The New African Consumer

By John Campbell

Growing urbanization, high population growth, opening markets, burgeoning foreign investment—after years of stagnation and even decline, Africa is finally on the road to economic progress. And among its most interesting aspects: real rising incomes for individuals, a development that is fueling a rapidly growing consumer class on the continent.

Credible estimates suggest that more than 300 million Africans now have an income above the widely accepted poverty line of $2 a day (as defined by international development agencies). With new, discretionary income, their purchases can include retail banking services and cell phones, as well as disposable items such as razor blades and toothpaste. Increasingly, this means that African consumers are spending a smaller percentage of their income on food and other basic needs.

In some countries, such as Nigeria, the economic growth that underpins this consumer revolution is driven primarily by a rapidly expanding population, urbanization, and high oil prices. In other countries, such as Liberia, Angola, and Mozambique, the end of civil wars over the past decade and the ensuing stability are driving it. And in countries like Ghana, improved governance and macroeconomic reform is encouraging foreign and domestic investment, and promoting economic growth. Out of the 50-plus sovereign states in sub-Saharan Africa, Nigeria, and South Africa are the giants of the sub-Saharan region, accounting for US$330 billion of total consumer spending in 2010.

Urbanization As A Driver of Change

This shift in consumption reflects the continent's variably paced transition from a population largely engaged in subsistence agriculture to an increasingly urbanized one of wage earners, small business owners, and even entrepreneurs. Urbanization is a central feature of this new landscape. In Nigeria, half of the country's 170 million population lives in cities. In Angola, some five million people, out of a population of more than 12 million, live in just one metropolitan area, Luanda. This movement of people reflects a variety of push-pull factors.

In northern Nigeria, for example, those displaced by frequent drought and the southward creep of the Sahara are driven to cities such as Kano and Kaduna as their agricultural livelihoods dry up. For rural peasants living in countries with diversified economies, such as South Africa or Egypt, the streets of Johannesburg and Cape Town, or Cairo and Alexandria, are paved with gold, as were those of the legendary Dick Whittington's London in the Middle Ages. Rural residents are drawn to the big city to make their fortune—or at least by the promise of opportunities absent in the countryside.

Foreign Investment Bringing a Consumer Class to Africa Urbanization promotes economic activity. New urban dwellers provide some of their own nourishment, with chickens and the tiny vegetable gardens ubiquitous in African cities. But they also create a market for the cheaper food produced by a reinvigorated commercial agricultural sector. They buy inexpensive electronics, like cell phones and televisions. In many countries, such as Ghana, Kenya, South Africa, and parts of Nigeria, they turn from keeping their money under the bed to consumer banking as it becomes available. This activity feeds optimism about Africa's future and attracts investment from around the world, including from within Africa itself.

Sometimes, however, the harsh realities of life intrude. A large majority of Africa's new consumers still live just above that $2 a day poverty line. They remain vulnerable to forces they cannot control, ranging from disease to political and social unrest to the vagaries of a globalized economy.

The Rise of a Middle Class

Nevertheless, in some areas, a small but growing, financially stable middle class—one that can comfortably purchase automobiles and houses as well as razor blades and toothpaste—is appearing. For example, South Africa's once notorious Soweto is now a suburb largely made up of owner-occupied brick or concrete houses. Members of this middle class also participate in politics and demand better governance across the continent. They have the potential to drive societies toward modernity and democracy, and they see sound government and the sanctity of contracts as crucial to their future well-being. The middle class played a crucial role in the Arab Spring in Egypt and Tunisia. It has also driven demands for better delivery of services in South Africa's black townships. Good governance nurtures these urban consumers, and Africa's democratic states, such as Ghana, Zambia, Namibia, and South Africa, are their own best nurseries.

The prospects are even positive in certain parts of big, but still troubled states where good local governance and security nevertheless exist. In Nigeria, there are growing numbers of discretionary consumers in the Lagos-Ibadan corridor in the country's southwest, a region that attracts much of the non-petroleum sector's foreign investment. It has only a small proportion of the country's 170 million people. Nevertheless, Lagos state alone has a larger population than all but 15 sub-Saharan African states.

Lagos state's success has been rooted in a succession of committed and effective governors, and its ability to fund activities through locally raised taxes rather than depending on revenue allocation from the federal government. In a country notorious for rapacious corruption, an exceptional social contract between the state government and the governed is emerging, highlighting the significance of good, local political leadership. However, without good governance at the national level, and with continued widespread violence, Nigeria cannot yet realize the full advantages of its huge population and rapid urbanization.

In South Africa, the consuming class is more widely dispersed, reflecting a highly diversified economy and a genuinely democratic polity supported by the rule of law. But South Africa faces an income gulf along racial lines that is greater now than at the end of Apartheid, and such inequality retards the growth of its consumer class. Nevertheless, its strong democratic institutions provide a steadying framework that Nigeria lacks. In some areas, such as information technology and financial services, South Africa is an engine of African development. Its investors and businesses now operate all over the continent without the media attention the Chinese receive.

Future Challenges and Needs

Income inequality in itself is not an absolute deterrent to the emergence of a middle class if the economy is strong. Namibia and South Africa have the worst income inequality in the world. Yet in both there is a large middle class and an even larger consuming class, and both can even flourish in societies where poverty is growing. The percentage of the population that is poor in Nigeria has grown significantly over the past decade despite high rates of economic growth. Yet the population is so large that there remain millions of potential customers for a wide range of discretionary products.

Urbanization Leading Africa's Consumer Class Can the growth of an African consuming class that is evolving into a middle class be sustained? There are challenges. In most African countries, corruption is a break on development (though, especially in democratic countries, civil society fights against it). Too many African consumers are dependent on government employment and the export of primary materials—Africa is particularly vulnerable to what happens in its primary export markets. In the short term, a major shock to those economies, such as a fall in crude oil prices, could slow down Africa's transformation, reduce consumer spending, and limit investment opportunities. The continent is also particularly vulnerable to natural disasters often associated with climate change, such as desertification in the Sahel, or floods in the Niger delta.

Over the longer term, creating an educated workforce is crucial to sustaining the consumer revolution and attracting foreign investment. Good educational policy is not necessarily about money. In the decade after 1996, South Africa spent almost a quarter of its budget on public education. (In 2012, South Africa budgeted US$24 billion.) Yet it fails to prepare black youth for entry into a modern workforce; their unemployment rate approaches 40 percent while potential employers complain about skills shortages. In Nigeria, an exploding population is producing a time bomb of unemployable youth in Kano, Kaduna, and Maiduguri, where globalization has interacted with domestic factors to collapse the textile industry. Already some support Boko Haram, the radical Islamist group that is destabilizing the Nigerian state, and the Nigerian educational system remains an under-funded mess.

African progress is also hostage to the continent's heavy disease burden and a pervasive lack of access to healthcare. If a breadwinner succumbs to HIV/AIDS or to myriad other diseases, the surviving family members are often reduced to dire poverty. Trained medical professionals leave Africa when they can because the health systems range from poor to virtually nonexistent. But a middle class will increasingly demand—and have the income to pay for—better medical services, and already a pharmaceutical industry is starting to take off in South Africa.

Friends of Africa hope the continent's governments will continue to work for enhanced personal security, less corruption, stronger democracy, a diversified economic base, and thereby attract more domestic and foreign investment. South Africa, Namibia, and Ghana, among others, have already done so. Improved governance is key to the continued economic growth of Africa. With it, the continent may well be able to face the challenges of globalization, rapid population growth, and climate change. That would bode well for everyone, and particularly for its expanding consumer class.

John Campbell is the Ralph Bunche Senior Fellow for Africa Policy Studies at the Council on Foreign Relations in New York. He is the author of Nigeria: Dancing on the Brink (Rowman & Littlefield) and writes the blog "Africa in Transition." From 1975 to 2007, Campbell served as a U.S. Department of State Foreign Service officer; he served twice in Nigeria, as political counselor from 1988 to 1990, and as ambassador from 2004 to 2007.

T. Rowe Price and John Campbell are not affiliated.

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