I found Rebekah Opuni sitting on the tailgate of a truck with her younger sister. The air conditioner inside
her small boutique hadn't been installed yet and indoors without A/C isn't always the coolest place to relax in
Accra, Ghana … in mid-afternoon … in mid-summer … just five degrees north of the equator.
Rebekah is an Angeleno by birth, a Southern California girl who spent
her first nine years running around South Central before
her parents — Rastafarians — decided to build a new life in Ghana.
In college, she packed off for the United Kingdom and picked up a degree
in fashion design in Hertfordshire. And
then she looked around her world for direction, for a place to build a
business in fashion. The reign of the West, she
reflexively understood, was coming to its inevitable conclusion.
Yet,
there was the continent she'd left behind a few
years earlier — Africa — clearly on the ascent. Many of her schoolmates
had returned and were already runway sensations in South Africa's
emerging couture scene.
So, with dreams of becoming the Vera Wang of
Ghana, Rebekah
returned to Accra in May 2012, at 27 years old, to open a bridal
boutique and sew custom wedding gowns for a
population that much of the Western world still ostensibly associates with famine,
genocide, corruption and war.
Her story is the story of the new Africa — a continent where the
still-fresh image of malnourished children is quickly succumbing to
often-unexpected images of Western-style shopping malls, high-end gated
communities, new cars, expensive sushi restaurants and glossy
supermarkets stuffed with large selections of local, regional and
international products.
Because of this new image, businesses like
Rebekah's are flooding into Africa to profit from a middle class that,
by some estimates, already exceeds
300 million consumers —
roughly equal
to the entire U.S. population.
Those consumers, in turn, are already spending the equivalent of $1 trillion a year on goods ranging from the
$750 Western-style wedding dresses that Rebekah sews, to tubes of toothpaste, cans of paint, bags of dog biscuits,
jars of baby food, packets of soup mix, bottles of wine, boxes of tea bags, cartons of beer (yes, cartons of beer,
which I'll explain in a moment), and a rash of thousands of consumer
products just like the ones you and I purchase every day.
While each of those products comes from a multitude of companies,
they all share a single trait. And that's the big profit opportunity around the corner — to invest in a companies that look to profit on the greatest consumer boom on the planet.
Tapping Into a New Consumer Base
for Massive Gains
What's happening today in countries like Ghana,
Kenya, Nigeria, South Africa, Uganda, Zambia, Botswana, Namibia — even formerly war-torn nations
like Rwanda and Angola — is identical to what has
occurred multiple times in our planet's history. For
any of a number of reasons, prosperity grew, locals
earned more money, and economies expanded to
the point that countries ruled the world or at least
a broad swath of it.
There was the British Empire.
Spain in the 16th and 17th centuries. The Romans.
China's Ming Dynasty. And, of course, America in
the 19th and 20th century.
Now, it's Africa's turn to rise.
Rebekah Opuni is a microcosm of the trend — a
small anecdote of what's occurring among big names
you know well: Coca-Cola, Cadbury chocolates,
L'Oreal, Purina, Colgate-Palmolive and many others."I came here because all of a sudden there's a middle
class," Rebekah told me on a hot, Tuesday afternoon
in June.
Her bridal boutique is small, no more than
about 200 square feet. It's fairly Spartan at the moment, with a couple of cream-colored couches in the
back and a rack of six or seven wedding dresses and
prom gowns against one wall. The streets outside are
dusty, but she's in the trendiest neighborhood in
Accra, Osu, stuffed with boutiques and some of the city's
top restaurants.
It's where all the retailers want to be
because of a radically changed consumer mindset in
Ghana: If you're not trendy, you're not worth the effort.
Rebekah has owned her little shop for almost a
decade. Before she set off for England, she sold jeans
and skirts and T-shirts that she hand-sewed, a skill she
learned from her German mom, a fashion designer.
Back then — all of six or seven years ago — Ghanaians
didn't appreciate the quality of a handmade garment,
nor did they care about the brand. "In fact, there really were no labels in Ghana," Rebekah said. "People
didn't remember who designed what they were wearing. They appreciated that we made it, and that it was
made well … but the lady next door opened a shop
and came in with cheap Chinese stuff and blew me
away and
took all my customers."
Today, Ghanaians have a newfound taste for quality. They seek out name brands. They inspect the
finishes on garments. They think about appearances.
They're spending hundreds of dollars on designer
dresses, just like women in the West. In short, they've become the embodiment of what
we recognize here at home as consumers — only for
them, it's all so new … which means our opportunity
is that much richer.
We're tapping into a new consumer base as it's
emerging — and there are profits in that that can
run into the thousands of percent, as America saw
with McDonald's, Wal-Mart and others.
Rebekah, herself, is part of it. She and her friends
— all of whom now qualify as middle class — no longer walk to street-side vegetable marts or wet-markets
for their produce and meats. Now, they're dashing
into real supermarkets, a novelty in emerging Africa,
and shopping alongside everyone else who has money to spend. Even the street vendors selling bags of
apples in the middle of Accra traffic are buying those
apples at the local ShopRite, where the supermarket's
purchasing volume means apples are cheaper than
what the local vegetable markets can charge. It's the story of consumerism writ large across a
continent. I saw it at play in Kenya as well.
African Companies: Some of the Most Nimble — and Profitable — on the Planet
I'd just left the wildlife preserve on the outskirts
of Nairobi where Kenya is caring for orphaned elephants. I was thirsty.
So, I turned into a new shopping center, the Galleria Mall, and found a
Java
House Coffee & Tea shop, a nearly 15-year-old local chain that is
every bit as upscale and modern as
any über-hip coffee joint in the U.S. The place was
packed with a lunch-time crowd of Kenyans spending their Saturday
tooling around the pastoral suburb
of Karen (from
Out of Africa fame).
Done with my mocha, I walked into the three-story
mall to look around. Aside from its diminutive size
and retail names that don't resonate with a Western
ear (well, excluding KFC), Galleria Mall is no different, really, than malls I've walked through in Dallas,
Chicago or St. Louis. The Nakumatt supermarket that
anchors one end of the building offers pretty much
everything I would need to cook the way I like to cook
at home — and I cook a varied menu.
Leaving the mall, I passed a string of new subdivisions with McMansion-style homes on large lots,
priced at the equivalent of $500,000 and up. Granted, Karen is one of Nairobi's toniest addresses, but
new subdivisions are under construction throughout Nairobi — as well as Accra and Lagos, Nigeria,
among other urban centers — at far cheaper prices
for the growing mass of buyers who, increasingly reliant on a nascent mortgage industry in Africa, are
snapping homes in the $30,000 to $100,000 range.
This is modern Africa clashing with historical
— and generally incorrect — perceptions of what
Americans think Africa to be. Without question, the place still has its challenges.
This is, after all, a still-developing continent only a
decade or two removed from
Western colonialism
that promoted and gave rise to dictators and corruption on a professional scale. Not everything here works smoothly.
However, the fact that not everything works fluidly actually highlights one of the underappreciated
strengths of Africa's public companies: They are resilient, resourceful and opportunistic. Pu blic companies in Africa have spent decades
navigating an ever-changing landscape of capricious
political edicts. They've learned how to move nimbly
through warzones to provide services consumers want
in places you and I would never wish to be.
Consider
South African telecom firm MTN Group Ltd., one
of Africa's leading mobile-phone companies. It has
figured out over the years how to provide a service
that consumers increasingly demand — cell-phone
coverage — in places like the Sudan, Liberia, the
Congo, even Afghanistan … countries with a long
history of violence, coups, tribal warfare and political
tensions. And yet, MTN is successfully navigating
those obstacles and earning profits that exceed peers
in the West. MTN's cash-flow margins, just to give
an example, exceed 42%.
Here in the states, Verizon's
margin is 27%, AT&T's is 22%, Sprint is at 15%.
Why the African Consumer Will be the Best Investment for the Next 50 Years
Observers who comment on Africa from afar — I
typically see them as naysayers — like to surmise that
Africa owes its newfound success to its natural-resource
riches and the boom in commodity prices that began in
2001. Oil, gold, cocoa, diamonds and various minerals
certainly represent some of the reasons that countries
like Ghana and Nigeria are flying high these days.
What they miss, however, is a mind-shift among
Africans that began in the 1990s, in some cases years
earlier, before commodities boomed. Africans have
begun to demand — and are beginning to receive
— better governance in many parts of the continent.
Countries like Botswana, Ghana, Namibia and Tanzania are emerging as role models for other African
governments to emulate. Countries riven by war
and genocide, like Rwanda and Mozambique, are
actually peaceful places these days. Their economies
are now booming — each growing by about 8% a
year. Construction cranes litter the skyline of Luanda, Angola's capital, where war once raged and where a
nascent middle class is now taking root.
Technology is playing a substantial role, too. Kenya's mobile telecom leader, Safaricom, launched a
mobile-payment and transfer system in 2007; U.S.
telecom firms are still trying to figure it out. Today,
Kenyans transfer through secure text messages the
equivalent of between 20% and 50% of the country's
GDP. That has allowed entrepreneurs to kick-start
businesses that otherwise would have never existed. It
has allowed rural businesses to expand because more
cash is flowing through regions — electronically —
that have never seen a brick-and-mortar bank. It has
allowed impoverished Kenyans to spend and save in
ways they've never before had. All have added to the
country's economic growth.
In northern Ghana, meanwhile, a service that distributes text messages with updated market prices for
pineapples has boosted income by 10% for pineapple
farmers. That money brings consumer capacity to
farm families and grows the Ghanaian economy.
And then there's access to credit.
Credit is having the same effect in Africa as it has in Colombia, South America and the Colombians who
rely on microloans to build successful, small businesses and pull themselves out of poverty and into
the middle class. Credit is having a similar impact
unlocking prosperity in Africa.
While in Accra, I stopped by Ghana Home
Loans to talk to the founder, Dominic Adu, about
the country's nascent mortgage market. Historically, Ghanaians who
wanted a house have built
it piecemeal. They buy a plot of land and, relying
on friends, family and their own cash-flow, build
the house piece by piece over an extended period
of years. One month they might frame the house,
and with the next round of money they put up
the bricks. Later they might add shingles and then
windows, and then tackle the plumbing. It is a tortured process and it
limits a homeowner's ability to consume much beyond what is necessary
for constructing a house.
But the rise of a mortgage market is freeing up cash
that is instead flooding into consumer spending. Instead of throwing every last cedi (Ghana's currency)
into building a house, Ghanaians — particularly young
Ghanaians with jobs in the fast-growing finance, telecom and technology industries — are putting down
25% of the purchase price "and then buying cars, going
to the club, buying cellphones. You know, spending,
acting like the middle class," Mr. Adu told me.
All of these — improving governance, the rise of
technology and access to credit — are either creating
the environment that allows prosperity, and consumers
to flourish, or they're directly leading to increased consumerism. It's no different than 19th and 20th century
America, where the world's first true consumer class
began to emerge out of a social and political morass.
Just as our own consumer culture spawned half
a century of growth among names like McDonald's,
Wal-Mart, General Motors and others, so, too, will
Africa see a 50-year stretch in which consumer companies rise up into
local, regional and super-regional behemoths. That's where you want to be
invested, because
that's where Rebekah Opuni's new Africa is emerging.
The Fastest-Growth Play in Africa: Consumer Goods
To be sure, the middle class in Africa looks a lot
different than what you and I assume a middle class
to look like based on our experiences here at home.
But measuring prosperity outside the West requires
recalibrating your sense of normal.
New cars all over the place, as you might expect
in a middle-class society. In Accra, in fact, traffic is so
bad now that what was once a five-minute commute
six or seven years ago is now routinely a 45-minute
slog. Fast-food restaurants like Chicken Inn — the
African KFC, where I had lunch, twice — are filled
with customers who have the discretionary income to spend the equivalent
of $4 or $5 on a meal. Housing tract developers advertise new
subdivisions from billboards, and shoppers at the ShopRite supermarket
in
the Accra Mall pay $15 a pound for red bell peppers.
Not everyone in Africa's middle class, however, is
at a level where they can afford such purchases. Yet,
still they fall into the middle class. That's because
here, middle class starts at incomes of just $2 to $4
a day, or roughly $700 to $1,500 a year. Not much
by our standards. Nevertheless, at that level families
are able to live beyond surviving today and actually
participate in the consumer economy.
On my desk sits an empty packet of Cowbell milk
powder, a happy cartoon cow dressed like a Swiss
maiden smiling on a blue background and pointing
to a glass of frothy white milk. I bought the 14-gram
packet (about the weight of two quarters) from a
"container shop" just down the street from Rebekah
Opuni's bridal boutique in Accra. Container shops
are all over Africa. They're fabricated from shipping
containers like those traveling by rail cars and are
stocked with small packets of everything from milk
powder to single-servings of toothpaste to laundry
detergent for a single load of clothes.
Consumer-product companies like Nestlé and
Unilever sell these "sachets" to a population who
can't spend dollars on, say, a gallon of fresh milk but
can afford a few dimes for a packet of Cowbell. My
sachet cost the equivalent of about US$0.50. I mixed
it with water in the hotel restaurant the next morning to give it a taste. Not bad; basically, watery milk,
though I probably used too much liquid.
These sachets represent the first taste of branded consumerism throughout the continent for what's known
as "base of the pyramid" consumers or the "floating
class," those in that $2 to $4 a day range. In Africa, that's
a nearly $430 million market annually. And though
these products can cost as little as 2.5 cents to buy, they
highlight a huge opportunity for us as investors.
Because no matter whether a Ghanaian is buying packets of Cowbell milk, or a Nigerian is buying a bottle
of Heineken beer, or a Zambian is buying fresh chicken
sold under the Zamchick label, they're all touching the
products made by th
ese companies.
Investors like me, who arrived in Africa almost a
decade ago, before the continent was the investment
destination it has recently become, have seen stocks
like a South African supermarket chain rise 2,500%… or a Botswana finance company rise 2,800% … or
a Nigerian bank rise 2,000% … or a Zambian power
company rise 1,600%.
As plump as those numbers are, they're miniscule
when compared to the profits still in the offing.
I
mean, you could have bought McDonald's back in
the late-1960s and thought you'd made a killing
when the shares were up 1,000% by the early-70s.
But had you bought in the early-70s, after that initial
surge, you'd be up more than 5,500% today.
And as with McDonald's, investors in African consumer stocks will see multi-thousand-percent gains
as consumer-product company sales explode alongside the expanding African middle class.
Before I left her bridal boutique, Rebekah Opuni
told me something that seems so apropos here:
"I felt
like if I didn't make the move to Africa now, someone
else would. And I would have missed my chance to
be part of something big down here."
Don't miss your chance!
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