Via Emerging Markets Insight, a report on the myths and realities of Africa’s middle class:

In March 2007, long-serving Angolan President Jose Eduardo dos Santos formally opened a perfect metaphor for Africa’s changing consumer market profile. Located in the Talatona suburb of the country’s malarial and overcrowded capital city Luanda – perhaps best known for its pock-marked buildings, and the orphaned street children – the Belas shopping center is one of the most modern facilities of its type anywhere in Africa. The complex includes restaurants, banks, a planetarium and a multiplex cinema; high-end consumer brands with retail outlets in the center include Swatch (wristwatches) and Samsung (electronic  goods); reflecting a growing local appetite for luxury items of which it is the perfect embodiment, the center also organizes Belas Fashion, showcasing the season’s latest apparel styles and designs.

The African middle-class: who (and where) are these guys?

Anyone who has taken a commercial flight into Africa from London, Paris, Brussels or Johannesburg will have seen members of the African consumer population with their own eyes: individuals and families with the disposable incomes not only to travel abroad but to bring back (often large quantities of) Western consumer goods home with them. Given both data absences and disputes over definitions, accurately scaling the size of this population is challenging. A recent report by the African Development Bank attempted to do exactly that; its headline finding was that estimated that Africa’s middle class has expanded to over 300m people. Equivalent to roughly a third of the continent’s total residents, this places Africa’s middle class close to the same size as both India’s and China’s.

The study’s definition of individuals with annual income exceeding $3,900 in purchasing power parity (PPP) terms as ‘middle-class’ is problematic; clearly, between US$2-$20 per day in available income is not a definition of middle-class that many in the West would recognize. The proportion of these people at risk of dropping back into poverty if food prices continue to rise much higher, for example, is also significant. Regardless of some of its limitations, however, the message of such data is that this emerging population is demographically significant – and therefore that the growing business opportunity it presents is compelling.

Sale of the (twenty-first) century

The pre-existing awareness of and appetite for Western brands amongst consumers in Africa is considerable– as the ubiquitous, proudly-worn English Premier League soccer jerseys and hand-drawn Nike logos that adorn the sides of minibus taxis the length and breadth of the continent illustrate. In many ways, the region is highly conducive to retail growth: its mostly wide-open and rapidly expanding multi-media channels for advertising, large diaspora populations in the West, comprehensive traditional and growing modern retail networks and the comparatively smaller and less sophisticated counterfeiting problem than Asia presents all work in the continent’s favor.

Recognizing the increasingly widely-quoted aphorism that Africa’s consumer market is ‘where China was twenty years ago, where India was ten years ago’, growing numbers of companies are planning to exploit this last great untapped (and still relatively uncluttered and uncompetitive) market, using footholds in upscale parts of the biggest cities and locally-tailored packaging and pricing solutions just as similarly foresighted pioneers were doing in those Asian markets years earlier. Recent store openings in West African cities such as Lagos and Abidjan include franchise outlets selling Mercedes Benz motor vehicles and European giant Mango’s clothing lines.

A powerful model for the rest of Africa is South Africa, where the emergent middle-class within the county’s majority ethnic group even has its own nickname – the ‘black diamonds’ – as well as a wealth of retail analysis, events and marketing targeted specifically at its growing numbers, influence and spending power. This group is estimated to comprise around one-tenth of the 22m adult black South Africans, and account for up to 40% of that population’s overall spending. Identifying and accessing similar cohorts in other populous African counties will represent a holy grail for businesses seeking to find new customers in the years ahead.

Buy one (benefit), get two free

The emergence of a growing and increasingly affluent African middle-class should have additional ‘virtuous circle’-style benefits above beyond the pure (and considerable) new business opportunity it represents:

• Itself often a beneficiary of more democratic, peaceful and liberalized political systems, Africa’s growing and ever better-informed middle-class population should also be an increasingly vociferous source of demands for ever better governance, public service provision and transparency / accountability from its governments and public servants
• Perhaps recipients of overseas or newly universal primary school education, the determination and spending ability of new generations of middle-class African parents to secure the best possible local education for their own offspring in turn will in the medium-term be a critical factor in closing Africa’s often acute talent deficit; a spate of recent private equity investor interest in affordable private schooling providers in South Africa illustrates this dynamic in action