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
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 these
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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