Analysis / Capturing the African Consumer Market
Capturing the African consumer market
Truths, Trends, and Strategies for the Road Ahead
The Atlantic Council Washington, D.C.
Headlines about Africa’s emerging middle class are grabbing the attention of analysts and investors. A decade of strong economic growth, rising consumption, an African shopping mall boom, and a growing number of gated residential communities in some urban centers seem to suggest that a significant societal shift, and an accompanying surge in spending, is afoot.
This perception that a substantial new African marketplace is on the horizon has been reinforced by journalistic essays and private sector reports, such as McKinsey & Company’s Lions on the Move (2010) and Deloitte’s The Rise and Rise of the African Middle Class (2012), which enthusiastically tout the advent of a “middle class” consumer segment in Africa.
There are real economic opportunities associated with the burgeoning African consumer market, but they are often exaggerated and poorly understood. As it exists today, the African consumer market is highly segmented and fluid—and absent a discernible “middle.” Africa’s consumer market is continually reshaped, most significantly by technological advances and urbanization. These trends do not unfold linearly, and they have varying implications for different consumer groups. The picture is messy. This brief will help potential investors unpack some of these details, better understand African consumers, and appreciate the complexities of the continent’s development. Finally, it will reflect on effective strategies for capturing the opportunities offered by Africa’s growth.
Africa’s Two Consumer Classes
What is often referred to as Africa’s “middle class” is a heterogeneous and not easily quantifiable cluster. In its 2011 report The Middle of the Pyramid: Dynamics of the Middle Class in Africa, the African Development Bank (AfDB) estimated that 355 million people—34 percent of the continent’s total population—were middle class. Somewhat controversially, this included anyone with a daily per capita expenditure of between $2 and $20. Of this group, the AfDB estimated that 60 percent fall into a “floating class,” with a daily per capita expenditure of $2–$4.A daily expenditure of $2 is only slightly above the developing world poverty line and just enough to purchase a hot drink in most of Africa’s shopping malls. Others suggest Africa’s middle class accounts for only fifteen million households in the largest eleven sub- Saharan economies. Based on more internationally accepted definitions of middle class (daily incomes of $10 or more), the Pew Research Center suggests only 6 percent of Africa’s total population can be classified as middle income.
Disparities stem from both monetary and sociocultural differences in defining the “middle class.” There is today no single African population group with a shared character, position, or impact on society that brings about the kind of political and economic shifts seen in “middle-class” groupings elsewhere. Competing kinships, ethnicities, and divergent living conditions have historically complicated such ascriptions. “Middle class” in Nigeria is unlike “middle class” in South Africa or Côte d’Ivoire. That individuals in Nigeria’s Lagos and Bayelsa states feel part of the same “class” is equally unlikely.
Optimism about the African consumer story will pay off for American companies over the long term, but not immediately. Despite uncertain definitions, consumption in Africa is rising. Rather than a middle class, it is more useful to speak of an African “consumer class.”