The emergence of a “consumer class” in Africa is similar to what we have seen in Asia, however, this is on a very different scale. In Asia, you’re talking about people being able to buy things like cars. In Africa, you’re talking about people moving from, basically, a hand‐to‐mouth existence to having $1 a day of discretionary spending power. According to a recent African development bank report, approximately one-third of today’s Africans can now be classified as “middle class”—meaning they have $2 or more a day of discretionary spending power. While that doesn’t sound like much, if you think about a billion people, and add it up, it becomes quite a powerful movement. Furthermore, a recent McKinsey report said that by 2020, more than 50 percent of African households will earn at least $5,000 a year, and that’s the level at which they typically start spending half their income on items other than food. That’s a big trend.
Consumer packaged goods companies like Unilever and Nestlé have already been in Africa a long time. The brewing companies, such as Heineken and Diageo, have major investments in Africa, and in local subsidiaries. These markets are now contributing a great deal of growth overall to those companies.
Unilever, for instance, sells sachets of shampoo, and Colgate sells “penny packets” of toothpaste —what in a developed market would be given away as a sample. In Africa they sell them, because people have one dollar a day to spend. This shows how they’ve learned the market and are adapting to this new consumer. (For more about the emerging consumer class in Africa, see “The New African Consumer.”)
South Africa: Gaining Exposure to Growth
There’s another parallel with Asia from an investment perspective. When you look at countries like China or South Korea, one of the best ways to gain exposure to those markets has been indirectly—through companies like German manufacturers and Australian mining companies that are benefiting from growth in those economies.
In Africa, we’re looking especially at South Africa, which has woken up to the potential of this billion or so people on its doorstep. Instead of investing abroad in places like Australia, Europe, or the U.S., some South African companies are focusing almost entirely on the African continent.
In South Africa you have a more mature market, with very well managed and liquid companies. You see situations where, say, 10 percent of a South African company’s sales might currently be coming from the rest of Africa, but in two or three years they’re aiming for 30 percent. A lot of them have just reached that inflection point where they’ve figured out how to make profits in Africa—because there are a lot of challenges and obstacles—and now they just need to increase volume or capacity.
So South Africa has become a way to get indirect exposure to the whole African growth story.
Nigeria: A Rising Star?
Nigeria stands out because it’s so big: 160 million people. There’s a fairly strong government in place, it’s starting to make reforms, and so I think it has real potential to become like a BRIC—the growth economies of Brazil, Russia, India, China—in 5-10 years time.