Why Africa is on cusp of consumer boom

Africa could benefit from an economic boom owing to potential entry of foreign investors looking to pump billions of dollars into the technology and manufacturing sectors.

A new study by consulting and business advisory firm Deloitte shows that the size of Africa’s economy is poised to grow by 50 per cent ($1.1 trillion) to $3.7 trillion (Sh333 trillion) in the next five years with an expanding middle class expected to offer an increased demand for a wide array of consumer goods and services.

According to Deloitte, more than 500 million Africans are expected to graduate to a middle income status by the year 2030, a demographic the firm says is characterised by optimism, mobile connectivity and brand consciousness.

Deloitte broadly defines the continent’s middle class as those earning between $2 (Sh180) and $20 per day (Sh1,800). According to the report titled  “Africa: A 21st Century View” the expected expansion of Africa’s economy will see mobile phone penetration grow to 97 per cent by 2017 from 72 per cent currently, with the continent adding 334 million new Smartphone subscribers over the same period. The study also shows that 15 African countries are likely to outpace Chinese growth in the next five years with eight of Africa’s 12 fastest growing economies not dependent on oil or mining.

“Africa presents many opportunities at present and these are only likely to grow as the groundswell of economic momentum being witnessed on the continent gains further traction in coming years,” says Rodger George, Advisory Leader at Deloitte East Africa. “Much of Africa’s economic potential still remains untapped by international investors, particularly in the emerging consumer sector, but this is set to change in the next decade and a half.”

According to Mr George, Africa’s economic story has mainly been focused on natural resource and commodity exports but in future, it will be driven by the consumer opportunity as rising incomes and urbanisation boost domestic demand. “Right now, Africa is at a point where South East Asia was 30 years ago — on the cusp of a consumer boom,” says George.

Fast growing

“Africa’s population is predominantly young with 680 million, or 60 per cent of the continent’s total population, aged below 25. These younger Africans will play a critical role in the continent’s economic development not only because they will want increased connectivity and access to a wider choice of food, consumer goods and entertainment, but also as they bring a more innovative and entrepreneurial mind-set.”

According to the report, Africa’s population is also increasingly clustered in large urban centres, and urbanisation is likely to be a key driver of economic activity. The report notes that international businesses are increasingly looking to the fast growing African market for new growth opportunities as high growth economies like China, India and Brazil show signs of slowing.

Sub-Saharan Africa’s gross domestic product (GDP) is expected to expand by 5.1 per cent this year (2014), led by markets such as Chad (9.6 per cent), Democratic Republic of the Congo (8.6 per cent), Côte d’Ivoire (8.5 per cent), Mozambique (8.3 per cent), Ethiopia (8.2 per cent) and Nigeria (7 per cent), according to the International Monetary Fund (IMF)’s World Economic Outlook (2014).