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Africa’s luxury goods market booms

Johannesburg - Luxury items such as French champagne and digital televisions are experiencing record demand in Africa but experts warn the continent is failing to tackle widespread poverty.

This is according to several 2014 research reports from Euromonitor International which say the 'Africa Rising' narrative is real but that it’s not making a dent for those living on less than $2 a day.

Euromonitor says Sub-Saharan Africa has been experiencing solid economic expansion, with real GDP growth averaging 5.5% per year over the past decade.

Rapid growth has also fueled the continent’s luxury goods market as German car-maker Porsche has opened a new dealership on Nigeria’s Victoria Island, the wealthiest district in Nigeria.  In April this year, Italy’s luxury menswear label Ermeneglido Zegna opened a franchise store on the same strip as Porsche, while Hugo Boss has also established a presence in the country.

Nigeria’s high net worth individuals, ranging from oil industry executives to politicians and even millionaire pastors, have benefited from the country’s booming annual economic growth of 7% over the last five years.

In Nigeria, which is also Africa’s biggest economy, the luxury goods market is forecast to grow from $627m in 2014 to $865m in 2019. In the whole Middle East and Africa region, this figure is expected to surge from $14.6bn in 2014 to $19.4bn in 2019.

Yet Euromonitor says social classes D and E, which consist of the working class and unemployed, account collectively for two thirds of Nigeria’s 170 million population.

And while wealth levels among African countries vary, poverty is the continent’s common curse.

“Poverty remains widespread (with nearly one out of every two Africans still living in extreme poverty) and the region’s consumer market is polarised into a booming luxury goods market and a vast ‘bottom of the pyramid’ market, making it difficult for consumer goods businesses to penetrate and expand effectively,” says Euromonitor.

Euromonitor says beyond the headline growth figures, Africa’s economic gains are uneven with resource rich nations enjoying faster accumulation of wealth and higher incomes.

A heavy reliance on resource-based exports also exposes the region to shocks in commodity prices, the research body notes.

Euromonitor explains that Sub-Saharan Africa’s uneven growth manifests itself in high inequality in each country, as economic gains don’t trickle down to benefit entire populations and rural dwellers.

Other challenges also blemish the 'Africa Rising' narrative.

“While widespread poverty and high levels of income inequality are symptomatic of the continent’s uneven growth, many other risks and challenges remain, ranging from poor infrastructure, skills shortages, corruption, weak governance and political unrest through to gender inequality and security concerns,” says Euromonitor.

“They present not only risks to the business environment but also obstacles to international consumer goods companies in their efforts to expand in Sub-Saharan Africa and seize the opportunities the region has to offer,” adds the researchers.

But despite these pitfalls, strong economic growth is forecast to steam ahead in Africa up to 2030.

Already, between 2008 and 2013, total consumer expenditure in Sub-Saharan Africa grew by 17.6% in real terms to reach $908 billion. This is above the global average growth rate of 11.3%.

Other figures from Euromonitor have pointed to how Sub-Saharan Africa is experiencing the second fastest economic growth globally behind Asia Pacific largely thanks to Africa's young and growing population which is forecast to top one billion by 2019.

“Whilst companies can expect many long-term opportunities on the back of forecast solid economic growth in the period through to 2030, it is vital that businesses are fully prepared for the challenges and risks they are likely to encounter in Africa,” says Euromonitor.

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