May 3, 2011

Wall Street Journal Highlights Africa’s Growing Middle Class

An article in the Wall Street Journal yesterday (found here) highlighted the growth of Africa’s middle class, and notes that in terms of size, as a whole the middle class is on par with that of India and China.

The article notes:
Over the past decade, the number of middle-class consumers in Africa has expanded more than 60% to 313 million, according to a new report from the African Development Bank Group. The study—one of the first efforts to document the contours of Africa's emerging consumer class—brings into focus a potentially huge and enticing frontier market for global investors.
The article includes the below chart from the African Development Bank Group (ADBG), which shows growth in the middle class, and the share of each of Africa’s countries that considered a part of that class.

Growth of Africa Middle Class | Frontier Market Investing

The ADBG notes that the middle class in Africa – those who make $2 to $20 per day - represents about 34% of the overall population, or about 313 million people. This compares with around 196 million middle class individuals a decade ago.

The article also makes an interesting note about how the researchers documented the emergence of the middle class. Statistics were gathered from car dealerships, airlines, mobile phone companies, and even private schools in order to estimate the size of the middle class. At Nile, we have someoneare on the ground in Africa on a regular basis looking at companies, sizing up trends, and seeking opportunities for investment. Unlike developed markets, this on the ground research is crucial in finding and understanding compelling investments, and we believe our experience gives us a competitive edge. Second, the researchers highlighted a key point about a growing consumer class – it comes in tandem with more discretionary purchases. As with any consumer, when someone in Africa finds him or herself with more income, he or she will choose to buy more (and better) goods. However, Africa is a highly segmented market, with notable differences in tastes and preferences across the continent, and even within individual countries. Thus, we constantly seek to understand where the new members of the middle class will choose to spend their funds – and invest in those opportunities.

In addition, the article notes that “the data paint a picture of a continent on the move, thanks to more open markets and a greater degree of political stability. New jobs—instrumental in China's and India's growth and urbanization—are spurring migration to cities and Africa's wealthier countries.” We have seen this as well, and would point out the recent McKinsey report which noted that 40% of Africa’s population lived in cities in 2010. In fact, in 2010 there were 52 cities in Africa with over one million residents – more than in North America and India, and the same as in Europe. These cities serve as natural entry points for firms seeking to expand their market share in the continent.
Share of Population | Frontier Market InvestingThese observations are similar to what we have written about the African consumer market (see our article here) which we see as an incredible opportunity for long term investors.

Of course, it is also important to point out that although there are significant opportunities across Africa, they range widely across the continent. As shown in the graphic above, there are countries where over 2/3 of the population is middle class, and countries where less than 1/3 is. Thus it is important to view each of Africa’s nations as a distinct investment opportunity, some of which are more compelling than others. Being aware of the differences – and able to selectively invest across the continent – presents investors with a compelling opportunity.

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 or

We know Africa - from Cairo to Capetown.

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