Measuring the African Consumer Market
By: Leah Ngari
Estimated reading time: 5 minutes
Africa’s consumer market is growing. Over the past twenty years, household spending in Sub-Saharan Africa has grown 150% faster than the population. Landry Signé at the Brookings Institution forecasts that total household consumption in Africa will reach $2.1 trillion by 2025 and 2.5 trillion by 2030*. African companies such as Azam and Bidco now include dozens of consumer brands sold across the continent. Large multinationals such as Kraft Foods, Johnson & Johnson, and Volkswagen have ramped up their presence on the continent to meet this growing demand.
How Big is the African Consumer Class?
While there seems to be a consensus among private-sector analysts and academic researchers that the African consumer market is growing, it is not always clear how this class is identified and measured. A globally accepted, general definition for the middle class* focuses on average yearly income. For example, the PEW Research Centre defines middle-income households as households that earn two-thirds to twice the national median income. Others categorize households as “middle class” according to total asset ownership or consumption patterns.
None of these measures can accurately capture the magnitude and spread of Africa’s consumer class. First, data sets regarding income or purchasing patterns are often incomplete or unreliable. Many Africans derive a considerable portion of their income from informal work, which can skew official income statistics. And purchasing patterns mean different things in different places since consumer good prices vary significantly throughout the continent. A person in Lagos, Nigeria, can buy 10 liters of petrol at $4.60, while in Luanda (Angola), the same 10 liters sell for $11.50 – more than double. In eSwatini, 1 GB of Data can cost as much as $21.39, versus as little as $1.97 in Mozambique. These variations mean that consumption levels of specific goods do not necessarily indicate overall purchasing power.
Second, measuring consumer capacity by looking at income or wealth ignores the fact that household income is often vulnerable to seasonal fluctuations. Many African middle-class members supplement their income with informal side jobs, so their income does not remain steady over time, affecting consumption habits. And for most Africans who still work in agriculture, income is affected by seasonal price fluctuations. As a result, a household’s consumption ability changes throughout the year and between years due to variations in weather patterns and commodity prices. Companies looking to build a long term strategy cannot create an effective African consumer market strategy by looking at income alone.
Measuring the African Consumer Market
Some data consultancy companies have found ways to include income fluctuations, geographical differences, and consumption patterns when measuring the consumer class. Ipsos used the AfDB identification of the African middle class as people earning between $2-$20 per day as a starting point. Then, they added several criteria of their own to offset disparities and capture a more stable set of consumers. In their report “African Lions: Who are Africa’s rising middle class?” Ipsos suggests using the following consideration to categorize and individual as a “consumer”: disposable income (not spending more than 75% of income on groceries); productive occupation (that the individual is employed, runs a business, or is in further education); and education
Other data consultancies have scrapped the income indicator altogether. In its report “Finding the Dynamic African Consumer,” Fraym adapted a method initially designed to classify consumers in India. This technique uses asset ownership data and educational level to identify consumers, with a higher educational level offsetting lower asset ownership and vice versa. Assets include durable assets, such as refrigerators and televisions, and household characteristics, such as piped-in water and agricultural land.
This classification also allows for better cross-country comparisons without relying on unstable exchange rates or pricing discrepancies. Using its method, Fraym identified 330 million consumers in the region, 219 million in just five countries and 94 million in another fifteen countries.
Why Consider the Consumer Market at the Continental Level
Looking at the consumer market on a continental level allows companies to compare between different consumer markets in the region and strategize their growth accordingly. According to Fraym, 95% of the consumer class resides in just 20 out of the 54 countries. For example, Nigeria has about 52 million people in the consumer class, but Togo has fewer than 2 million consumers, presenting a very different market environment for investors and consumer-facing companies.
These differences also present between cities. Lagos in Nigeria and Johannesburg in South Africa top the count with over 8 million consumers, and Kinshasa in the Democratic Republic of Congo and Luanda in Angola have more than 4 million. Since most African consumers live in cities, companies should focus their market research on cities rather than countries.
Using Data to Inform Strategy
Companies cannot rely on generalized income levels or spending data to assess the current magnitude or future potential of consumer demand in Africa. Businesses that want to serve Africa’s growing consumer base should use the data on the continental level to identify the cities where they could grow and invest resources to study consumers’ behaviors and characteristics in that city. The lack of readily available, reliable, and comprehensive data sets should not deter companies looking to grow in Africa from making informed strategic decisions based on realistic projections.
*A note about Covid’s impact and terminology
Most of the projections quoted in this article pre-date the Covid-19 pandemic. Although the specific numerical forecasts need to be adjusted in light of the contraction across the continent, the considerations regarding the best ways to measure consumer demand on the continent remain.
The term “consumer class” and “middle class” are used synonymously.