Africa’s demographics: dividend or disaster?


Wanted: Investors for young, hot and thirsty continent. Population to double in 40 years. Poor, but less than it was. Interested parties must think long term.

Africa’s demographic profile could make it a dream for retailers if spending power continues to rise – or an unfolding disaster for everyone if the labour market fails to absorb its swelling ranks of young people.

Top business executives at the Reuters Africa Investment summit see potential. They expect ever higher numbers of childless young people to enter the labour market and earn money that they can spend or save, Reuters reports.

The latest U.N. figures project that Africa’s population will double over the next four decades to almost 2 billion. To give just one example, 46 percent of Zambians are below 15.
“We are going to benefit from a demographic dividend. You are going to have this significant increase in consumers,” said John van Wyk, who co-heads the Africa business of private equity firm Actis, which has $1.5 billion under management in Africa.

A 2010 study by the McKinsey Global Institute projected the number of African households with discretionary income earning over $5,000 would rise to 128 million by 2020 from 85 million.

Credit Suisse estimates African household wealth grew at 19 percent in 2010-2011 – outpaced only by India and Latin America.

Some argue that hype around Africa is overdone and that concentrating on the big macroeconomic numbers gives a misleading picture on a continent where most trade remains informal.
“(It) doesn’t tell you about the peasants, it doesn’t tell you about the urban slums,” author Duncan Clarke told Reuters this month.
“The idea that because there are expanding consumer markets or more mobile phones in Africa and more people waltzing around in Armani suits, that this is somehow going to drive the economies out of poverty, is pure fatuous nonsense,” he said.


But retailers are not discouraged and Actis sees pent up consumer desires to be tapped.
“If you look at Nigeria for example, a sophisticated retail model there is actually non-existent. The bulk of trade still happens in informal markets,” he said. “But as people become more affluent they become aspirational.”

That was also the watchword for Mark Bowman, brewer SABMiller’s managing director for Africa.

SABMiller’s Africa business, not counting South Africa, is the group’s fastest growing. Underlying volumes in the last three months of 2011 were up 11 percent on the year before.
“Beer is highly aspirational. As the economies improve and the legal drinking populations grow the prospects are very positive for beer and soft drinks,” he said.

SABMiller plans to invest up to $2.5 billion in Africa over the next 5 years.

The strategy with Africa’s income levels and demographics, he said, was simple: make beer affordable by cutting the price.
“You have this natural increase in wealth slowly but surely and inexorably across Africa and what we want to do is go down and meet it earlier as opposed to waiting for it because beer is just too expensive, on balance,” he said.
“So if you can get beer down to a Latin American type earning profile where within 30 minutes of work you have enough money to buy a beer, from the 3 to 4 hours it takes currently, we would significantly increase the opportunity for our sales.”


But the big worry is those who cannot afford to buy any sort of drink as youth unemployment rises in many parts of the continent, fuelling resentment against the expanding elites and potential social unrest.
“Youth underemployment and unemployment is a major source of concern to our government,” Zimbabwe’s youth minister, Saviour Kasukuwere, told the summit in Johannesburg.
“If you have young people who are restless and they have nothing to occupy them then the sure way will be the Egyptian kind of uprising,” he said, referring to the uprising that toppled President Hosni Mubarak last year.

There has been no sign yet of North African style revolts spreading south of the Sahara.

And Zimbabwe is a particular case after losing more than a decade of growth to what detractors say were disastrous economic policies.

But Zimbabwe’s demography is not unique to the continent. According to the World Bank, about 40 percent of its population is below the age of 15 and estimates of its unemployment rate run as high as 80 percent.
“In 1900 there were only 110 million people in Africa, now there are over a billion. In 2050 Africa is going to have 2 billion. So there will still be huge problems of poverty, of income scarcity, and most importantly of unemployment,” said Clarke.