A look at the African luxury market in 2015
With the year quickly coming to an end, its an opportune time to review the year that was 2015 within the context of luxury in Africa. We will look at the statistics across the key markets and luxury hubs, review key luxury segment growth drivers as well as what to look out for in 2016 and beyond.
The turn of the century has brought about improved economic growth across Africa, this growth has turned the eyes of the rest of the world onto the continent, particularly multinational corporations seeking new found growth markets. Volatility however is a reality, resource heavy economies are subject to external shocks and are less resilient to these. The countries that are maintaining growth, luxury market growth are the ones which are improving on their resiliency to these external shocks better than others.
A growing middle class is also a strong catalyst for luxury market growth in Africa, historical inequality in these markets has meant that the gap between the rich and the poor remains too big, the markets most poised for future growth however have a burgeoning middle class which is driving spending of accessible luxury goods. The African luxury consumer has arrived, their wealth profiles are becoming a lot clearer, their purchasing power is increasing and their demand for luxury goods and services will continue to grow.
Subdued economic activity in advanced western markets have turned the spotlight onto African markets, particularly Sub-Saharan Africa. SSA expanded by 5% in 2014, from 5.2% in 2013(KPMG African Luxury Report). Nigeria, Africa’s powerhouse economy showed strong growth of 6,3% in 2014. Southern Africa however showed depressed economic activity between 2014 and 2015 with the highly important South African economy only forecast to grow 1.5% over the next 2 years.
Africa’s Growing Millionaire Population
Amidst strong economic headwinds the growth in the ultra-wealthy across Africa remains robust. The Wealth Report shows a marked growth in the African high net worth segment. The report forecasts the continents ultra-wealthy population to grow by 59% over the next 10 years. A country that is not mentioned at length during African luxury segment conversations is Zambia, Zambia however is forecasted to show the highest growth in its HWNI population among African countries at 7% followed by Namibia with a growth rate of 6%. The two major countries, Nigeria and South Africa are expected to show 5% growth in their HNWI population respectively.
Luxury goods driving segment growth
Luxury goods consist of the following segments:
- Personal luxury goods such as accessories and apparel
- High-end Vehicles
- Luxury hospitality
- Custom furniture
- Fine food
- Wine and spirits
- Yachts and private aviation
Across these segments/categories, there is a split amongst what is termed to be accessible luxury and high end luxury goods, with the latter being only accessible to those who are uber wealthy. One thing that is consistent across all African markets though is that as the income and/or wealth of consumers rise, the demand for luxury goods increases. The simple rule is that a positive change in GDP should lead to a rise in the demand for luxury goods, all things being equal, currency devaluation and inflation could however stifle luxury goods spending and African governments need to keep a keen eye on these threats.
One of the fastest growing luxury segments in Africa in 2015 has been the super-premium wine and spirits segment, led largely by the growth of categories such as French champagne and imported brown spirits including cognac and scotch whisky. Nigeria continues to be one of the fastest growing markets for French champagne and cognac, even though the growth in Champagne volumes slowed to just 2.7%, the category continues to be the symbol of wealth amongst status driven Nigerians. The flashy, larger than life image built around Cognac has seen popular cognac brand Hennessy grow by over 15%. In an effort to take advantage of this growth in the luxury wine and spirits segment, leading multinational wine and spirits organisations such as Diageo and Pernod Ricard have launched their global luxury portfolio programmes called Diageo Reserve and Pernod Ricard Prestige to focus their local efforts in growing these segments further across the continent.
Luxury retail took a massive leap in 2015 with the opening of the much anticipated Diamond Walk in Sandton City, Johannesburg. This luxury retail strip is home to some of the worlds most loved luxury retail brands including Gucci and Burberry. Consumers travelling from all over the continent are frequent visitors to the Diamond Walk, which is fast becoming the mecca for luxury shopping in Africa. It would be safe to anticipate more and more retail luxury brands taking the bold move to launch in Africa, with an initial focus on South Africa and Nigeria as luxury hubs.
Key Cities drive growth: Urbanisation
Across the globe, luxury brands focus their efforts on the major mature cities of the world, the same is true for the African continent where rapid urbanisation has accelerated and supported luxury segment growth and will continue to do so going forward. The major African cities that are driving luxury spending are:
- Accra, Ghana
- Lagos, Nigeria
- Abuja, Nigeria
- Luanda, Angola
- Johannesburg, South Africa
- Cape Town, South Africa,
- Kampala, Uganda
- Lusaka, Zambia
Tourism remains a major contributor to the GDP of many of African countries. South Africa continues to lead the charge as the most popular destination in Africa for HNWI. The New World Wealth revealed that South Africa hosted more than 12 000 millionaires in 2014/2015, with key cities such as Johannesburg and Cape Town being their ports of entry. Tanzania’s flourishing luxury safari industry is a popular destination for travellers as well as the city of livingstone in Zambia and the Okavango in Botswana. Most of the google searches for African luxury accommodation are safari related, demonstrating the strength and unwavering thirst for authentic luxury safari experiences. The major trend in this area has been the advent of bespoke luxury experiences, where travellers can completely tailor their safari experience to every single detail.
A discussion around luxury accommodation is never complete without discussing the luxury villa category of the African luxury segment. Leading the luxury villa charge is Cape Town. The most expensive house in South Africa was recently listed by Sotheby’s International Realty for $35 million. The single family home referred to as Casablanca, is situated on the Atlantic ocean strip of Camps Bay. With the local currencies devaluation in 2015, these ultra-expensive properties have been bought by European mega millionaires as either investment property or holiday homes.
In summary, 2015 has been a year where the African luxury sector continued to display its resilience amidst whats been trying times for many African economies. Currency devaluation, the commodity slump and untimely low GPD growth in Southern Africa, the number of HNWI continues to grow, consumer spending at the high end remains positive and more and more luxury brands are gaining confidence in making it work in Africa on a long-term basis. The luxury potential of Africa needs to be realised, this however will take time. There are still major challenges that the continent needs to overcome but the building blocks are there, rich in resources including wildlife, minerals and oil, vast arrable land in most parts, a growing youthful population and an increasing consumer culture which will fuel luxury goods growth.