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Consumer goods firms should cheer as Africa’s poverty is indeed declining

A recent update by the World Bank shows that Africa is indeed making strides to unshackle itself from the bondage of poverty, and economic growth, which averaged around 5% over the past decade, has been the key driver.

For sub-Saharan Africa, applying the measure of people living on US$1.25 a day or less, the World Bank’s poverty measurement team estimates that the percentage of poor Africans fell from 58% in 1999 to 47.5% in 2008.

This equates to about a one percentage point decline each year, which is a welcome change from the previous decade when growth was much slower and the poverty rate increased.

In the past, even when the poverty rate fell, the absolute number of poor people would typically rise because of rapid population growth. Between 2005 and 2008, for the first time, the absolute number of poor people also declined, from 395 million to 386 million. Nine million people thus escaped extreme poverty, and this equates to the whole population of a country like Benin.

Sub-Saharan Africa’s consumer market has of late received significant attention from multinationals seeking growth opportunities. The region is fast gaining the status of the last consumer frontier especially given sluggish growth in the developed markets.

What the World Bank report confirms is that the number among basic survivors capable of making purchases of consumer products is rising. This particular market, which constitutes around 60% of the sub-Saharan African population often lacks discretionary income and is usually excluded when one appraises the potential of a market. However, for companies like Unilever or Africa’s telecommunications firms that have since mastered the art of delivering the right product to the low end of the market, this is welcome news.

The bottom end of the African market typically earns less than $100 per month and makes purchases often for that particular day. Telco companies, on one hand, brought them prepaid packages, while innovative fast-moving consumer goods (FMCG) manufacturers, for example, came up with single use packets and these have underpinned profitability of these companies.

With Africa’s growth still gathering pace, poverty levels are set to decline dramatically with the consumer market simultaneously taking off. We are bullish on the sector and urge investors to continue looking at companies therein.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.

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