Africa’s Three Largest BOP Markets

Data
Impact Investing
Kenya
Nigeria
South Africa
Sub-Saharan Africa
8. Nov 2017

This blog post was first published on Euromonitor.

The rising importance of the BOP is one of the key income and expenditure trends that Euromonitor International is advising multinational corporations. We collect statistics and make forecasts as well as building unique analytics models to demonstrate to companies how the BOP across emerging and developing economies represents a huge but overlooked consumer base and therefore a significant growth avenue, especially in the context of rising economic uncertainties and squeezed middle class in developed markets. Incorporating the BOP into a company’s long-term strategy is a smart and sustainable move that could benefit both the company and the consumers living at the BOP. The following data and analysis is based on Euromonitor’s cutting-edge Consumer Spending by Income Bands analytics model, which explores how spending on consumer goods and services varies across household income levels, countries and time, and how different macro shocks could impact household expenditure.

methodology

What is the BOP?

There is no fixed definition of the bottom of the pyramid (BOP), as it contains a mix of incomes, living standards, rural-urban locations, and varying levels of access to goods and services, including education, healthcare and organised financial services. But broadly speaking, the BOP refers to the poorest socioeconomic group in a country or society.

In the context of Africa, the BOP can be defined as comprising of households with an annual disposable income of US$2,500 or less. The income threshold of US$2,500 is in constant terms in order to take the impact of inflation into account and so make forecasts of their future purchasing power more accurate.

Three largest BOP markets in Africa

The three largest BOP markets in Africa, in terms of total expenditure by BOP households, are Nigeria, Kenya, and South Africa. These three countries are home to over 16 million households with an annual disposable income below US$2,500, having a combined total spending of US$41.4 billion in 2016.

By 2030, the number of BOP households in these three countries is expected to reach 20.4 million, with a total spending of US$52.0 billion (constant terms).

Nigeria:  Rising share of households with income below US$2,500

  • Paying for food absorbed a huge share of BOP wallet, which translates to a very weak discretionary spending power for the BOP in Nigeria
  • BOP households accounted for 9.0% of Nigeria’s overall alcoholic beverages and tobacco market in 2016
  • Nigeria’s BOP will expand to account for 23.2% of total households and 8.5% of the country’s spending in 2030
bottom_segment_spending

 

Kenya: The potential that the BOP has to offer lies in its decline

  • The BOP is a hugely important consumer segment in Kenya, accounting for 1-in-5 dollars spent in the country in 2016
  • BOP was responsible for 24.7% of Kenya’s spending on alcoholic beverages and tobacco and 24.3% of the country’s spending on food and non-alcoholic beverages in the same year
  • In contrast to Nigeria, the BOP in Kenya is shrinking considerably. In 2016, 40.2% of all Kenyan households had an annual disposable income below US$2,500. This proportion is set to fall to 15.5% in 2030.

South Africa: Highest discretionary spending of all key markets

  • In 2016, BOP made up 30.6% of South Africa’s households but this is set to decline slightly to 27.1% of all households in 2030
  • Discretionary expenditure as a share of South Africa’s BOP household spending stood at 42.0% in 2016 – the highest proportion of all the key markets in Africa and the Middle East. This is set to rise to 46.1% of BOP spending in 2030
  • As a share of South Africa’s expenditure by category, the BOP makes an important contribution to the country’s overall spending on food and non-alcoholic beverages and alcoholic beverages and tobaccobottom_segment_2016

Other factors to consider when targeting Africa’s BOP

Beyond the number of households at the BOP and their total spending, companies need to take into account factors such as household size, number of children and households’ access to key facilities such as water and electricity. These are important determinants of consumption habits and spending patterns and can help businesses gauge consumer demand at the BOP in Africa’s key markets.

This blog is a part of the November 2017 series on data for inclusive business.

Read the full series for insights on how the data revolution could affect inclusive business. Will it bring an end to the uncertainty of business in Base of Pyramid markets? Can it straddle the development-business divide? Will the data drive spurred by the Sustainable Development Goals be useful to inclusive business?