For consumer-goods companies, Africa holds much promise—but also many pitfalls. To succeed on the continent, companies must learn from the failures and successes of others.
Over the past few years, business leaders and investors have become increasingly aware of the vast potential in Africa’s burgeoning consumer market. The continent, now home to more than 1.1 billion people, will account for one-fifth of the world’s population by 2025. More and more Africans are entering the consumer class, with tens of millions emerging from poverty in recent years.
Yet there are well-known deterrents to doing business in Africa—political instability and poor infrastructure, to name just two—that can make companies hesitant to enter the market at all. That said, a few multinational consumer-packaged-goods (CPG) companies have managed to make important inroads in Africa. Their experience holds valuable lessons for others aspiring to capture the opportunities in one of the world’s fastest-growing consumer markets.
Young, urban, connected
The working-age population in Africa is growing at a clip of 2.7 percent each year (compared with 1.3 percent in Latin America and 1.2 percent in Southeast Asia). By 2025, nearly two-thirds of the estimated 303 million African households will have discretionary income. This massive expansion of the consumer pool—an addition of almost 90 million consumers in just ten years—will help fuel the continent’s GDP growth from 4.9 percent today to 6.2 percent in the next decade, far outpacing the global GDP growth rate of 3.7 percent.1
What’s more, African consumers are young and willing to spend. Fifty-three percent of income earners in Africa are between 16 and 34 years old—an age group that tends to be more aware of and eager to try new products. These consumers will contribute to more than $400 billion in total consumption growth in the next decade.
Driving this rapid growth are two trends that will continue to have a tremendous impact on Africa’s consumer market: urbanization and the rise of mobile communications. By 2025, almost half of Africans will be living in cities. Africa already has as many cities with more than one million inhabitants as North America does (Exhibit 1). In the largest African cities, consumption growth can rival even that of major cities in Brazil, Russia, India, or China: for example, between 2010 and 2020, incremental growth in food and beverage sales in Cairo will total approximately $3.9 billion, compared with $3.7 billion in Brasília and $3.3 billion in Delhi. This concentration of consumers bodes well for CPG companies that can secure distribution in these fast-growing cities.