africa Ready for Investment Boom

With more investors looking past the BRIC countries for the next big emerging market opportunities, Africa is ready for an investment boom. There are several challenges when it comes to investing in Africa, including unemployment, poverty, corruption and conflict. All of these are genuine obstacles to the business environment, but Africa’s economic foundations have been strengthening. Developed economies are only just shaking off the side-effects of the global economic downturn of 2008-2009, but Africa recovered quickly and is now displaying strong economic fundamentals.

Africa’s consumer-facing industries are expected to grow by $400 billion by 2020, representing the continent’s largest business opportunity. However, many companies don’t know how to translate this potential into action because of a lack of market research. This is changing. In one of the first studies of its kind, McKinsey’s Africa Consumer Insights Centre surveyed 13,000 consumers in ten African countries, with a focus on the largest cities. Five categories of consumption were covered: apparel, financial services, grocery, the Internet and telecommunications.

The survey found that several factors are shaping this new consuming class. Africa’s population, the fastest growing and youngest in the world, is concentrated in urban areas. This new class of consumer has a smaller family, is better educated and higher earning, and is digitally savvy. Africans are very optimistic about their economic future: 84% say they will be better off in two years. These new African consumers resemble their urban counterparts anywhere in the world: they are both brand and quality conscious, seek out the latest trends but watch the budget, and want a modern and attractive shopping environment.

However, Africa is a complex market of 53 countries and more than 2,000 dialects. Consumers in the north have preferences and needs very different from those in the sub-Saharan countries. The McKinsey study attempts to provide companies, whether new to the continent or expanding an existing footprint, with the insights they need to formulate a winning business model to reach this new consuming class. Here are some highlights from the research.

Focus where it matters. Cities offer the best opportunity: urban Africa is forecast to contribute nearly 40 percent of GDP growth. However, companies may be wise to by-pass high-profile megacities such as Cairo, Johannesburg, and Lagos, for mid-tier cities such as Abidjan and Rabat, which are more accessible, have less competition, and offer better profit margins.

Develop locally relevant, quality products. Companies can better tailor products to local markets if they understand what quality means for African customers and know their preferences, lifestyles, and daily needs. Hit the right price point. Since affordability is critical, companies may have to reengineer products to hit a specific price point. The necessary moves may include offering lower-cost versions, smaller sizes, or alternative payment models.