What Opportunities Does Africa’s Rising Middle Class Present?
There has been a lot of enthusiasm about a burgeoning middle class with a rising disposable income in the youthful and populous continent of Africa, especially after the African Development Bank (AfDB) published a 2011 report on “The Middle of the Pyramid: Dynamics of the Middle Class in Africa”. Consumer-focused businesses investigating the African middle-class consumer market can expect untapped opportunities in a relatively empty marketplace but also hurdles to overcome. It is vital that they correctly identify and understand the challenges ahead in order to successfully seize the opportunities presented by over 313 million middle-class consumers in Africa.
Households with an Annual Disposable Income over US$10,000 (PPP) in Selected African Countries: 2007 and 2012
Source: Euromonitor International from national statistics
Note: PPP – Purchasing power parity is a method of measuring the relative purchasing power of different currencies over the same types of goods and services, thus allowing for a more accurate comparison of living standards.
A segregated marketplace with a low purchasing power
- The level of income inequality is high across Africa, with the purchasing power concentrated within the rich few. As a result, the African consumer market is polarised into a booming luxury market and a vast “bottom of the pyramid” market, making it very difficult for international consumer-focused companies to expand effectively. Nevertheless, in Africa’s major economies such as Nigeria, South Africa and Kenya, there are considerable opportunities for global luxury brands ranging from sports cars and jewellery to fine wines and designer fashion;
- Adding to the problem of market segregation is the challenge of a poor retail infrastructure, with supermarkets and shopping malls present only in large urban areas. This seriously hampers efforts of international consumer goods companies to communicate and distribute to a wide audience. However, construction companies and property developers should not overlook the vast opportunities presented by this infrastructure shortage;
- The African middle class is growing but their purchasing power is still relatively low in international terms. The (AfDB) loosely defines the middle class as those spending between US$2 and US$20 a day in PPP terms. This level of per capita daily consumption is low in comparison to many consumer markets in other parts of the world.
Bountiful opportunities from an underserved middle class
- Consumer goods companies, formerly aiming exclusively at the rich, can start changing some product offerings to cater for the continent’s expanding middle class. Although they will also need to adapt their products to meet the taste, needs and budgets of the local middle class, the fact that the African middle class has been so far overlooked and underserved means a relatively empty marketplace with a very receptive audience;
- Africa’s middle class are aspirational. They value education for their children, as they want to break the poverty cycle. As a result, the education sector will present good growth prospects, as educational providers in the private sector can fill in the gap left by state schools;
- The rise of the middle class in Africa will also offer opportunities for the financial services sector, as aspiring middle-class consumers will be increasingly willing to take up loans, consumer credit and other financial services;
- The fact that Africa is a youthful continent of over a billion people, with a growing working-age population and rapid urbanisation, will further support rising income and middle class expansion. This, combined with strong economic growth prospects, will offer great opportunities for both marketers and investors.
Although income inequality, poverty, lack of infrastructure as well as corruption and food security remain significant challenges, Euromonitor International forecasts continued expansion of the middle class on the back of strong economic growth in Africa’s major economies in the period through to 2020. For example, in Nigeria, the number of households with an annual disposable income over US$10,000 (PPP) will rise by 140% over the 2013-2020 period to reach 13.6 million households.