For over a century, foreign direct investment (FDI) in Africa was solely centered around the extraction and export of natural resources.
Today, the momentum has shifted, and global investors are going to Africa more for its consumer-based power rather than for its physical properties. As such, mining and petroleum now account for a minority share of long-term capital inflows. Investors are focused on retailing, services, and telecommunications.
But how did the trend shift to a fast-growing consumer market?
Factors include:
- Increasing affluence
- Population growth
- Rising urbanization rates
- The rapid spread of mobile phones and access to the internet
Africa has been thought of as the “last market,” and the continent’s consumers are becoming increasingly valuable to investors. With so much untapped potential, Africa’s emerging economies offer exciting opportunities in distribution and retail.
Consumer Expenditure Growth
Consumer expenditure in Africa has increased at a compound annual growth rate (CAGR) of 3.9 since 2010, and grew to $1.4 trillion in 2015. This number is predicted to reach $2.1 trillion by 2025 and $2.5 trillion by 2030.
Furthermore, if the Continental Free Trade Area (CFTA) is appropriately implemented in 2030, a single continental market for services and goods will be functional. This will offer corporations various points of entry into Africa and its potential market of 1.7 billion people.
With this in mind, studies have found that African consumers are brand loyal and savvy. In addition to this, local vendors have proven to be entrepreneurial while providing key assets for distribution chains.
Nevertheless, the majority of consumer spending in Africa currently takes place in informal roadside markets. This happens even in the African countries with the most well-developed retail and distribution markets.
As such, this disconnect indicates massive potential for growth as African consumers pivot from informal markets to more formal methods of consumption. This includes supermarkets, shopping malls, and eventually, eCommerce stores.
The Future Outlook of Africa’s Consumer Markets
Consumer insight companies such as Research America are paving the way with regard to market research and innovation.
African frontier markets are also getting more attention from foreign investors. Their most attractive aspects include:
- Tax and regulatory environment favorability
- Stability of the political system
- Access to human and financial capital
- Proximity to key markets
For example, the increased level of economic risk in Nigeria, the most prominent African economy, has caused investors to look at Ghana. This is because Ghana offers a healthy business climate strengthened by a stable, civilian-led democratic government.
By 2030, the largest consumer markets in Africa will include Egypt, Nigeria, and South Africa. Other lucrative opportunities will take place in Kenya, Ghana, Ethiopia, Angola, Algeria, Morocco, Tanzania, and Tunisia.