Africa is one of fastest-growing consumer markets in the world
Africa is one of the fastest-growing consumer markets in the world. Household consumption has increased even faster than its gross domestic product (GDP) in recent years—and that average annual GDP growth has consistently outpaced the global average.
In light of the increasing affluence, population growth, urbanization rates, and rapid spread of access to the internet and mobile phones on the continent, Africa’s emerging economies present exciting opportunities for expansion in retail and distribution.
In fact, consumer expenditure on the continent has grown at a compound annual rate of 3.9 percent since 2010 and reached $1.4 trillion in 2015. This figure is expected to reach $2.1 trillion by 2025, and $2.5 trillion by 2030.
Also, in 2030, if the Continental Free Trade Area (CFTA) is properly implemented, a single continental market for goods and services will be operational, offering corporations different points of entry to the continent and a potential market of 1.7 billion people.
Studies have shown that African consumers are savvy and brand loyal. Local vendors are entrepreneurial and present key assets for distribution chains. At the same time, the vast majority of consumer spending on the continent currently takes place in informal, roadside markets, even in those countries with the most well-developed retail and distribution markets.
This disconnect signals enormous potential for growth as African consumers shift from the informal toward more formal forms of consumption—including shopping malls, supermarkets, and eventually even e-commerce—a process that is already underway in all but the most fragile and underdeveloped countries.
Even relatively frontier markets are receiving increasing attention from foreign investors, who consider factors such as favorability of the tax and regulatory environment, the stability of the political system, access to human and financial capital, and proximity to key markets.
For example, when recent challenges increased the level of country risk in Nigeria, the largest African economy and historically common West African target of foreign investors, many companies looked to Ghana to establish their regional hub of operations, as its healthy business climate is bolstered by a stable, civilian-led democratic regime and increasingly peaceful neighborhood.
By 2030, the largest consumer markets will include Nigeria, Egypt, and South Africa. There will also be lucrative opportunities in Algeria, Angola, Ethiopia, Ghana, Kenya, Morocco, Sudan, Tunisia, and Tanzania, among other African countries.
For example, Ethiopia has been reported to be one of the fastest-growing economies in the world over the past decade, with an average annual GDP growth rate of 10.5 percent from 2005-06 to 2015-16. In addition, with one of the highest savings rates on the continent, its economy reflects a more stable and secure consumer sentiment.
The administration has also capitalized on the country’s connectivity boom by setting up the Ethiopia Commodity Exchange (ECX) to help overcome market distortions, especially in the agricultural sector. The ECX call-in service already receives over 1.5 million calls each month. Foreign companies, such as Coca-Cola and Heineken, recognize Ethiopia’s potential and have made substantial investments. More generally, African business leaders and investors such as Aliko Dangote are aggressively investing across the continent, which is a sign of their confidence in the future for growth in African consumerism.
The Brookings Institution