The high optimism in the potentials of the African economy have somewhat been quenched recently, due to growth in the economy slowing down. But the overall slowdown in Africa’s growth only largely reflects economic deterioration in two distinct groups of countries: North African countries caught up in the turmoil that followed the democracy movements collectively known as the Arab Spring, and oil exporters affected by the sharp decline in oil prices. Together these two groups account for nearly three-fifths of Africa’s combined GDP.
According to the latest McKinsey report, Lions on the Move II: Realizing the Potential of Africa’s Economies, which opens with a cautionary note: “Many people are questioning whether Africa’s economic advances are running out of steam. Five years ago, growth was accelerating in almost all of the region’s diverse economies, but recently their paths have diverged,” pointing out a deep in the real GDP (3.3%) between 2010 and 2015 compared to the real GDP (5.5%) between 2000 and 2010.
Some sectors of the African economy might be experiencing a bumpy ride in the short run but the long run, according to the report, opens up a whole lot of opportunities for investors.
The most significant among the various opportunities, which is also the widely recognized driver of growth and investment on the continent in recent years, has been the expanding population. This is increasing food and household consumption which accounts for $1.4 trillion in 2015. The report forecasting it will reach $2.1 trillion by 2025. To put into perspective, Africa’s consumption rate is only second to Asia.
The Nigerian market…where the elephant lies
Nigeria will remain Africa’s single largest consumer market, accounting for 15 percent of overall growth in consumer spending to 2025. The biggest spending categories will be food and beverages, housing, consumer goods, education and transportation services.
The country will remain Africa’s largest economy and “the giant of Africa” with a population of over 174 million people and 37 million households. Accompanied by rapid urbanization, incomes are rising enough to fuel spending on discretionary goods and services as well as basic necessities.
But for you to capture the consumer opportunity, you must understand that most of the growth in the country are in the urban areas which include Lagos, Ibadan, Port Harcourt and Abuja. With per capita consumption in these cities more than double the national average.
Fueled by a new generation of Nigerian consumers, wholesale and retail sales are already the third largest contributors to Nigeria’s GDP, contributing 16 percent to the total, albeit mostly through informal markets.
The informal retail channels are an important route to market in this country, with the informal markets accounting for most of the sales, and companies will need to design their sales and distribution models to cater to these.
Already, some companies are moving aggressively and decisively staking massive claims in the consumer market. Companies who want a significant bite in this juicy market must act quickly with innovative strategies since the market may support only a few winners.