[Column] Bob Koigi: Sacrificing investments at the altar of consumerism
Sub Saharan Africa is experiencing an unprecedented surge in demand for luxury products and services. This is particularly being driven by a booming middle class that analysts tie to a pool of educated generation with good jobs and an affinity for spending.
Analysts have equally warned that this lavish spending is having a dangerous impact on alternative and important financial decisions like investment and saving.
But the region is not alone in the explosion of the luxury market. The global market is currently approximated at some €915 billion, an impressive jump from €450 billion in 2015 according to a Global consumer insight.
Yet this growth is projected to hit the €1,260 billion mark in 2024. McKinsey & Co. has also projected a 63 per cent increase in Africa’s household spending in coming years. This spending is predominantly driven by a commodity boom in the market, which has been largely pushed by the middle class’ purchasing power.
In the case of Kenya for example, the middle class accounts for 24 per cent of the population, according to data by Kenya Advertising Research Foundation. This population is carrying the retail market on its back with its desire for affluence.
If the increase in cars on the roads, malls, fast food chains and the housing sector are anything to go by, then Kenya is experiencing a serious social transformation. In a bid to sate this wave of consumerism sweeping across the continent and increase sales, international brands have trained their eyes in Africa and have successfully built a dedicated customer base.
The expansion of this luxury consumption is also evident in the sudden luxury boom in the real estate market. A report by Knight Frank and Citi Private Wealth for example has Nairobi listed as the city with the fastest growing luxury real estate prices on the planet.
Luxury apartments are cropping up month after month in major cities, and Africans are Africans are willing to pay top dollar to acquire them.
While this purchasing power of luxuries is seen by some as a bellwether for flourishing economies, experts argue that it is not entirely a good thing for most Africans. It is a power that pushes the rest of the populace to spend more money than they actually have.
This luxury boom they say, creates a trickle-down kind of spending where everyone is pushed to consume what the rich middle class is consuming because everyone is exposed to this rich market consumerism. The kind of middle class Africa now has is one that desperately wants to keep up with these trends.
Generation Y has also joined this luxury bandwagon. A report by Youth Dynamix revealed that in East Africa youth are spending about $635 million each year on clothes and other accessories. Over $650 million of the youth’s money also goes to entertainment and outings annually. The youth, the report adds, are driven by the need to buy and display.
To fan this expensive lifestyle, most people are now forced to have two jobs or sink deeper into debt. Still they cannot keep up.
Most Kenyans are finding themselves taking two jobs or alternative means to fund lifestyles they cannot afford.
But this consumerism now means that traditional investment vehicles that are meant to cushion one during rainy days have lost appeal among majority of the new generation.
The danger lies in the fact that majority of the people rely on employment which means should companies fold, they slid back to poverty, becoming worse off than they were before.
Little wonder then that numerous reports have poked holes on the Africa rising middle class narrative insisting that wealth should be measured by long term investment, something hard to quantify among most of them classed as African middle class.
Multiple award winning Kenyan journalist Bob Koigi is the Chief Editor of East Africa at Africa Business Communities