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The rising, aspirant middle class

Why South African companies should take advantage of the growth in the continent.

JOHANNESBURG – The middle class in Africa is aspirational and on the rise, relying less on mining and commodities for growth. While many companies are taking advantage of this trend, misinformed perceptions are preventing a lot of local firms from reaping the benefits of intra-Africa trade.

The World Bank indicates that 34.3% of Africa’s population is middle class and according to Deloitte report, ‘The Rise and Rise of Africa’s Middle Class’, by 2060 this number will have grown to 42%.

Interestingly, Tunisia, Morocco, Egypt, Algeria and Gabon have the highest concentrations of middle class citizens on the continent, according to the report (see map below).

Middle class concentrations in Africa:

Click image to enlarge

The Deloitte survey describes the African middle class as having greater entrepreneurship ambitions, higher educational standards, living in urban areas, being a younger and more politically assertive generation, and consisting of aspiring individuals who have higher paying jobs. It’s fitting then that Nema Ramkhelawan‐Bhana, Africa Analyst at Rand Merchant Bank, says that contrary to the notion that growth in Africa is derived from mining and commodities, it is in fact driven by consumer growth in banking, telecommunications and retail.

These demographic changes are attracting more investment globally as well as from African countries, with several South African retailers and banks recognising the opportunities that come with expanding into Africa. One such company is leading local wine and brandy producer KWV, which plans to have 20% -25% of its profits coming from Africa in the next ten years.

Wilhelm Theunissen, general manager for KWV Africa, says that because Africans have become brand conscious and aspirational it made sense to expand into the rest of the continent. The growth of the middle class allows companies to also sell luxury goods, Theunissen emphasises.

Retailers are also expanding their footprint. Shoprite currently dominates the African market, with a presence in Mauritania, Ghana, Nigeria, the Democratic Republic of Congo, Angola, Tanzania, Zambia and Madagascar among others. Mr Price, Massmart,  Woolworths, and Foschini are among others hot on its heels. See below:

Retailers in Africa*

South African telecommunication service provider Telkom has the largest presence in Africa, which may be largely driven by its landline operating services. Telkom is followed closely by MTN and trailed by Vodacom.

Standard Bank, having switched to focussing only on Africa, is the company with the largest African footprint among the banks.

Banks in Africa:

The data shows that most companies are situated in East and West Africa, with very few venturing North into countries such as Egypt and Morocco. Ironically, the latter are identified by the Ernst and Young Africa Attractiveness survey as the countries with the greater opportunity for growth considering that their GPP per capita stands at $2 698 and $4 451 respectively .  The survey estimates that Africa’s collective GDP currently stands at $2trn.

The relevance of Africa in the global markets is increasing: The Economist reported that since seven of the fastest growing economies were identified as coming from Africa. Consumer growth, increased population, urbanisation and political stability are some of the factors contributing to Africa’s progress, says Ramkhelawan‐Bhana. If companies do their research, there is a lot of growth potential for them, says Theunissen.

Untapped potential

However, according to the Brics Export Import Forum, only 11% of African countries are taking advantage of the growth potential by engaging in intra-Africa trade.

South Africans are guilty of negative perceptions of doing business on the continent. This was highlighted by Raymond Booyse, founder of consultancy firm Expand into Africa, in an interview with How We Made it in Africa. Booyse says South African business people are guilty of being ignorant about the cultures and attitudes concerning the rest of the continent. Booyse also argues that South Africans are arrogant and that they need to be willing to understand the rest of the continent.

Doing your homework, Booyse emphasises, is critical for understanding what works in other countries. This includes understanding that the cost of doing business in Africa is not cheap.

The level of risk associated with one country differs based on a number of reasons. According to the Ernst and Young survey, risk can range from the quality of governance, levels of democracy, corruption, ease of doing business, and the strength of the financial system.

Ramkhelawan‐Bhana highlights that there is a lot of tough competition in Africa, and stresses that businesses going into Africa need to be prepared for the challenges and should have an open mind. However, she emphasises that as the South African market and its neighbouring markets become saturated, South African companies that want to see growth will have to expand to the rest of the continent. 

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