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Addressing the needs of burgeoning middle class back

posted on Tue, 21 May at 17:42

Author: Sandy Osei-Agyeman

Africa is perhaps one of the most talked about yet completely misunderstood continent.

There is in equal measure a fair amount of information and misinformation about the health and deficiencies as well as prospects and challenges of the continent.

The resilience of the continent and its people is often underemphasized and the potential for growth and expansion largely undiscovered; until now.

In all modesty, I like to believe, I, and many like me represent the new hybrid Africans, deeply rooted in our culture yet equipped with Western acquired know- how, experiences and skills relevant for the transformation of Africa’s socio – economic fortunes.

We are the ones who can partner with entities elsewhere seeking to expand their operations in new markets like Africa where its economy is flourishing and the middle class market expanding. This is simply because we understand both environments, in terms of its systems, ethics, attitudes, culture and the way of doing business. We are called, in today’s parlance – “the new tigers” or as your organizers put it “the lions on the move”.

Now is the greatest opportunity to merge USA and Africa for our mutual benefit.

The African middle class is growing and that is good news. It offers many opportunities in booming trade, consumers’ demand for durable goods and services, consumables (FMCG), banking, retailing, telecommunications, education, energy and infrastructure development.

Various data from sources like The Economist Weekly magazine, African Development Bank, World Bank’s Global Economic Prospects, Deloitte, Mckinsey Company and others attest to this phenomena. For example, African Development Bank reports that Africa’s population will double to 2 billion by 2050 and its middle will grow to 1.1 billion by 2060. Africa’s GDP is also growing at 6% annually, among the highest in the World.

Africa’s consumer spending will reach $ 1.4 trillion dollars in 2020, up from the $860 billion recorded in 2008. Also, by 2014, 106 million households on the continent will have annual incomes of $5,000 or more and currently Africa has more middle class households (those with incomes of $20,000 or more) than India. The IMF also reported that over the past decade, six of the World’s 10 fastest growing countries were in Africa.

Currently, the African Middle Class population is now at 313 million, roughly the size of US population according to the African Development bank.

The growth in the African economy has not gone unnoticed by the Private Equity Companies. The ECP Africa Fund in 2010 raised $613 million for an African focused fund. In 2011, The London based Helios Investment Partners raised $900 million and the fund was oversubscribed by $1 billion. The Carlyle Group is now raising $750 million for Africa. Again, annual flow of foreign direct investment, increased from $9 billion in 2000 to $62 billion in 2008 and still growing.

You may be wondering how we define the African Middle Class, and does $5,000 annual income qualify as a middle class status?

The African Development Bank defines the African middle class as those spending between US $2 and US $20 a day. While this is not applicable in Developed World, the bank deems this range as appropriate giving the cost of living in this part of the world; the average income which is lower and taking into consideration the perspective of PPP – Purchasing Power Parity (US$ 20 has more stretch in Benin than Chicago).

Within the broad African Middle Class Category are further sub-classes:

a) Upper Middle Class – those spending between US$ 10 - $20 a day.
b) Lower Middle Class – refers to those spending US$ 4 - $10 per day.
c) Floating Middle Class – those spending between US$2 - $4 per day and considered slightly above the world poverty line US$ 2 per day.

I believe, this definition of the African Middle Class is a little too conservative considering a typical middle class home in Africa has 2 cars or more, multiple TV sets, computers, laptops, hi-fi systems, mobile phones, maids, etc. And most homes are paid for in advance or built by the owners without the use of mortgages as done in the US.

In view of this, let me summarize the basic profile of this emerging African Middle Class.

They have smaller families; are mostly educated younger sector of the population; own their homes or rent a modern apartment; have salaried jobs or small businesses; prefer private education and health services for their children. They are concerned about rule of law, leadership and development, good governance and demand transparency and accountability. They are also conspicuous consumers preferring quality in their purchases and like to shop at shopping malls, supermarkets and not necessarily in the traditional open markets. They are politically assertive, culturally self confident are driven to succeed. And finally they live in urban centres. According to the UN, African population living in cities account of 80% of the total GDP; and by 2030, about 50% of the population will be living in cities; and Africa’s top 18 cities have combined spending power of $1.3 trillion dollars.

Now, let’s look at the needs of this emerging middle class.

I was fortunate enough in 1998 to have had then graduate students here at Kellogg, visit my Chicago office and opted to use my company as a case study in the Hair Care Industry in Africa during their educational visit to Ghana. The subsequent report they gave me became my blueprint and confidence builder in relocating to Ghana. By the way I am delighted to say that once again I solicited the help of recent Kellogg graduates, Nas Alidu and Annalisa Rodriguez who have recently relocated to Ghana when I updated my business plan in 2012 to seek equity funding.

What I have just said is against the back drop of what Economist Weekly wrote in 2000 headlined “Hopeless Africa”. It is interesting to note that on March 02, 2013 the same Weekly had made a u-turn with a new article “Aspiring Africa” after “The Hopeful Continent” one.

For the twelve years since I have been in Ghana I have observed many positive changes and the quantum of what is to be done can be done offers so much business opportunities with the right approaches. As Steve Jobs of Apple said in his Stanford University Commencement Speech, “You can not connect the dots looking forward; you can only connect them looking backwards” so by trusting that Africa will grow at the time when is was called “The Hopeless Continent” I can now say that looking backwards, the dots can now be connected as I have accumulated enough knowledge, experience and I am here to further help, connect and contribute to the growth of the African Middle Class.

A. What are the unmet needs of the middle class market in Africa?

Just about everything. They have needs and demands just like you and I. But on a critical level, the middle class markets are looking for:

1. Value –Addition Products and Services.

Let’s take cocoa. Ghana and Ivory Coast produce majority of the World’s cocoa only in raw materials form but Switzerland produces World’s best chocolates. Why can’t we use our raw materials and make quality chocolates to compete in the global market? Let’s take diamond and gold, we only export gold bars and raw diamonds but there are no refineries to process them to finished goods in fine jewelries. Again in oil and gas, similarly we export crude oil but do not refine to the multiple of products like plastics, automobile products, cosmetics grade oils; etc.

2. Growth In Entrepreneurism:

The middle class are looking for opportunities to become entrepreneurs where they can lead, create and market their own products and services or team up with established companies to exploit the booming market.

3. Access to equity capital / long term financing:

Borrowing rates are so high in Africa (e.g in Ghana it is about 30% annually), and access to capital limited that budding entrepreneurs and growth ready companies are stifled.

4. Consumables (FMCG):
All goods and products that can enhance their life styles, health and convenience are needed.

5. Technological Transfers:
That are applicable in relevant industries through skills training, partnership or jobs are high on their list.

6. Agriculture:
Food processing, storage and modern large scale farming techniques and demand for diary products and meat are unmet need as 48 out of the 54 countries are net importers of food in Africa.

7. Financial Literacy:
In all its forms and shapes like the Kenya example where a third of its GDP flow through a mobile money transfer systems set up by private telecom companies. The need for debit and credit cards and electronics paying systems are needed as most transactions are still done on cash.

In a nutshell, everything you see around you and use to make your life simple, prosperous and efficient is exactly what the emerging middle class is seeking.

8. Large scale manufacturing:
In most industries to reduce imports, cut cost, improve availability, create additional jobs and retain and improve local spending to further help economic growth is also needed.

9. Telecommunication:
Growth in smart phones and its many applications, the social media and the internet offers another area of opportunities.

10. Infrastructure:
For example, poor retail infrastructure with few supermarkets and shopping malls offers greater opportunities for construction companies and property developers.

11. Expertise In Civil Services Systems
Are urgently needed to bring efficiencies and productivity in our public sector

B. How do you uniquely approach to address the needs?

1. Speaking from personal experience, let me take myself as an example: I have the Africa experience through high school education in Ghana. My college education through post graduate at Kellogg, was in the USA. My work experience as a banker and an industrial entrepreneur and throw in a measure of sports at the highest level (All America, Olympian and Sport Administrator) for discipline, commitment, goal setting and focus were in Chicago and Ghana. Back in Africa again, I am a manufacturer, marketer, brand builder and business consultant in other fields.

Now I stand ready to team up with any global organization seeking to tap the African market.

Therefore, one approach is to seek and team up with a local partner or groom a current employee within your organization with pre disposition to Africa to lead the charge.

2. If a business is proactively looking at Africa for market entry and long-term expansion opportunities, it must define its market such as “a decent size market (say a population of 25million); a large emerging middle class, a minimum infrastructure, political stability and a growing educated work force and a commitment to become part of the system in order to establish your presence.

3. Another approach is to segregate the market place to fit both the rich and middle class as income inequality is still high--thus the need for both luxury and price conscious markets. The middle income market is still underserved therefore products to meet their budget, taste and needs may be analyzed first.

4. Take into consideration that Africa is a youthful continent with growing working age population and rapid urbanization helping to support the rising middle class. Knowing this one can identify what will appeal to them.

5. The buzz word in Africa this day is PPP – Public Private Partnership. This concept is being promoted by the governments to team up with private institutions to speed up developmental projects to meet the growing needs of the middle class.

6. The Africa Diaspora remit over $40 billion home each year to support middle class growth. They can be targeted as a source to address the middle class needs. Western Union Corporation did this over 15 years ago to rejuvenate its business.

What are some of the challenges of transacting with Africa’s middle class consumers?

As mentioned earlier, logistics can be a challenge as delivery channels are limited in terms of roads, shopping centres, transportation and other commercial infrastructure.

The credit system is still evolving so most transactions are on cash basis, thus it limits many avenues of transacting such as the use of credit and debit cards. The good news is there is movement in the use of mobile money transfer and ATM for transactions.

The banking system also has many regulations which at times can frustrate trade, however the aggressive growth of banks should make this a thing of the past. For example I have heard the Bank of America is working to have a presence in West Africa and I believe Citi Bank is already operating in Nigeria.

Intra-trade inefficiencies continue to hinder market dynamics and negatively hinder middle class consumer’s transactions.

Let me conclude by quoting Peter Drucker the management guru of Claremont Graduate School of California who said “there are no developing countries but mismanaged countries”, Africa is slowly evolving to a better managed continent as we have seen improved economic and political governance, consistent growth in GDP and an emerging and growing middles class. But we are by no means out of the woods yet. The emerging middle class have strong sentiments and are angry about poor levels of education with ill educated and unemployable youth migration to urban centres. Lack of consistent electricity, water shortages, greedy politicians, corruption that does not seem to abate are also major concerns. Nepotism and unnecessary political polarization, low productivity at the public sector are another worry. They are equally concern about Green energy, climate change and the growing power of China given their disregard for Africa’s environment and culture, even though their investments are welcomed.

Now is the great opportunity to merge USA and Africa for greater prospects ahead as recognized by Mr Muhtar Kent, Chairman and CEO of Coca Cola who in 2012 said and I quote “we also recognize Africa’s extraordinary growth potential which is one reason we plan to spend significantly in the continent during this decade. Africa’s growing middle class and increasingly younger population creates growth opportunities for our business”

And also by Paul Bulcke, CEO of Nestle who said in 2012 and I quote “we have been present on the African continent for more than a hundred years and we see great growth opportunities for the future”

Just as former President Nixon visited China when it was not popular to do so in the 60’s to set the stage for US – China trade policy, so have former president Bill Clinton, George W. Bush and the current president Barrack Obama visited Ghana to set the stage and promote US – Africa trade.

Finally, we the new hybrid Africans stand ready to partner or work with any company or organization interested in the growth opportunities in Africa.

Thank you.

+233 244 366199

Sandy Osei-Agyeman