In its Where to invest in Africa report, Rand Merchant Bank (RMB) has identified Uganda, Ethiopia and Kenya as potentially good investment destinations for companies focused on the African consumer.

Reasons why companies should be looking at Africa as a consumer market include: a large population with a strong population growth rate (forecast at 2.25% per annum for the next few years); a young demographic profile; forecasts of high levels of income and consumption growth; and expected high urbanisation.

But which countries hold the most potential? “While Sub-Saharan Africa as a whole is proving to be a key destination for consumer goods, it is important to take account of country differences. Ethiopia, for instance, has a large population and a decent market size, but it would probably not offer a concentration of high-income earners for high-end retailers,” says the report.

By taking Sub-Saharan African countries’ current population size, population growth, per capita GDP growth and urbanisation rate, RMB created an index that combines these variables into a single measure. “The index provides us with a gauge of which countries rank the highest when all four measures are taken into account.”

The top ten countries that provide a favourable macroeconomic backdrop for consumption growth are:

1. Uganda
2. Ethiopia
3. Kenya
4. Angola
5. Tanzania
6. Ghana
7. Nigeria
8. Malawi
9. Niger
10. Liberia

A good macroeconomic backdrop is, however, not necessarily enough to justify an investment. A workable operating environment is also essential for any successful venture. “Sub-Saharan Africa has some of the toughest operating conditions on the planet. The lack of access to financing, high corruption, poor infrastructure, inefficient bureaucracy, difficult tax and legal regimes and an inadequately educated workforce, all make it tough to do business,” notes RMB.

To provide a more accurate view, RMB therefore combined each country’s macroeconomic rank with its operating index (a measure for ease of doing business). The figure below shows that “Uganda, Ethiopia and Kenya stand out as having sound consumption growth underpinnings and acceptable operating conditions”.