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Doing business in Africa. The Growing African Consumers- are you ready to connect your business?

Who are the new consumers in Africa?

new consumersA new generation of cashed-up consumers are emerging in Africa; they cut across the resource sector, financial services, ICT & telecoms, entertainment, political class among others. These new sets of consumers have strong purchasing power and disposable income not seen in the continent more than a decade ago. In Nigeria, for instance, the collective buying power of households earning $1,000 to $5,000 a year doubled from 2000 to 2007, reaching $20 billion. Nearly seven million additional households have enough discretionary income to take their place as consumers as observed by McKinsey report on Africa last year. By 2014, the number of such households across Africa could reach 106 million. Already, Africa has more middle-class households (defined as those with incomes of $20,000 or above) than India.

Africa’s labour force is another sector producing new generation of consumers. The sector is expanding, in contrast to what is happening in much of the rest of the world. The continent has more than 500 million people of working age. By 2040, their number is projected to exceed 1.1 billion—more than in China or India—lifting GDP growth. Over the last 20 years, three-quarters of the continent’s increase in GDP per capita came from an expanding workforce, the rest from higher labour productivity. According to the McKinsey report, Africa’s consumer-facing sectors are growing two to three times faster than those in the OECD countries.

What are the factors empowering African Consumers?

The key factors that have contributed to the growth of new army of consumers in Africa include African government’s deliberate strategy to adopt policies designed to energise and open business space across markets. Many African countries have started privatising state-owned enterprises, reduced restrictions on international trade, lowered corporate taxes, reformed key financial institutions, strengthened regulatory and legal systems.

The paradigm shift across the continent opened the door for foreign investors to enter business sectors previously crippled by decades of Government monopoly. In the last decade, many African countries privatised their telecommunication sector. Since the privatisation, telecoms sector across Africa has experienced exponential growth delivering over half a billion mobile phone subscribers in less than a decade.

The electricity sector in Africa is currently going through a new wave of reform and privatisation. It is expected that successful privatisation of the power sector across many African countries will trigger industrialisation of the economies and inevitably accelerate the emergence of more consumers across the continent.

Brief background of Sectors

Banking sector

  • Sub-Saharan Africa has become a substantial player in emerging-market banking, with total 2008 assets of $669 billion, while North Africa’s asset base has grown substantially, to $497 billion.
  • Africa has 230 million unbanked households – constitute an enormous profit potential for banks
  • Mobile banking is emerging as one of the most effective means of reaching the unbanked in Africa.There is banking gap between traditional banks and micro-lenders in Africa. This gap opens opportunity for innovative credit and savings products for salaried low- and middle-income customers.

Consumer Goods and Services Sector

  • Africa’s consumer-facing sectors (Consumer goods, Telecom, ICT, Broadcasting, Retail, Entertainment among others) present the largest opportunity
  • The continent’s five largest consumer markets  in 2020—Alexandria, Cairo, Cape Town, Johannesburg, and Lagos—will each have  more than $25 billion a year in household spending and be comparable in size to  Mumbai and New Delhi.
  • The next largest markets, each with household consumption between $15 billion and $25 billion, will be Casablanca, Durban, Khartoum, Luanda, Pretoria, and Tripoli.
  • Additional opportunities should arise in transition economy cities, such as Dakar and Nairobi, and in smaller cities of oil exporters and diversified economies, such as Kano and Rabat, each of which could have a consumer market greater than $10 billion in annual spending.

Telecoms & Voice Data

  • Africa Telecom revenues have increased at a compound annual growth rate (CAGR) of 40 percent, and the number of subscribers rapidly exceeded 500 million
  • To meet the increased demand, investment in telecom infrastructure— about $15 billion a year—has also grown massively, with a 33 percent CAGR from 2003 to 2008.
  • There are two key pockets of growth, data and rural voice, with an additional revenue pool of $12 billion to $15 billion by 2012.
  • With the arrival of a number of intercontinental optical fibre cables in Africa, analysts’ forecasts new wave of growth opportunities in internet services and  broadband demand  across Africa

How to connect with African Consumers

  • Arrive early and take a long-term view: If a company is to succeed in Africa, it must discard short-term approach and create a sustainable long-term plan critical to business success in Africa.
  • Build relationships with stakeholders: Establishing relationships with key stakeholders is a reality to starting business in Africa. Africans are hospitable and receptive to foreigners. Having a good business relationship with key stakeholders is essential to build confidence and mutual understanding
  • Find the right local partner:  Finding a local partner is very important in Africa. Both small and multi-national companies aspiring to enter Africa need a reliable local partner to succeed. The local partner brings immediate access to excellent political and business relationships, as well as expertise in managing local labour and regulations
  • Market entry research: It is very essential for new entrants into Africa market to get true picture of the destination. Market research is not desktop Google- research but in-depth market intelligence done by experts in the local market. Such market research gives new entrants a clear road map of the business sector indicating opportunities in the sector, business culture, competitive analysis, preferred location and government regulations among others.
  • Market risks analysis: New businesses above all must consider market risks or intelligence report. The information is expected to define immediate and on-going risks in the nominated business venture. African economies have unique risks by countries, as such, one-shoe fits all approach does not work in the continent. OctoberFirst Consulting can assist you with all of the above.

Next Step

The interesting part of doing business in Africa is that businesses can start from a small market and expand into larger regional markets. Language is not a huge barrier because many African countries speak English. Australian Companies still on the sidelines should consider early entry into the emerging economies. Early entry provides opportunities to create niche markets, establish brands, shape industry structures, influence customer preferences, and establish long-term relationships. Australian business owners and executives cannot afford to ignore opportunities in Africa. A strategy for Africa should be part of their long-term planning. The time for businesses to act on those plans is now.


Lions On the Move: by McKinsey Group

One Billion Opportunities: Banking the Unbanked Globally: The African Executive

Capturing Africa’s Business Opportunity: by Donald Kaberuka, African Development Bank Group. June 2010.

Investing in Africa Pays by Daniel Osunkoya, Next Newspapers, Nigeria. July 2010.

The Case For Investing In Africa: by Paul Collier, McKinsey Quarterly. June 2010.

Please note:

Africa Austral-Asia Infrastructure Conference 2012

While you are here, we will appreciate if you could register your interest in our coming Africa Austral-Asia Infrastructure Conference:

The inaugural Conference will be held in Sydney (venue TBA) on Thursday September 6th and 7th 2012. It is a 2-day event designed for Austral-Asian investors and developers aspiring to invest in infrastructure opportunities in Sub-Saharan Africa. Your views and comments on the Conference would be most appreciated.

About Us.

OctoberFirst Consulting is a Sydney-based international trade and investment consulting firm. We assist companies explore business opportunities in African countries. We specialise in organising business events and links for companies through our systematic African market entry solutions. We also facilitate international knowledge transfer and capacity-building trainings across Africa. OctoberFirst Consulting is a member of NSW Business Chamber. Relevant authorities in Australia and some African countries know us. Please feel free to contact us with any queries you may have or further information you may require.

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