The rapid growth of a prosperous middle class across Africa is fuelling demand for consumer goods and luxury brands, upmarket property and investment opportunities. We look at how that evolving spending power is being supported by international financial services tailored to the needs of the continent’s affluent individuals and their families.
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Africa has seen its share of revolutions in the post-colonial era, but the one sweeping the continent today is of a very different kind: the consumer revolution. In urban areas across Africa – from Tangier to Soweto – new shopping malls and supermarkets are springing up alongside traditional street markets and informal stores, providing an outlet for major international brands. Luxury car showrooms are finding eager clients in Lagos and Cairo as well as Johannesburg and Cape Town. And upmarket homes in Kenya are leading global demand indicators for highly desirable property.
Africans in major conurbations across the continent see such transformation everywhere; but so too do those working closely with the continent’s successful business leaders and wealthier individuals.
“In almost every country in Africa, the number of hotels, restaurants and retail outlets offering goods and services on a par with those in Europe or the US just grows every year,” observes David Hardisty, Director for Africa at Barclays Wealth and Investment Management. “There is a palpable sense of major and rapid change.”
Property booms across the continent are possibly a key metric of that growing affluence. When Kenya was named as the number one country in last year’s global house price-rise survey by market specialist Knight Frank there was widespread acknowledgement both within the continent and beyond that Africa was heating up economically. As Knight Frank reported, upper-end housing in the capital Nairobi, as well as in Kenya’s coastal regions, jumped by 25% in 2011/12 alone.
45 million of Africa’s billion people are defined as “upper middle class”, with income and aspirations to match
Elsewhere, some of the commercial investment is on a scale never seen before in Africa. The new Eko Atlantic city project based on reclaimed land at the Nigerian capital of Lagos, for example, will eventually create a new suburb that will be home to some 250,000 people, while also forming the basis for a new financial hub for West Africa.
In light of such developments, the world’s largest consumer goods companies have intensified their efforts to target the African consumer. Last year, UK-headquartered Unilever set its sights on doubling revenues from Africa over the next five years. Procter & Gamble’s CEO, Bob McDonald, calls Africa the US company’s “next frontier”. And executives at French beauty products giant, L’Oréal, talk of growth in Africa in the range of 10 to 20 %, building on an early presence in some 15 countries.
Rise of the middle-class
Behind that surge of demand in almost every commercial sector throughout Africa is the emergence of a fast-expanding middle class with relatively high amounts of disposable income. A seminal study by the African Development Bank from 2011 reported that Africa’s middle class grew from 151.4 million or 27 % of the population in 1990 to 313 million or 34.3 % of Africans in 2010 – putting it on a similar scale to the middle classes of China or India. And a key factor in that trend is growth, both economic and demographic.
The International Monetary Fund (IMF) forecasts an economic uplift of 5.25 % across sub-Saharan Africa as a whole for 2013; but that disguises much faster growth in the best-performing countries (such as Ghana, Zambia and Mozambique) where a GDP jump of 7 to 8 % or more is expected. (see analysis, ‘Africa’s economic hotspots’)
The population is also growing fast: according to the United Nations, at current rates, the number of Africans will surge from around 1 billion today to 1.4 billion in 2025 and 1.9 billion in 2050. Against this backdrop is the increasing urbanisation of populations: one in every three Africans now lives in a city, and together accounting for 80% of the continent’s GDP, according to the UN. And that has spawned an affluent class in many African countries which has its own set of lifestyle aspirations.
Certainly that affluent group stands outside of many definitions of ‘middle class Africa’ – at least as classified by agencies such as the African Development Bank, It regards middle class as those with spending power of between $2 and $20 a day. However, it says a good proportion (1 in 8 or 45 million) of those sit within the upper-middle class bracket, with higher incomes and aspirations to match.
Africa’s increasingly affluent citizens are looking to create a balanced portfolio of asset classes both on and offshore.
Research by business and tax consultancy Deloitte shows that this group has some clear characteristics: they are well-educated, live in urban centres and have salaried positions or run their own business. Many also opt for private education and health services, and they will often send their children to school or university overseas. Above all, the members of this new African elite class have high expectations: they expect their living standards and those of their children to continue to improve, says Deloitte.
While such affluence sits alongside sometimes shocking poverty, real prosperity is also becoming more widespread. According to international consultancy Bain & Co, Africa has more than 120,000 dollar millionaires (Russia boasts 95,000), with their numbers rising by 3.9 % in 2011, faster than any other region with the exception of Latin America.
Such significant wealth is being generated by a variety of sources: oil and mineral resources are obvious drivers, but increasingly it is coming from the development of consumer markets in themselves and the services sectors, such as banking, finance and healthcare, that provide support for wealthier individuals and business.
At the top end of the scale, Africa’s new affluence is apparent in spending patterns. In 2012, for example, Porsche opened for business in the Nigerian capital of Lagos, its first centre in sub-Saharan Africa outside of South Africa. Nigeria has also become one of the world’s top 20 markets for champagne, according to Euromonitor. (Its research also highlights how the number of Nigerian households with an annual disposable income of the equivalent of over $10,000 will rise by over 140 % over the 2013-2020 period to reach 13.6 million.)
Future and family
For well-off Africans, the challenge is to invest for their future and that of their family. And, for many, that means spreading savings between local investment opportunities, often with the promise of high returns, and overseas domiciles perceived as more stable (such as the UK), where the attraction is to property, offshore accounts and other investment classes.
David Hardisty, highlights how Barclays African clients look for help with strategic asset allocation with the aim of creating a balanced portfolio of different asset classes – both on and offshore. “The focus is on diversification, protecting assets from inflation and other risks, and the structuring of wealth for future generations,” he says. That help extends beyond local banking services to such areas as foreign exchange, mortgages for property purchases in the UK, advice on offshore savings and investment options and funds transfer (important for Africans located in the UK and elsewhere).
Barclays is aiming to seize that latter opportunity. Bolstering a century-long banking presence in countries such as Zambia, Ghana and Uganda, it plans to significantly increase activities across the continent by pulling together existing Barclays operations across Africa with ABSA, the South Africa-headquartered bank which boasts a broad footprint across sub-Saharan Africa and which has been part of the Barclays group since 2005.
Under the leadership of Maria Ramos, the former director general of South Africa's National Treasury and Barclays Chief Executive of Africa since 2011, the company is driving a ‘One Bank in Africa’ strategy designed to make Barclays the continent’s ‘Go-To’ bank. Serving 15 million customer relationships through over 1,500 branches across a dozen countries, as well as via online and mobile banking, this will make it the largest banking network in Africa.
Such initiatives are symptomatic of what is happening across Africa, as the continent becomes one of the growth engines of the global economy – a boom that will be spurred by economic prospects and the expansion of its affluent, aspirational class.