1 January 2013

Africa's High Consumption Rate Attracts Global Firms

A recent study has revealed that increasing levels of consumerism have made Africa the main attraction for many multinational companies looking for a good return on investment.

The report carried out by Mckinsey Africa Consumer Insights Centre cites a sizeable number of investments targeting household consumer-related products and services over the last decade. According to the report, the African consumer has hugely been attracted by the growing appeal of apparel, financial services, grocery, internet and telecommunications services.

"Private consumption in Africa is higher than in India or Russia; it rose by $568 billion from 2000 to 2010. From 2012 to 2020, consumer facing industries are expected to grow a further $410 billion, representing the continent's largest business opportunity. Apparel consumer goods and food are expected to account for $185 billion or 45% of that amount."

While Africa continues to be seen as a frontier market for investment, especially as a new hub for oil and mineral exploration, the report notes that consumption-related industries have invested more than any other sector in the continent.

"It comes as a surprise that resources contributed less than a third of total GDP growth in the 2000s (before the onset of the financial crisis in 2008), while 45% of growth came from consumer-facing or partially consumer -facing sectors," it notes.

Despite a recent growth of mineral and oil investment on the continent, with China as the main driver, the survey predicts that consumption-related industries will continue to lead in total investments in the continent.

"Africa's consumer facing industries are expected to grow by more than $400 billion by 2020. That would account for more than half the total revenue increase that all businesses are expected to generate in Africa by the end of the decade."

The survey reveals that for any multinational company to tap into this potential, they have to understand the nature and behaviours of the African consumers. The majority of Africans have been described as being "brand conscious" and preferring multinational products to local goods.

"Most Africans desire the latest fashions; 58% of respondents said they choose clothing based on fashion and 43% feel it is important to follow the latest trends," the report points out. The report adds that the companies have used the loophole to tap into the African markets.

The latest trends include internet services, where African countries are competing with some of the BRICS nations in use of data services. "Internet use is far greater than anticipated - more than 50 per cent of the urban Africans say they have accessed the internet in the last four weeks, on par with reported usage in Brazil and China."

In East Africa, Kenya, for instance, has "internet penetration standing at 70% that is boosted by affordable mobile broadband and high penetration (95%) of internet -capable mobile devices."

Similarly, Uganda has seen a rise of investment in data services with telecom companies Warid telecom and MTN leading with their 3.75G and 3G promotions respectively. Woolworths and Nakumatt have already opened stores in Uganda, with a new Nakumatt store already opened in Mbarara district.

Copyright © 2013 The Observer. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.