Though currency devaluations and a sharp downturn in oil-exporting economies have slowed spending growth in Africa, widespread technology adoption supported by a growing young population is expected to drive consumer spending to $2.1 trillion by year 2025, according to a McKinsey & Company published article entitled “Lions (still) on the move: Growth in Africa’s consumer sector”.
The article published October 2, 2017, indicates that Africa remains a high-potential region, but growth is concentrated in a few markets and income segments, and that for companies to win more consumers they need a tailored, data-driven approach.
It cited analysts at the McKinsey Global Institute who have identified four groups of consumers that will drive much of Africa’s consumption growth between now and 2025, including 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.
Specifically, technology adoption in the form of mobile money and e-commerce, young and growing population and urbanization are identified as strong structural fundamentals to drive the consumer opportunity
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“Technology is opening many new doors for consumers. Mobile money, for instance, is growing five times faster in Africa than in any other region. By 2020, half of Africans—up from 18 percent in 2015—are expected to own a smartphone, which they can use to buy and sell products and services, pay bills, and make remittances,” the article noted.
The authors particularly cited a study in Kenya, which found that families with M-Pesa mobile money were able to withstand financial shocks (such as illness) without reducing their consumption, because they could borrow money electronically from friends and family.
“The success of e-commerce company Jumia —colloquially referred to as “the African Amazon.com”—is partly due to the fact that it accepts mobile payments, allowing even Africans who don’t have bank accounts to make purchases.
“E-commerce and m-commerce offerings are partially leapfrogging formal retail, and McKinsey analysis suggests that e-commerce could account for 10 percent of retail sales in Africa’s largest economies by 2025.”
Aside technology adoption, a young and growing population is equally seen as fuelling consumer-spending growth in the next eight years.
“The continent’s population is projected to grow by 20 percent over the next eight years, with Africa’s youth making up 40 percent of the total. By 2025, almost one-fifth of the world’s people will be living in Africa,” the authors stressed, adding that population growth is accompanied by falling dependency ratios as well as an expanding workforce.
The size of Africa’s working-age population is expected to surpass both India’s and China’s by 2034.
Rapid urbanization is another push for consumer spending.
The article projected that by 2025, an additional 190 million people in Africa are expected to be living in urban areas, which means that about 45 percent of the population will be urbanized by then.
“City dwellers are voracious consumers: per capita consumption spending in large cities in Africa is on average 79 percent higher at the city level than at the national level. Cities in Kenya and Nigeria, for instance, have per capita consumption rates that are more than double the country rates. The top three cities in Ghana and Angola will account for more than 65 percent of national consumption spending in each of these countries,” the authors noted.
The article also see rising incomes as base assumptions for their projections, saying that since 2005, increases in spending per household have been responsible for about 40 percent of consumption growth in Africa.
“By 2025, 65 percent of African households will be in the “discretionary spending” income bracket (earning more than $5,000). Consequently, the profile of goods and services that Africans purchase will shift, from basic necessities toward more discretionary products,” it noted
The article noted that the growth factors identified bode well for the continued growth of Africa’s consumer sector, but warned that growth will be uneven across countries and income classes, and the geographic spread of consumption will change.