Luxury goods and wealth management in Africa
The wealth generated on the African continent has increased immensely in recent decades. This has been driven by the continent’s abundance of natural resources, while the underdeveloped and unsophisticated nature of most economies on the continent has provided significant scope for further, rapid development. In addition, the continent’s demographic profile, with decreasing dependency ratios and a youthful population, also bodes well for future growth, particularly when considering the enthusiasm with which the younger generations in most countries have embraced technological advances.
However, it should be noted that this wealth creation has not been uniform, neither between different countries nor within specific economies. This has resulted in significant economic disparity across the continent, with fragmented islands of wealth surrounded by oceans of poverty. Due to the prevalence of inequality, significant wealth can be found in most countries, albeit to varying degrees. In highly populated countries with large economies such as South Africa, Nigeria, Ethiopia and Egypt, a small segment of the population accounts for a large proportion of economic wealth. In turn, countries with small populations but with high per capita consumption figures, such as Gabon, Botswana, Namibia, and Mauritius, also have these concentrations of wealth as consumption is not evenly distributed across the population.
This has notable implications for the development of luxury goods markets across the continent. Luxury goods are considered to be products that are not essential but are highly desired and associated with wealthy or affluent individuals. This report broadly categorises luxury goods into four categories, namely high-end clothing & accessories, fine jewellery, exclusive vehicles, and premium alcohol. High-end services are also covered, such as wealth management (financial services and investments). Anecdotal evidence is used to provide insight into the current luxury goods market, but due to data constraints, some of the analysis will focus on macroeconomic trends that drive the size of the African luxury goods market more generally.
While most countries will have small pods of high-income earners, this will vary considerably between countries, and many wealthy individuals might gravitate towards regional pockets of wealth. Consequently, the African luxury goods market is highly fragmented, with few regions providing scope for economies of scale. However, there has been an increase in the concentration of wealth in cities such as Johannesburg, Lagos, Luanda, Cairo and Nairobi, as these regions both attract foreign wealthy individuals as well as create new wealth. In addition, the relatively established nature of some of the luxury goods industries in these cities will attract affluent tourists from other countries across the continent, which will further support the development of these luxury goods markets. That being said, the overall African luxury goods market is much smaller than that of other more developed regions, particularly when considering the fragmented nature of the market.
Role of the middle class
However, a salient feature that has emerged from interaction with industry participants is the role of the middle-class in developing the continent’s luxury goods market. This is not only due to the fact that many of these households will enter the high-income bracket as rapid economic growth continues, but also due to the predisposition of the African middle-class to spend proportionally more on luxury items than what would otherwise be expected. This is due to the importance assigned to status in many African countries, and the ability to acquire status through the purchase of luxury goods.
Therefore, the African middle-class is also briefly examined, which will not only have implications for future luxury goods markets, but also give insight into which luxury goods segments are benefiting from middle-class spending habits. Looking forward, the positive economic growth prospects enjoyed by many countries across the continent could potentially create new centres of wealth, while also supporting further development of established luxury goods markets as scale benefits increase.
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