How important is the African market to the global economy?
The research report Africa’s Emerging Role As a Global Consumer Powerhouse (hereinafter referred to as the Report) recently released by Oxford Economics suggests that global investment looks to further increase of the African market because Africa is currently one of the fastest-growing consumer markets in the world.
In recent years, the growth rate of household consumption on the African continent has exceeded that of Africa's overall gross domestic product (GDP). Since 2010, consumer expenditures on the African continent have increased at an annual growth rate of about 5% for ten consecutive years. The latest data from the World Bank show that in 2019, the trend of decline in foreign direct investment (FDI) stopped on the African continent. In 2019, the inflow of funds into the African continent reached USD 48 billion, up 11% year-on-year, with investment attractiveness of South Africa, Nigeria, Egypt and other African countries gradually growing.
It is predicted in the Report that in the next five years, the rate of Africa's consumer expenditures will exceed 8%, with both the East and West African markets yielding wonderful results in the future. It is also believed that Africa's consumer expenditures will not only drive the development of the consumer market, but also greatly promote the development of retailing, public utilities, banking and tourism.
Urbanization promotes the development of African consumer market
According to the Report, even if currency devaluation and inflation are taken into account, the consumer markets of East and West Africa will show substantial growth, with an average annual growth rate of, perhaps, over 8%. In terms of increment, Nigeria and South Africa are two major markets worthy of attention. In terms of the growth rate, good performance will be shown in such African countries as Côte d'Ivoire, Ghana, Senegal and Cameroon.
Twenty years ago, Africa's total consumer expenditures accounted for 20% of that in the United States. In the next five years, this proportion will double.
The Report points out that, first of all, Africa's rapid economic growth lays a foundation for the development of the consumer market. According to the World Bank data, from 2008 to 2018, the average economic growth rate in Africa exceeded that of Brazil and Russia among the BRICS countries and was more than twice the world average. Among them, 11 major economies, including Nigeria, South Africa, Egypt and Algeria, contributed to 80% of the growth.
Second, urbanization is the key to the development of the consumer market. At present, Africa shows the fastest urbanization rate in the world. In recent years, a large rural population has poured into cities in Africa, and the growth rate of urban population in Africa has exceeded the overall population growth rate. Judging from economic indicators, the economic growth of many African cities is about 0.5 percentage point higher than the growth of their own GDP.
However, Africa's good economic prospects are challenged by Africa's unsaturated consumer market.
In 2019, South Africa's total consumer expenditures ranked first in Africa, at about USD 211 billion per year, but the amount was less than 30% of the expenditures in the United States. Although the East African country Ethiopia and Germany have almost the same population size, the latter's private consumption expenditure is 33 times that of the former.
From the perspective of the consumer market, the current consumer market structure in Africa still needs to be improved; consumers show unstable loyalty to specific brands or products; the vast majority of consumer expenditures on the African continent are from informal roadside markets. Such situation is no exception even in African countries with the most developed retail and distribution markets.
Therefore, the Report believes that there is a gap between the growing consumer demand and the unsaturated consumer market, but such situation also brings opportunities to investors.
New opportunities for African tourism
According to the Report, the African retail industry will be the first to embrace changes in the consumer market. Rapid urbanization in Africa will reshape the market structure of the retail industry, making the market more concentrated and standardized. It is concretely manifested that residents will turn to formal consumption forms such as shopping in shopping centers, in supermarkets and via e-commerce.
Meanwhile, the Report believes that the benefits brought by the retail industry will further reach other industries, with public utilities, telecommunications and banking coming first.
The Report also believes that, in addition to the above industries, Africa's tourism industry will also usher in new opportunities, as it has been witnessed by the African governments and the investors. The governments and investors believe that labor-intensive and non-tradable tourism featuring fixed location can promote employment and attract foreign investment. The development of tourism will make up for the disadvantage of a single economic structure in Africa.
At present, South Africa, Nigeria, Egypt, Kenya and Morocco are the major countries in Africa with brilliant tourism development. On the consumer side, apart from local consumers, Africa's tourism market mainly relies on European consumers. The Report points out that in 2019, the total consumption of European tourists accounted for 35%-50% of the gross consumption in Africa's major tourism markets, while the consumption of German tourists accounted for half of that of European tourists.
The Report predicts that the annual growth rate of the African tourism market will exceed 15% in the next five years. Apart from the European market, Chinese tourists will contribute to the growth of the African tourism market.