the rate of Africa’s economic growth—equal to that of the Middle East—has been second only to emerging Asia. In fact, Africa’s GDP has grown at a faster rate than the world’s GDP in every year since 2001.

Contrary to popular belief, however, this growth has been driven not so much by harnessing the continent’s resource wealth (although that has certainly played a significant part), but more so by the increasing purchasing power of Africa’s rising consumer class and the consequent expansion of consumer-facing sectors of the economy.

This growth of consumer-facing sectors accounted for 45% of Africa’s economic growth since 2000.3 In that time, the GDP per capita (PPP) on the continent has jumped by 26%, giving it a GDP per capita 12% higher than that of a more heralded burgeoning economy, India

The population, economy, and household spending in Africa are largely expected to continue to rise. By 2025, one of every four young people in the world will be from sub-Saharan Africa. And by 2020, household spending is projected to reach $1.4 trillion— more than a 60% increase from the $860 billion spent in 2008.

To help develop a strategic roadmap for companies wishing to do (or expand) business in Africa, in 2011 and 2012 McKinsey conducted a survey of more than 13,000 consumers in 10 African countries—focusing on apparel, financial services, grocery, the Internet, and telecommunications.

Although the continent is home to 54 different nations, the African market is concentrated. Just 10 countries—Algeria, Angola, Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, Sudan, and Tunisia—accounted for 81% of private consumption in 2011. McKinsey also notes that Ethiopia, the 11th largest market, has averaged annual economic growth of 10% through most of the 2000s and that, with a population exceeding 80 million, it should also be anticipated to be a major consumer market

3 KEY FINDINGS

  • Africa’s GDP—and consumer spending—are rising faster than the world average.
  • Africa’s youth, population growth, and urbanization are driving the rapid growth of the continent’s consumer market over the next decade.
  • African consumers care about quality, but are also concerned about cost. Becoming a favored brand thus involves finding the balance between quality and affordability appropriate for each market.

TARGETING AFRICAN CONSUMERS

While analysts increasingly talk of the rise of the “African consumer,” the continent is anything but a single, unified market. It is home to 54 distinct countries, and its people speak more than 2,000 languages and dialects.

It includes a wide range of countries and economies: from established, relatively mature markets (e.g., South Africa, Nigeria) through ascendant emerging economies (e.g., Ghana, Tanzania) to nations struggling politically and economically (e.g., Mali, Somalia).

Even within a single country, there is often great diversity. Nigeria, for example, contains more than 250 different ethnic groups who speak more than 500 languages.8 This diversity will present a challenge to organizations as they try to target African consumers, and some firms are developing segmentations to try to help foster understanding.

Nielsen’s seven segments

In an effort to allow companies to better target African consumers, Nielsen identified seven discrete African consumer segments based on demographic and attitudinal differences.

  • Trendy Aspirants (21% of Africa’s population)—young, up- and-coming, high-end consumers
  • Progressive Affluents (7%)—older, well educated, high socioeconomic class, usually with families
  • Balanced Seniors (17%)—well educated (post-secondary), higher income (about $550 a month), risk takers, print media readers
  • Struggling Traditionals (10%)—lower income (about $285 a month), “under educated” (did not complete secondary school)
  • Evolving Juniors (24%)—lower income students and unskilled laborers who prefer spending time with friends to being at home
  • Wannabe Bachelors (11%)—lower income laborers and entry-level employees
  • Female Conservatives (10%)—married, lower-income students, housewives, and laborers, rooted in family and traditions

Nielsen further organizes its seven consumer segments into three tiers, based on incomes and spending.

3 BUSINESS IMPLICATIONS

  • The diversity of the African market suggests that companies that either do business or want to do business on the continent will need to invest in consumer research to learn the needs, desires, and habits of consumers in markets of interest. While this was previously cost-prohibitive, the rise of consuming classes in more parts of the continent should change the economics of such research investments in coming years, and provide the necessary insights to guide product development and marketing.
  • With half of Africa’s population under age 20, serving the needs of children and young adults will yield huge opportunities in coming years. Organizations can help African parents invest in the future of their children and their country through innovative products aimed at areas such as health, nutrition, personal care, education, etc. And by serving African youth with innovative and effective products, companies can begin to build lifelong loyalty with the continent’s adult consumers of 2020 and beyond.
  • With an overwhelming 84% of African consumers feeling they will be better off in the future, this attitude offers advertisers and marketers of products and services an opportunity to tap into this optimism. Marketers may find it worthwhile to test positive and aspirational campaigns in a market like urban Ghana, where optimism runs highest. Still, any campaign based on African hopes for the future will need to be fine-tuned according to more specific markets—and may be inappropriate in northernmost Africa (Algeria, Egypt, and Morocco), where consumers are the least optimistic.