Urban consumers 'to drive growth'

Urbanisation on the rise

Urbanisation in Africa is growing - the continent already has as many cities of 1-million people or more as Europe and more than India - and in 10 years' time the two largest South African cities will, along with Cairo, Lagos and Alexandria, comprise the five largest cities on the continent, a report by McKinsey Global Institute says.

The rise in urbanisation will coincide with a rise in African household spending from US$860bn to $1,4-trillion - assuming the rates of economic growth continue - the report by the research arm of consultancy McKinsey & Co says.

Need for new markets

Africa's attraction for a global economy desperately in need of new markets is summed up in the report's prediction of growth in the continental economy from $1,6bn - equivalent to that of Brazil and Russia - in 2008 to $2,6bn by 2020.

Despite problems like bureaucratic inefficiency, poor infrastructure and corruption, industries such as agriculture and infrastructure, as well as resources face a surge in output, driving wealth of the continent's citizens in coming years.

"Africa already has more middle class households (defined as those with incomes of $20000 or above) than India. The rise of the African urban consumer is serving as a new engine of domestic growth."

Growing consumption

Even below that level, consumption is growing. The number of households with an income of $5000 - the level above which people spend about half their income on items other than food - is rising.

In 2008, there were 85-million such households, or 43% of the total. By 2020, this will rise to 128-million, or 52% of the total, the report says.

By 2020, Istanbul will be the world's largest emerging-market city, with a consumer market worth $124bn, the report predicts.

Mumbai, with $75bn, will be second. Five of the next six cities are in Africa. Cairo comes next, with a consumer market worth $72m, followed by Johannesburg with $57m.

New Delhi comes next with a market worth $52bn, then comes Cape Town (35bn), Lagos (34bn) and Alexandria (26bn).

South African cities also rank in a second tier of middle-ranking cities with consumer markets worth less than $25bn by 2020, the report says. Casablanca (23bn) leads, followed by Khartoum, Luanda and Pretoria, all with $22bn, and Durban (20bn). Nairobi is predicted to have a consumer market worth $12bn.

Reliant on good management

Progress depends in part on good management by the continent's leaders, the report says. "Africa's labour force is expanding. By 2040, it is projected to reach 1,1-billion, overtaking China's or India's. If Africa can provide its young people with the education and skills they need, this workforce could account for a significant share of both global consumption and production."

Source: Business Day