Africa’s consumer opportunity more complex than it might seem

The Ikeja City Mall in Lagos, Nigeria

The Ikeja City Mall in Lagos, Nigeria

Did you know that it is projected that, by 2040, there will exist a continent with 2 billion people? No it is not China or India. It is a fragmented mélange of over 50 countries with little connecting them, other than being hemmed in by water all around. Welcome to the new ‘promised land’ for retailers – the African continent.

Africa’s population has already crossed the psychological barrier of 1 billion people, the number that gets businesses across the world excited. This is a vast number of people. Imagine this – if you sold a spoon, yes a spoon, for $1 to just 1% of these folks, you would have a million dollars in your pocket!

This is what many people think when they think demographics. People are just waiting to buy your goods, frothing at the mouth anticipating spending part of their pay packet on your shiny spoons. Or are they?

Limited discretionary spend

Let’s take a more detailed look at the African consumer…

The middle-class on the continent is described as being able to spend between $2 and $20 a day. With the US dollar being so strong now, this is probably less, so let’s say $1.50 to $15 a day at prevailing rates.

So, no daily Starbucks for these folks. Remember, they need to house, clothe, feed, transport, educate, pay debts and save from that amount. It is not a discretionary spend for lattes, or spoons.

So what does this say about the much-vaunted potential for profiting from the middle class?

Whilst the African Development Bank says they make up 34% of the continent’s population, being part of the middle-class is a very precarious existence, especially with the falling oil price drying up traditional subsidies in major economies.

Focus shifting from West to East

At the end of the day, numbers are only numbers, and at a recent retail conference, I heard the excellent Dr Martyn Davies speak about the movement of capital and investments from West Africa to East Africa. Not only as a result of the waning oil price, but because doing business in East Africa is easier and better resourced.

In short, it is easier for East Africa to engage with the Indian subcontinent and the Far East due to historical and geographic access. Also, this is not a region that relies on oil for its momentum, they are making structural decisions on how to improve their financial situations through massive infrastructure projects, and creating industries that can give them competitive advantages.

So, for my money, sustained simple growth with sound fundamentals is more likely to come from East Africa than from oil-rich West Africa.

Africa unlikely to have same trajectory as Asia

The African opportunity is quite different to the Asian miracle. Africa is in a much weaker state than was post-colonial Asia. In Asia, the focus was heavily on manufacturing and cheap factory labour. These sweatshops, for example, paid badly and certainly had a negative impact. However, they absorbed an unskilled labour pool into factories and created in traditionally male-dominated communities an opportunity for many women to become self-sufficient for the first time. The result of this was the opportunity for millions of people to move upwards from unskilled to skilled labour – and with it increased earning potential and opportunity to move into the middle class.

In Africa, we have an inextricable progression of people leaving rural areas and moving to urban centres. As there are very few factories or massive capital works to absorb them, these people are destined to work in retail – simply selling things – versus becoming skilled.

With this in mind, I believe that Africa will not have the same trajectory as Asia as we are not creating the right type of jobs. This in turn impacts upon the size and growth of the middle class, which in turn means that the opportunity is not as great as economists or financial advisers simply looking at demographics or lazy references to Asia deduced.

Ask Unilever and Nestlé about their African experience. It has been a tough one, and perhaps not as lucrative as once thought (or hoped).

One needs to enter African markets with one’s eyes open. There are opportunities, but perhaps not to the degree or in the areas one initially thought.

Nicholas J.W. Kühne CM (SA) is founder and CEO of Wunderbrand, a pan-African brand consultancy. Nicholas has a BA Marketing Communications from the University of Johannesburg and is a Chartered Marketer. He is a regular guest lecturer at leading universities on marketing and branding in Africa. He has held senior marketing roles at Nando’s, TBWA/Hunt Lascaris, MTV/VIACOM and Interbrand.

He recently accepted a position on the African Brand Council and was invited to join the prestigious African Leadership Network (ALN). His company Wunderbrand has delivered cutting edge brand strategy and design to some of the continent’s most important brands and aims to strengthen Africa’s growth through building great African brands.