In 2019, Africa’s economic growth was 3.4%. This growth was projected to increase to 3.9% in 2020 and 4.1% in 2021. Africa is growing at a faster pace, compared to the rest of the world. Since 2000, economic growth in sub-Saharan Africa has exceeded global growth by 2% a year.
The contributors to this growth are primarily investment, exports and private consumption. Africa is consumption-driven and retail’s contribution to GDP continues to increase. Euromonitor International estimated that retail sales in the continent amounted to over USD500 billion in 2018. Africa is growing, and retail is clearly integral to this growth.
What drives Africa’s retail surge?
Why is Africa experiencing a rise in its retail market? Which factors are responsible? A growing, young population, rapid urbanisation and fast-growing consumer expenditure. There are about 1 billion people in Africa, representing about 14.72% of the world’s population. This number is expected to increase to 2 billion by 2050. Meanwhile, the World Bank places GDP per capita growth as 1.1% in sub-Saharan Africa. This population and GDP growth will continue to increase market size and develop consumer demands.
Importantly, Africa also has the world’s youngest population. In 2016, the World Bank estimated that 226 million people were between 15 and 25 years old. This presents an opportunity for a large labor force and contemporary consumer trends.
Increase in GDP per capita alongside population growth also implies a development in the disposable income of the average household. There are 350 million middle-class Africans, according to the African Development Bank. The low-income and middle-class households have an estimated disposable income of $680 billion. As Africa’s middle-class expands, so will consumption.
What do Africans buy?
Food, beverages, toiletries and appliances – goods with low-costs, low shelf-life and high demand present great opportunities in Africa. Food and beverages take the largest share of total spending for African households.
Where do Africans buy?
Traditionally, Africans source goods informally – from local shops and stalls. These extend to open-air markets, street vendors and tabletop merchants. They offer flexible trading times, accessibility and lower-priced products. Customers can buy single items in small quantities, compared to complete packs offered at supermarkets.
Rapid urbanization however presents a group of people who prefer to spend in supermarkets and malls. Urban areas have a busy lifestyle and dwellers prioritize convenience. Malls offer a wider range of goods, as well as the feel of an international lifestyle. Also, an increasingly sophisticated distribution network is enabling the expansion of supermarket chains.
Which countries are buying? South Africa!
It is difficult to record what happens in Africa’s informal retail sector. When it comes to shopping malls and retail centres however, South Africa leads the way. South Africa boasts 23 million square metres of shopping centre retail space. The rest of sub-Saharan Africa possesses just 3 million square metres in total. 88% of Walmart’s business comes from South Africa, as does 67% of KFC’s.
Africa’s foremost supermarket chains – Shoprite, SPAR and Carrefour are indigenously South African. While Shoprite Group has 2,319 stores in total, 1,957 are located in South Africa, 26 in Nigeria. Nigeria however remains Africa’s largest economy, overtaking South Africa in 2014. Nigeria’s population reached 191 million in 2018. At $375 billion, the West-African country has the highest GDP in the region.
Challenges for Africa’s retail: Nigeria’s sachet economy
Access to working capital and infrastructure still pose a challenge to retailers wishing to sustain and scale their business. In addition, income level affects spending behaviour. Retail companies may have to target the high-income class if more Africans are plunged into poverty by macroeconomic conditions. Meanwhile, worsening macroeconomic conditions are affecting consumer spending power in certain countries.
In Nigeria, for instance, international retail players continue to lose their appeal because a steady depreciation of the naira has made import more costly. They are therefore lowering their prices and making their products available in smaller packs. Nigeria’s economy is often referred to as a “sachet economy”. The packaged food sector, especially, is still performing fairly.
Ultimately, Nigeria still remains the most promising market in Africa. Even though informal retailers make up more than 90% of the sector, wholesale and retail are already the 3rd largest contributor to the country’s GDP.
The future: e-commerce and AfCFTA
While COVID-19 has slowed economic activity, it has also led to a surge in e-commerce and accelerated digital transformation. During lockdown, businesses and consumers increasingly went digital. The result? E-commerce’s share of global retail trade increased from 14% in 2019 to about 17% in 2020. This rise is likely to be sustained, even during recovery.
Also, businesses are set to benefit from the integrated markets and lower tariffs which are objectives of AfCFTA. African countries have signed and ratified the African Continental Free Trade Area (AfCFTA), a regional trade deal which aims to boost intra-African trade from 16% to 60% by 2022.
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