Continent's consumers spending like crazy: why the world needs Africa to keep rising

Nokia and BlackBerry found an oasis in Africa. Now other global companies are looking to do the same

A FEW days ago Apple announced its first quarter results that shattered the expectations of all, even the most diehard members of the “cult of Mac”.

The technology giant revealed it had made $74.6bn in revenue and $18bn in profits in the first quarter of its financial year ending 27 December - the biggest profits of any public company in history.

The strong results were mainly driven by skyrocketing sales of iPhones, with nearly 75 million units sold in just three months, and CEO Tim Cook himself said the sheer volume of sales was “hard to comprehend”.

That single-quarter profit figure of $18bn is almost equivalent to the 2013 annual GDP of Mali, Togo and Sierra Leone combined, according to World Bank data.

Apple says that nearly two-thirds of its revenue came from international markets, principally China, which is positively enchanted by Apple – the iPhone is now the country’s best-selling smartphone, with sales hitting $16bn in 2014, a 70% increase from a year earlier, and almost equalling the $17bn in sales the company recorded in Europe last year.

How Africa loved Nokia

But as China is Apple’s golden goose, embattled Nokia has been propped up by good old Africa. Nokia’s global market share has fallen precipitously from 40% four years ago to just 13% mid last year.

Although in Africa the fall has been even more dramatic, from 85% in 2010 to 30% today, that 30% represents some 98 million handsets, and Africa is the only continent where Nokia’s has a leading market share.

Nokia’s dominance in Africa over the past decade and a half was largely driven by its aggressive rollout of simple, hardy handsets that could withstand tough conditions and rough handling.

The Nokia 1100 – nicknamed the AK-47 of handsets – is the world’s and Africa’s best-selling handset ever, with 250 million units sold around the world since its launch twelve years ago.

It had a dust and humidity-proof cover and a long-lasting battery, but its “killer-app” was a bright flashlight, which made it incredibly popular on the continent – rural Africa’s electrification rate is just 13%, so it was used to light up dark footpaths in villages all over the continent.

In the smartphone era, however, Nokia’s dominance has been eroded by Samsung and Apple.

But since its acquisition by Microsoft, Nokia has managed to hang on, thanks in large part to its Africa market – in South Africa, for example, Nokia made up 29.7% of the smartphone market, and in 2013, more than half of survey respondents in Nigeria said they were planning to buy a Nokia smartphone in the future.

And luckily for Nokia, feature phones still make up 80% of Africa’s handsets, and Nokia remains dominant in that segment.

Keeping faith with Blackberry

It’s the same story with BlackBerry, which has buffeted even greater storms in the global market, but has still found an anchor in Africa.

Telecom company Vodacom said last year that it had 3.1 million BlackBerry devices on its network in South Africa in May 2013, compared with one million Android, 600,000 iOS devices and 165,000 Windows devices. As a result, BlackBerry has been paying more and more attention to Africa lately.

In September 2012 BlackBerry opened its first Nigerian office and branded store. BlackBerry has also set up three Apps Lab app-development centres in South Africa.

In the next few decades, Africa’s unique demographic profile and growing discretionary income will make it the investment destination of choice for global companies looking to profit from a young, upwardly mobile consumer.

For example, high fertility rates and rising numbers of women of reproductive age mean that over the next 35 years, almost two billion babies will be born in Africa, says a recent report by Unicef.

By 2050, Africa will be home to 40% of of the world’s children under 5, up from a quarter today.

At the same time, conservative estimates show that the number of “firmly” middle class people in sub-Saharan Africa is expected to triple from 32 million in 2009 to 107 million in 2030.

Babies in a middle class setting mean one thing – diapers. And diapers mean money, lots of it.

Diapers, along with deodorant and other basic beauty products are some of the goods that people quickly begin buying, just as soon as they get even a little extra income.

“Hot zone” to get very hot

In marketer-speak, these items enter the “hot-zone” fairly early – that’s the place where people have some money to spend, and the product’s price is favourable for their pocket.

Snacks and beverages, because of their low price point, enter the hot-zone fairly early – even with a few extra coins, people will allow themselves the luxury of a soda. Beauty products enter soon after, and luxury goods like branded fashion later still.

Assuming a child transitions to adult toilet habits at age 2, the average baby will use 4,000 diapers from birth to toddlerhood.

And with a single diaper retailing at $0.30 (Ksh 25) in the Kenyan market for example, it means that diaper retailers can expect to make at least $1,100 per baby.

Data from Euromonitor and a recent report by Standard Bank indicates that just 5% of African households can afford to exclusively use diapers on their babies.

But 5% of 1.8 billion babies – those projected to be born in Africa over the next 35 years – is 90 million babies, coming to $100bn in revenue for diaper companies.

With the middle class expected to triple by 2030, it could translate to a possible $300bn in revenue from diapers alone – at a time when the rest of the world is aging rapidly.

Last year, ratings agency Moody’s published a report that indicated that 13 countries, including populous China, would be “super-aged” by the end of this decade, when one in five of the population is aged 65 and older.

Other consumer goods are expected to post the same roaring sales.

Electronics boom in South Africa

Spending on technology goods, from mobile handsets and gadgets to refrigerators, washing machines and cars, is rocketing in the region. In South Africa alone, the consumer electronics market is projected to be worth $9.4bn in 2012, and this will increase to $13.6bn by 2016.

In South Africa, the dishwasher market is in the middle of a hot zone: consumer spending patterns have shifted in recent years as a result of the emergence of a black middle class, high rates of urbanisation, and the proliferation of stores offering credit cards.

Automotive manufacturers in South Africa have set ambitious targets that are now achievable, says an article by African Business Magazine. In 2012, Mercedes in South Africa committed to doubling C-Class production to 95,000 units by 2014.

Ford is also ramping up local production of its vehicles from 80,000 to 110,000 per year. Engine production is similarly being increased from 80,000 to 120,000.

Nigeria has recently attracted much attention due to its mushrooming consumer technology market and with good reason – as Africa’s most populous country, it comprises half of the region’s total consumer spending.

Moreover, Nigerians have displayed a conspicuously strong appetite for a range of hi-tech goods, from smartphones to televisions. Growth figures for individual sectors are impressive – the retail sales for electronics and household appliances in the country increased by 22% and 11% respectively between 2003 and 2008, and growth curves are steepening.

East African computer surge

East Africa is also posting strong growth. Shipments of PCs to East Africa surged by 76% last year. In Kenya, mobile handset sales have increased 200% since 2009.

Across all of Africa’s cities, the fastest growing categories of consumer spending in the next few years will be recreational and cultural expenditure (growing 291% in 2012 dollar terms by 2030), restaurants and hotels (up 237%), and communications goods and services (rising 231%).

However, by far the biggest consumer categories will remain food, doubling to almost $120bn, and housing-related spending, including utilities, more than doubling, to around $150bn. Some fellows are going to grow super rich selling all this stuff to Africa.

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