Africa's emerging middle class

Michael Dynes

Anticipating market changes is a route to riches for businesses astute or lucky enough to be ahead of the curve. The ten years of historically high growth enjoyed by Africa prior to the onset of the economic downturn provided a clear signal that Africa is now moving from a source of supply to a source of demand. But the implications of this shift have barely begun to register

The fact that Diagio, the beer and wine distributor, now sells more Guinness in Nigeria than in the entire United Kingdom, gives a clue to its long-term significance. Slowly, almost imperceptibly, a substantial middle class is emerging in Africa, harbouring a pent-up demand for consumption, just as happened in China and India a decade before.

Gauging the size of this emerging middle class is not easy. In South Africa, where data collection is light years ahead of the rest of the continent, the black middle class - or Black Diamonds as they are known - now number around three million people, and it is growing at around 15 percent a year. In Nigeria, the middle class is thought to be in excess of 25 million. In most other African countries the figure is usually put at around 10 percent of the population.

Although small by comparison with China and India, they collectively amount to few hundred million people, and they are already registering a big impact on the market - especially in the retail sector - which is witnessing a surge in demand for fast moving consumer goods, both non-durable and semi-durable, and triggering a scramble among retail chains to satisfy it.

South African retailers like Pick 'n' Pay, Woolworths, Massmart and Shoprite recognised years ago that significant growth prospects lay in serving the long-neglected black townships where this emerging middle class was starting to display its spending power.

Now they are moving north of the Limpopo into the rest of the continent to do battle with local retail outlets like Dangote in Nigeria, and Nakumatt in Kenya, in the expectation that they will find lucrative new markets there too. Shoprite, with 698 outlets in South Africa, and a further 129 outlets in 15 other African countries including Angola, Mozambique, Zambia and Tanzania, leads the pack. Retailers of durable goods - fridges, TVs and cars - are beginning to take note.

The global economic downturn has slowed but not stopped this development. Africa has been hit hard by collapsing commodity prices and the dramatic decline in capital inflows. But this has largely affected the extractive sector - an important, though by no means big, employer. Africa's non-oil/commodity economy has largely remained unscathed, and is expected to continue growing at around 3 to 6 percent.

African retail chains are likely to weather the current economic storm in style. But they are also acting as a portent of bigger long-term trends. More and more Africans now have a disposable income. As a group they are not indebted, they have a high propensity to spend, and yearn to possess the consumer luxuries owned by their counterparts in the developed world.

Little wonder that investors like Coronation, the South African-based fund managers, are putting their money on the future of African consumer/retail stocks. The growth potential is enormous, and so far only a handful of people have recognised it.