African Luxury Market

Luxury Goods Market in Africa: Changing Landscape of the African Wealth Picture


The global luxury market loosely consists of the following segments: personal luxury goods such as accessories, apparel, jewellery, and cosmetics, high-end vehicles, luxury hospitality, cruises, custom furniture, fine food, wines, champagne & spirits, yachts and private aviation. At a simplistic level, luxury/ wealth goods can be defined as products and services not essential to basic needs, for which demand rises more than proportionally than a rise in income. The evolution of consumer demand for retail goods can be visualised as moving upwards within a pyramidal scheme, with the largest and lowest category labelled accessible goods. Progress in personal wealth conditions sees the consumer advancing to aspirational (logo) goods, whilst the highest bracket presents absolute (high end) goods, preserved for consumers with considerable purchasing power. As such, luxury goods have a high income elasticity of demand; in other words, as consumers accumulate more wealth, demand for luxury goods should rise. A simple proxy for the net change in aggregate disposable income is therefore the change in GDP, and GDP per capita levels.

Generally, the demand for luxury goods should be positively correlated with an upward trajectory in economic growth as well as an appreciatory trend in the local currency unit (per US dollar).

Global Environment

Muted economic activity in advanced economies in the aftermath of the financial crisis has increasingly turned the focus to emerging market economies. According to the International Monetary Fund (IMF), growth prospects in advanced economies are handicapped by weak investment and total factor productivity growth, aging populations and low potential investment growth. In its January 2015 World Economic Outlook (WEO) update, the IMF estimates that global growth in 2014 was “a modest 3.4%”. The IMF estimates that emerging and developing countries accounted for three-quarters of global growth in 2014. Albeit lower than earlier estimates suggested, economic expansion in the US came in at a modest 2.4% in 2014, which compares favourably to the 0.9% growth posted by the euro zone. In turn, the United Kingdom (UK) expanded by an estimated 2.6% in 2014, while Japan recorded an economic contraction of 0.1%.

Emerging and developing countries recorded a robust 4.6% in 2014 (albeit slower than the previous year, which is estimated at 5%). Emerging and developing Asia was the driving force behind the strong performance, recording growth of 6.8%. This came on the back of strong growth by China (7.4%) and India (7.2%). In turn, sub-Saharan Africa (SSA) expanded by 5% in 2014, from 5.2% in 2013. Heavy-weight Nigeria posted strong growth of 6.3% in 2014.

African Growth Picture
Real GDP Growth Trajectory

Real GDP Growth Trajectory

Africa’s stellar economic performance over the past five years can partly be ascribed to cheap artificial liquidity on the back of dollar-negative quantitative easing (QE) mandated by the US Federal Reserve (Fed), which benefited the continent via both improved capital and portfolio inflows, and artificially strong commodity prices, which buoyed economic expansion. In addition to fundamental drivers, the end of dollar-negative stimulus however rang in broader commodity price weakness, which placed the spotlight on African commodity exporters’ dependence on extractive sector products for the bulk of export receipts. This single commodity dependence warned of the adverse effects of a weaker commodity price environment on numerous countries’ external and fiscal positions, and subsequently threatens a slowdown in economic growth.

The above is an excerpt from our 2015 Sector Report on Luxury Goods in Africa; please feel free to download.

David Okwara

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