Consumer markets in emerging market economies are growing rapidly owing to strong economic growth. Nonetheless, diversity amongst their spending patterns exists as these economies are at different stages of growth. Although consumer spending in most of these economies is dominated by essential goods and services, there will be a gradual shift in spending patterns by 2020 when consumers will have more room for discretionary spending.
|Fixed US$ in constant terms|
Source: National statistical offices/OECD/Eurostat/Euromonitor InternationalNote: (1) Data for 2010 refer to forecasts. (2) Emerging market economies covers 25 key economies which include Argentina, Brazil, Chile, China, Colombia, Egypt, Hungary, India, Indonesia, Kazakhstan, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Romania, Russia, Saudi Arabia, South Africa, Thailand, Turkey, the UAE, Ukraine, and Vietnam.
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- Total consumer expenditure in emerging market economies (EMEs) experienced a period growth of 66.0% in real terms between 2000 and 2009 reaching US$7.5 trillion. In 2010, it is expected to increase by a real annual growth rate of 6.9% (in fixed US$ constant terms) to reach US$8.0 trillion;
- In 2010, China and Brazil will be the only two EMEs included in the world’s 10 largest consumer markets in total US$ terms. The consumer market in China has consistently been the largest amongst EMEs during 2000-2009 and will account for 23.2% of total consumer spending in EMEs in 2010. Brazil will be the second biggest consumer market in EMEs with a share of 13.2% of total consumer spending in EMEs during the same year, followed by India (10.2%) and Russia (8.6%);
- On a per capita basis, spending in China and India is amongst the lowest in EMEs. In 2010, the UAE will have the highest per capita consumer expenditure within EMEs at US$22,728 (fixed US$ constant terms) followed by Poland (US$7,037) and Hungary (US$6,565). India is projected to have the lowest per capita spending amongst EMEs at US$690 (fixed US$ constant terms) in 2010, followed by Vietnam (US$793), the Philippines (US$1,301) and China (US$1,399). Nonetheless, China, India and Indonesia will witness the highest period growth in per capita consumer expenditure amongst EMEs of over 80.0% in real terms between 2010 and 2020;
- Consumer spending on basic necessities like food and housing in EMEs is significantly higher than advanced economies as they are still in the early stages of growth. As a result, room for discretionary consumption is limited. Consumer expenditure on food and non-alcoholic beverages dominated total spending in most EMEs and accounted for over 20.0% of total consumer expenditure in 21 out of 25 EMEs in 2009 compared to 9.8% of total consumer expenditure in G7 economies;
- As incomes of the rising middle class increase and spending potential of consumers in EMEs grows, there will be a gradual shift in consumer spending patterns from basic necessities like food and housing to household goods, leisure and recreation and education. This provides tremendous potential to many consumer goods and services companies.
Basic necessities continue to dominate overall spending
- In 2010, consumer expenditure in EMEs is projected to grow by 6.9% in real terms over the previous year to reach US$8.0 trillion (in fixed US$ constant terms). China and Brazil will be the biggest EMEs in 2010 accounting for 23.2% and 13.2%, respectively, of total consumer expenditure in EMEs;
- On a per capita basis, however, spending in China will be amongst the lowest in EMEs in 2010 at US$1,399 (in fixed US$ constant terms) while the UAE will have the highest per capita consumer expenditure at US$22,728. Many expatriate workers come to the UAE with the intention of saving a large share of their incomes. This suggests a potential to increase consumption;
- During the same period, food and non-alcoholic drinks will continue to dominate total spending in most EMEs but its share is expected to decrease gradually. Within EMEs, Indonesia, Ukraine, and Morocco had the largest share of spending on food and non-alcoholic beverages (over 40.0% of total spending) in 2009 while the UAE had the smallest share of only 8.7% of total spending. By 2020, Indonesia’s share in this sector is expected drop to 31.1% of total spending;
- Housing accounted for 21.3% of total consumer spending in 2009 in EMEs. Between 2010 and 2020, it is expected to continue to account for a significant proportion of total consumer spending with its share in total spending remaining steady. This is because rapid urbanisation is causing a growing demand for housing within these economies. By 2020, the UAE will have the highest level of consumer spending in housing within EMEs (at 36.8% of total spending) and economies like Turkey, Poland, Egypt, Morocco, and Hungary will have a share of over 20.0% of total spending in housing.
|% of total expenditure|
Spending patterns shift but diversity exists
By 2020, spending patterns in EMEs will see a gradual shift from basic necessities to household goods, communications, leisure and recreation as well as education. Nonetheless, room for discretionary spending varies amongst EMEs:
- As annual disposable income of households increases, the potential pool of the middle class will grow exponentially. The total number of households with annual disposable income above US$10,000 (in constant terms) in EMEs is expected to reach 571 million in 2020 from 269 million in 2010, presenting significant opportunities for global consumer markets;
- This large and expanding middle class will cause a shift in consumer spending patterns. Between 2010 and 2020, there will be a growing appetite for leisure and recreational spending. During this period, China will see the highest growth in per capita spending on this sector among EMEs, posting a period growth of 127% in real terms, while India, Indonesia, Kazakhstan, Vietnam, Russia and Ukraine are forecast to record a period growth of over 100% in real terms. On a per capita basis however, spending on this sector will remain low in China at US$168 in 2020 compared to the average of US$297 in EMEs. The UAE will have the highest level of spending in this sector amongst EMEs at US$1,125 per capita in 2020;
- Educational services, communications, and household durables will also be amongst the fastest growing sectors in the next decade. On average the share of education in total spending in EMEs is expected to rise from 3.6% in 2009 to 4.2% in 2020. Indonesia will have the highest share of spending in education amongst EMEs at 11.8% by 2020, up from 6.6% in 2009. Between 2010 and 2020, per capita spending in education in Indonesia will rise by a massive 208% in real terms to reach US$315 per capita at the end of the period;
- Within EMEs, China and India will witness the fastest growth in consumer expenditure on communications between 2010 and 2020 – with a period growth rate of over 150% in real terms. China’s communications sector is developing rapidly since it has gradually opened to foreign direct investments. In India, with only 18.4% of households having a mobile phone in 2009, the mobile market is a long way from saturation and is expected to evolve into a large and competitive business in the next decade.
Source: National statistical offices/OECD/Eurostat/Euromonitor InternationalNote: Other goods and services include spending on alcoholic beverages and tobacco, clothing and footwear, communications, education, health goods and medical services, hotels and catering, household goods, leisure and recreation and miscellaneous goods.
Business potential not devoid of challenges
In addition to a rapidly growing middle class in EMEs, the population in these economies is large and youthful, with the exception of emerging Europe. Some of these countries benefit from a ‘demographic dividend’ – for example in India, one third of the population was aged below 14 years in 2009. The economy will benefit when these youths enter the workforce offering an opportunity for a consumer boom.
This youthful population is tech-savvy and keen to spend on newer better quality products. There is also a rising level of couples with “double income, no kids” that have an increasing demand for luxury goods and services. By 2020, the population aged 25 – 34 in EMEs is expected to increase to 692 million from an estimated 606 million in 2010.
While these shifts in consumer spending provide immense business opportunities to investors and exporters, they will also face some challenges:
- In the near term, consumer confidence in many EMEs still remains fragile on account of a slowdown in global recovery in 2010. In addition, the financial instability caused in mid-2010 by the eurozone debt crisis is likely to have an adverse impact on consumer expenditure, with households having a more cautious approach towards their spending habits;
- In addition, high income inequality, fragmented consumer markets and a high proportion of rural population will limit discretionary spending potential in some EMEs. The cumulative rural population in EMEs accounted for about half of the total population in these countries in 2009.
Between 2010 and 2020, strong economic growth will make some EMEs the largest consumer markets in the world:
- By 2020, in addition to the BRIC economies, Mexico, Indonesia, Turkey and Poland will rank in the world’s top 20 biggest consumer markets;
- As the spending potential of consumers increases, there will be growing demand for higher-end fast moving consumer goods products leading to a gradual shift in spending patterns from basic necessities to discretionary items such as luxuries, household durables and communications but demographic challenges will persist for consumer goods companies;
- On a per capita basis discretionary spending will remains diverse amongst EMEs with China, the UAE and emerging Eastern Europe leading discretionary spending within EMEs. Nonetheless, these levels will remain considerably lower than those achieved by most advanced economies averaging US$6,313 per capita (in US$ fixed terms) by 2020 compared to over US$20,000 in each of the G7 economies.