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The Importance of Understanding The Drivers of Consumer Spending Power in Africa Before Launching Your Business.

June 27, 2018

 
 
McKinsey Global Institute has identified four groups of consumers driving most of Africa’s consumption growth between now and 2025: those earning more than $50,000 a year in North Africa and South Africa, Nigerian consumers, middle-income consumers in East Africa, and middle-income consumers in Central and West Africa. Similarly, Economists project that by 2060, Africa’s middle - class population, which is currently around 300 million people, will triple to about 1 billion people. While this may present a lucrative market for products and services that entrepreneurs, large companies and multinationals are eager to access; this data cannot be used in isolation to predict consumer purchasing power.

 

Consider South Africa for instance; given the current tough economic conditions; consumers are shopping less frequently, spending less and buying bigger packs for better value. They are also becoming less loyal to brands as they seek out the best prices for the day-to-day practical usage. Essentially, high inflation and low real growth in salaries and wages are forcing consumers to gravitate towards low-cost experiences and products and such consumer trends are critical to note.

 

So, if you plan to launch a business or new products on the African continent, it’s important to consider other factors that drive consumer spending power over and above the demographic growth data, because despite this expected expansion of consumers the average purchasing power is relatively low in many of the fastest-growing African markets as the economic growth has not created jobs at a bigger scale.

 

Therefore, factors you need to consider include city – based on view of growth, the country’s employment rate, access to affordable credit, and each country’s cultural dynamics, including income earned from informal entrepreneurial activities that are generally not reflected in official income statistics.

 

So, to succeed in Africa as a manufacturer or retailer, it’s critical to have a better understanding of how to access a broader group of consumers and how to provide offerings that are tailored to different consumers across different countries on the continent.

 

The Coca-Cola Company is an example of a company that gets this right; it sells soft drinks in low-cost returnable glass bottles, non-returnable polyethylene terephthalate (PET) bottles at slightly higher price points in different countries and for different demographics. Each of these formats are sold in a variety of pack sizes tailored for specific occasions. The company also adjusts pack sizes from time to time to ensure that they remain affordable to the target consumer segments while still being profitable for the business.

 

Ultimately, manufacturers and retailers who want to remain relevant in Africa need to have the right business models and products that can be easily integrated into consumers’ day-to-day lives. It is also important to note that the middle class is both the cause and effect of economic development; its growth and ability to have disposable income is a function of economic development.

 

So, don’t get stuck in the mistaken assumption that business opportunities only exist in the middle-class market, consider those at the bottom of the pyramid as well. The low-income groups are also full participants and consumers in local economies.

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