There's a new gold rush under way for the African consumer, a campaign that spans the continent and aims to reach an emerging middle class. These are the people who have begun to embrace cellphone messages, restaurant meals and trips down supermarket aisles.
In Kenya, a battle between units of Britain's Vodafone Group PLC, and India's Bharti Airtel Ltd. has driven down the consumer's cost of a text message to a penny. Yum Brands Inc. of the U.S. recently said it wants to double its KFC outlets in the next few years to 1,200.
And Wal-Mart Stores Inc. has agreed to pay nearly $2.5 billion to buy 51% of South Africa's Massmart Holdings Ltd., with plans to use the discount retailer as a foothold for continental expansion. Andy Bond, Wal-Mart's regional executive vice-president, describes the potential as a "10- to 20-year play."
Who's Buying?
Read profiles of three African consumers
Ethiopia's Consumer Class
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A young women tries a pair of red Prada sunglasses at the "Lady Shop"in a shopping mall in Addis Ababa, Ethiopia.
Africa's New Wealth
See a timeline of foreign investment in Africa.
A New Gold Rush
See a map and country-by-country facts on African economies.
Some analysts believe a billion-person continental market already has arrived. Consultancy McKinsey & Co. says the number of middle-income consumers—those who can spend for more than just the necessities—in Africa has exceeded the figure for India. The firm predicts consumer spending will reach $1.4 trillion in 2020, from about $860 billion in 2008.
While Africa's resource wealth continues to lure the bulk of foreign investment, the rise of that new consumer class is beginning to shift the balance. From 2000 to 2009, foreign direct investment to Africa increased sixfold to $58.56 billion, according to the United Nations Conference on Trade and Development. And that includes a sharp drop during the global financial crisis, from $72.18 billion in 2008.
A growing percentage of foreign direct investment has been going to sectors such as manufacturing and services, with the value of mergers and acquisitions in the manufacturing sector hitting a record $16 billion in 2008.
While overall investment in Africa slowed in 2009 amid the global economic downturn, investment in the services sector picked up, boosted by Vodafone's $2.4 billion increase in its stake in South Africa's largest mobile-phone operator by subscribers.
High commodity prices have helped sustain robust expansion in Africa's resource-rich economies. And with that, better infrastructure, improved governance and the creation of jobs through private investment have helped drive the growth of the middle class.
The International Monetary Fund estimates that gross domestic product in the 47 countries of sub-Saharan Africa rose 5% last year and forecasts 5.5% growth for this year.
But there's still a long way to go before Africa becomes the next Asia. Zimbabwe's economy contracted by half from 2000 to 2008, a period of sustained political turmoil for a country that once was the breadbasket of southern Africa. And cocoa producer Ivory Coast is embroiled in the continent's latest election dispute, with two candidates claiming to be president.
Poverty remains rampant. And Africa ranks at the bottom of the World Bank's Ease of Doing Business survey, which takes into account such things as taxes, enforcing contracts and protecting investors.
Many African governments are under pressure to create jobs, even if it requires giving foreign companies a greater role in domestic economies.
That's a major hurdle for African governments still grappling with a colonial past. From the 16th to the early 20th centuries, Africa was the source of an estimated 11 million slaves in Europe and the Americas.
Trevor Manuel, the head of South Africa's planning commission, says the sometimes-arbitrary boundaries set by former European colonial powers have disrupted efforts to knit together economies even in places, like West Africa, where people share a common language. "Rationally, we should be one market," says the former finance minister.
A study last year on West African transportation by the U.S. Agency for International Development found that Togo had 5.7 checkpoints per 100 kilometers, at which a total of $25.62 in bribes were demanded resulting in more than two hours of delays. In neighboring Benin, the checkpoint waits weren't as long but truck drivers had to pay about $95.03 in bribes per 100 kilometers.
The Next Continental Shift
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Multinational corporations are racing to make the most of Africa's burgeoning middle class. With reporters on the ground there, a Wall Street Journal series examines the changes.
In Friday's edition, read about how Indian and British mobilephone companies are battling to win subscribers in Kenya.
Later: how African entrepreneurs are capitalizing on growing demand for used American cars in Nigeria, where young professionals want to avoid perilous public buses.
Read More
As a result, some veteran Africa watchers are skeptical about how quickly a bet on the continent's consumer will pay off.
"Where is the money tree? Where is this consumer fruit?" asks Duncan Clarke, chairman of Global Pacific & Partners, an investment advisory firm specializing in oil and gas.
In the near term, Mr. Clarke and others believe Africa's most promising opportunities won't be found in its new shopping malls but beneath its soil and sea beds, where big oil and global miners have long toiled.
Many consumer giants are more sanguine. Drinks company Diageo PLC sells Guinness stout, Smirnoff vodka, Baileys liqueur and Johnnie Walker whiskey in more than 40 countries across Africa. Chocolate maker Nestlé SA, which built its first plant in Africa in 1927, has more than two dozen factories on the continent.
Growth is changing the complexion of countries where these companies operate. In Ethiopia, which still receives about a billion dollars a year in U.S. aid, there's an expanding niche of young urban professionals. The country's economy has been growing at a double-digit clip powered by services, agriculture and infrastructure building for the past half-decade.
The growth has drawn back the Ethiopian diaspora, who had fled the famine-prone country. They are returning now with expertise and capital.
"I do believe we are on the cusp of a major transformation," says Eleni Gabre-Madhin, a former World Bank official who now heads Ethiopia's first commodities exchange.
—Robb M. Stewartcontributed to this article.
Written by Peter Wonacott of the Wall Street Journal
