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EMERGING CONSUMER MARKETS IN WEST AFRICA FACT PACK BUSINESS SWEDEN, SEPTEMBER 2016 ” While the traditional view of Africa has been as a source of valuable natural resources, it is quietly but rapidly becoming a significant market for technology-based consumer products” - African Business Magazine With 17% of the worlds’ population by 2020 and consumption spending per capita matching that of India and China, Africa is the place to be to position oneself for future growth in the consumer goods and services market. West Africa and Maghreb house 5 of the 10 African nations making up 75% of the continents GDP and offer a region where companies can start their African journey, or continue it, by leveraging the similarities between the nations for a sequential regional roll-out. MALAK SEKKAT Associate +212 522 36 25 10, +212 522 97 95 80 [email protected] EMERGING CONSUMER MARKETS IN MAGHREB AND WEST AFRICA Growing populations, increasing real incomes and underdeveloped consumer markets - Maghreb and West Africa offer great possibilities for consumer goods and services. OVERVIEW Africa is experiencing an increasing consumer population which is making the continent a potential next step for consumer product companies looking to grow. According to the African Development bank and Euromonitor, 17% of the world’s population will live in Africa by 2020 and consumption spending per capita already matches that of India or China and is expected to grow even further. On top of this, urbanization is rapid and creating opportunities for the development of retail networks through higher consumer density. Out of the ten countries accounting for 75% of Africas’ GDP, five are located in West Africa and Maghreb (Nigeria, Algeria, Morocco, Libya, Tunisia). estimated to go from 15.5 million smartphone users in 2016 to 23.3 million in 2019. This progress will have an effect on the consumer behavior and present new means to penetrate the market and new ways to design the business offer in the region. This development and forecast has attracted private actors in the sector. Competition is intensifying and the opportunity to successfully enter and shape the market is becoming tougher with time. However, there are still great possibilities. Due to growth, Africa is a market on which creating new consumption habits and building category penetration are valid strategies. This approach can sometimes even be quicker than gaining market share in a more established-category. Communication and technology is a major driver of the consumer goods and services development. For example, Nigeria is FACT PACK | BUSINESS SWEDEN | 3 SEGMENTS AND ECONOMIC DRIVERS Consumer segments in emerging market economies in general will see significant changes in the future as a result of falling birthrates and higher life expectancy. The middle youth (aged 30-44) will remain the largest segment. The babies (aged 0-2) and kids (aged 3-8) segment will decline, while mid- (aged 45-59) and late-lifers (aged 60) will increase rapidly. Consequently, consumers will generally become older, but will remain relatively young compared to more advanced countries. This creates a set of challenges and opportunities for businesses. The middle youth will continue to offer a vast market base, while their rising incomes will fuel spending. Many African economies are home to high numbers of costconscious consumers in their teens and twenties, who form an approachable audience for affordable youth-friendly products and services. This segment remains important drivers of consumer trends in West Africa and Maghreb as they will then become part of the middle youth segment by 2030. Moreover, businesses targeting mid- and late-lifers will see growing opportunities, especially in Algeria, Morocco, and Nigeria. COUNTRY CASES 4 | BUSINESS SWEDEN | FACT PACK ALGERIA In Algeria, earning and spending had an unbroken real GDP growth between 2009 and 2014. In the uppermost gross income bracket middle-aged Algerians are prominent (54.1%). However, the high numbers of price-sensitive teens and twenty-somethings form another attractive consumer segment that is suited for a market of affordable youth-friendly products and services. The number of individuals in the top annual gross income bracket (US$150,000+ ) is expected to more than double through 2030, providing opportunities for upscale and luxury goods and services providers. There are three categories of goods and services which are expected to more than double in real terms between 2015 and 2030; Communications, miscellaneous goods and services, and housing. On the other hand, clothing and footwear, leisure and recreation, and alcoholic beverages and tobacco – will continue to struggle, as a result of competition from low-cost fabric manufacturers; the migration of leisure activities to the online/mobile domain; and greater health consciousness. MOROCCO Morocco has some of the lowest incomes of major Middle East and African states but is expecting growth through 2030 which will in effect raise these levels. Similar to Algeria, the nation has a large cohort of young, cash-conscious consumers, with over half of the wealthiest individuals being middle age (45-54). The middle class will grow through population gains, in a market that already has relatively low inequality by African standards. On a regional level, Grand Casablanca is dominant in spending. With some of the fastest rising incomes in the region through 2030, consumer confidence will be increased along with spending. This growing capacity for non-essential expenditure will create opportunities for discretionary goods and services. Middle-aged consumers remain a promising target for marketers of high-end products and services. With the overall population on an annual gross income of US$150,000+ poised to jump from 31,600 to 82,000 between 2014 and 2030, the luxury market in Morocco is vibrant. NIGERIA Nigeria has the largest consumer market in the Middle East and Africa region. However, due to economic instability the short-term prospects for growth of gross income and spending are meagre. Essential spending constitutes a significant proportion of total expenditure by Nigerian households, and the country’s income gap remains extremely wide. This income gap leads to remarkable differences in spending patterns between the rich and the poor. In terms of households, single persons are forecasted to record the fastest growth in total consumer expenditure across household types through 2030. Over the period of 2016-2030, communications is expected to remain as the fastest-growing spending category in the FACT PACK | BUSINESS SWEDEN | 5 country, on the back of rising penetration rates of smartphone services and equipment, as well as broadband internet services, both fixed and mobile, during this period. As contrasted by Algeria and Morocco, Nigerians in the age segment 65+ make up the bulk of the income cohort with an annual gross income in excess of US$150,000, which is expected to accentuate in the long run. This will drive demand for goods and services in categories like health goods and medical services, hotels and catering and travel services, targeted at the premium segment. Nigerian young adults are a mixed consumer group due to the relatively early age at which they typically marry. Single individuals are an attractive market for communications, clothing and footwear and fast food, while those that have already started a family focus their spending on categories like education, groceries and household goods and services. TUNISIA Tunisia is set to accelerate in terms of growth in consumer income and expenditure in the coming years. One of the reasons is greater political stability and economic reforms supporting growth and consumer confidence. Expansion of the middle class, making up one third of all Tunisian households, is affected by a relatively high income inequality, whilst high rates of youth unemployment will broaden the lowest social class. As with its regional neighbours, communications is expected to become the most robust consumer spending category through to 2030. The growing and youthful population of the country supports the expansion of consumer expenditure. Over the forecast period of 20152030, growth of Tunisia’s per capita annual gross income is projected to accelerate to an average of 4.0% per year in real terms, higher than the regional average of 1.9%. Tunisians aged 50-54 are most prominent among the country’s top income earners. CÔTE D'IVOIRE After a long period of turmoil the economy will continue to grow rapidly during 2016, as it has during the past four years, and is expected to reach about 6.9% per year on average in 2017-2020. The real value of private final consumption rose by 9.5% in 2015 and gains of 8.6% are expected in 2016. Economic activity will be driven by public investment in basic infrastructure, in the agribusiness industry (cocoa, rice and cashew processing) and in housing and other services. Additional support will come from private investment. An estimated 60-70% of the employed workforce is farmers. 6 | BUSINESS SWEDEN | FACT PACK GHANA Ghana’s economy is expected to rebound in 2016 after a slow performance in 2015. After gains of 3.5% in 2015, Real GDP should grow by 5.7% in 2016. Thanks to modest but stable gains in oil production the medium term outlook is relatively bright. The population is increasing by more than 500,000 each year, a pace with which economic growth has not been able to keep up. The proportion of the population living in poverty is declining, although regional differences are apparent. The real value of private final consumption fell by 1.2% in 2015. Growth of 3.3% is forecast for 2016. Wages have risen in recent years, undermining competitiveness and distorting the economy. BUSINESS OPPORTUNITY DEFINED Overall, the growing population in West Africa and Maghreb offer interesting business opportunities. With growing real incomes, the expenditure on discretionary products will rise and development of the consumer market will trail further. A tendency, mainly driven by the composition of the populations in Algeria, Morocco, and Nigeria, but also a macro trend for emerging economies, is that of an ageing wealthy middle-age cohort combined with a large cohort of young, cash-conscious consumers. These segments and their characteristics provide opportunities for businesses to tailor their offering and penetrate the market, possibly starting with one country and having a plan for a regional roll-out. Communication and technology based consumer products will be drivers of the development in the markets. Smart-phone penetration is accelerating, especially in the younger segments, and will provide a platform on which to introduce further consumer goods and services. 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