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McKinsey: Nigeria to Remain Africa’s Largest Consumer Market by 2025

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McKinsey Global Institute, the business and economics research arm of McKinsey & Company, has projected that Nigeria would continue to be the Africa’s single largest consumer market, controlling 15 per cent of overall growth in consumer spending by 2025.

MGI, which gave this forecast in its 148-page report titled: Lions on the Moves II: Realising the Potential of Africa’s Economies, released at the weekend, also predicted that there would be $5.6 trillion business opportunities in Africa by 2025, necessitating $2.1 trillion household consumption and $3.5 trillion business to business consumption.

The McKinsey report explained that, in Nigeria, “new spending will be relatively evenly split among affluent households, which are expected to spend an additional $30 billion a year by 2025; global consumers, projected to spend $44 billion; and emerging consumers, with $28 billion of spending.” The biggest spending categories, according to the report, will be food and beverages, housing, consumer goods, education, and transportation services.

It noted that, “Africa’s household consumption has continued to grow at a robust pace,” pointing out that, “sixty per cent of consumption growth has come from an expanding population, and the rest from incomes rising enough to fuel spending on discretionary goods and services as well as basic necessities – all powered by rapid urbanisation.”

MGI, which said there was currently $4 trillion business opportunities in Africa, projected that the opportunities would increase to $5.6 trillion by 2025.

According to the report, “Spending by consumers and businesses today totals $4 trillion. Household consumption is expected to grow at 3.8 per cent a year to 2025 to reach $2.1 trillion. Business spending is expected to grow from $2.6 trillion in 2015 to $3.5 trillion by 2025.” The report estimated that “half of this additional growth will come from East Africa, Egypt, and Nigeria.”

McKinsey advised that, “Tapping consumer markets will require companies to have a detailed understanding of income, geographic, and category trends. Thriving in business markets will require them to offer products and develop sales forces able to target the relatively fragmented private sector.”

It, however, added that the geographic spread of consumption is changing. Accordingly, it pointed out: “South Africa’s share of consumption is set to decline from 15 per cent in 2005 to 12 per cent in 2025 and Nigeria’s share from 26 per cent to 22 per cent over the same period. However, the share of regional consumption is projected to increase in East Africa from 12 per cent in 2005 to 15 per cent in 2025, and in Francophone Africa from 9 per cent to 11 per cent.”

The McKinsey report noted that, the substantial contribution of rising per capita spending has implications for patterns of consumption. “Basic items such as food and beverages are expected to account for the largest share of consumption growth in the period to 2025, but discretionary categories are projected to be the fastest growing: 5.4 per cent in the case of financial services, 5.1 per cent for recreation-related activities, 4.4 per cent for housing, and 4.3 per cent for health care.

As per capita spending rises, it noted that, “it becomes even more important for consumer-serving companies to understand where their customers are and the evolution of their incomes, and then to tailor products and services accordingly.”

Historically, MGI recalled: “Household consumption grew at a 3.9 per cent compound annual rate between 2010 and 2015 to reach $1.4 trillion in 2015. To put these trends into an international context, Africa’s consumption growth has been the second fastest of any region after emerging Asia, whose consumption growth was 7.8 per cent.”

The McKinsey report also predicted that, “Africa could nearly double its manufacturing output from $500 billion today to $930 billion in 2025, provided countries take decisive action to create an improved environment for manufacturers.

It noted that, “Three quarters of the potential could come from Africa-based companies meeting domestic demand (today, Africa imports one-third of the food, beverages, and similar processed goods it consumes)”, adding that, “The other one quarter could come from more exports. The rewards of accelerated industrialisation would include a step change in productivity and the creation of six million to 14 million stable jobs over the next decade.”

Reviewing growth of African economies, MGI noted that, “Africa’s real GDP grew at an average of 3.3 per cent a year between 2010 and 2015, considerably slower than the 5.4 per cent from 2000 to 2010.”

It, however, added that, “this average disguises stark divergence. Growth slowed sharply among oil exporters and North African countries affected by the 2011 Arab Spring democracy movements. The rest of Africa posted accelerating growth at an average annual rate of 4.4 per cent in 2010 to 2015, compared with 4.1 per cent in 2000 to 2010. Africa as a whole is projected by the International Monetary Fund to be the world’s second-fastest-growing economy to 2020.”

But it submitted that, “The region has robust long-term economic fundamentals. In an aging world, Africa has the advantage of a young and growing population and will soon have the fastest urbanisation rate in the world. By 2034, the region is expected to have a larger workforce than either China or India—and, so far, job creation is outpacing growth in the labour force. Accelerating technological change is unlocking new opportunities for consumers and businesses, and Africa still has abundant resources.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Nigeria’s Crude Oil Production Falls for Second Consecutive Month, OPEC Reports

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Nigeria’s crude oil production declined for the second consecutive month in March, according to the latest report from the Organization of Petroleum Exporting Countries (OPEC).

Data obtained from OPEC’s Monthly Oil Market Report for April 2024 reveals that Nigeria’s crude oil production depreciated from 1.322 million barrels per day (mbpd) in February to 1.231 mbpd in March.

This decline underscores the challenges faced by Africa’s largest oil-producing nation in maintaining consistent output levels.

Despite efforts to stabilize production, Nigeria has struggled to curb the impact of oil theft and pipeline vandalism, which continue to plague the industry.

The theft and sabotage of oil infrastructure have resulted in significant disruptions, contributing to the decline in crude oil production observed in recent months.

The Nigerian National Petroleum Company Limited (NNPCL) recently disclosed alarming statistics regarding oil theft incidents in the country.

According to reports, the NNPCL recorded 155 oil theft incidents within a single week, these incidents included illegal pipeline connections, refinery operations, vessel infractions, and oil spills, among others.

The persistent menace of oil theft poses a considerable threat to Nigeria’s economy and its position as a key player in the global oil market.

The illicit activities not only lead to revenue losses for the government but also disrupt the operations of oil companies and undermine investor confidence in the sector.

In response to the escalating problem, the Nigerian government has intensified efforts to combat oil theft and vandalism.

However, addressing these challenges requires a multi-faceted approach, including enhanced security measures, regulatory reforms, and community engagement initiatives.

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Oil Prices Edge Higher Amidst Fear of Middle East Conflict

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Amidst growing apprehensions of a potential conflict in the Middle East, oil prices have inched higher as investors anticipate a strike from Iran.

The specter of a showdown between Iran or its proxies and Israel has sent tremors across the oil market as traders brace for possible supply disruptions in the region.

Brent crude oil climbed above the $90 price level following a 1.1% gain on Wednesday while West Texas Intermediate (WTI) hovered near $86.

The anticipation of a strike, believed to be imminent by the United States and its allies, has cast a shadow over market sentiment. Such an escalation would follow Iran’s recent threat to retaliate against Israel for an attack on a diplomatic compound in Syria.

The trajectory of oil prices this year has been heavily influenced by geopolitical tensions and supply dynamics. Geopolitical unrest, coupled with ongoing OPEC+ supply cuts, has propelled oil prices nearly 18% higher since the beginning of the year.

However, this upward momentum is tempered by concerns such as swelling US crude stockpiles, now at their highest since July, and the impact of a hot US inflation print on Federal Reserve rate-cut expectations.

Despite the bullish sentiment prevailing among many of the world’s top traders and Wall Street banks, with some envisioning a return to $100 for the global benchmark, caution lingers.

Macquarie Group has cautioned that Brent could enter a bear market in the second half of the year if geopolitical events fail to materialize into actual supply disruptions.

“The current geopolitical environment continues to provide support to oil prices,” remarked Warren Patterson, head of commodities strategy for ING Groep NV in Singapore. However, he added, “further upside is limited without a fresh catalyst or further escalation in the Middle East.”

The rhetoric from Iran’s Supreme Leader, Ayatollah Ali Khamenei, reaffirming a vow to retaliate against Israel, has only heightened tensions in the region.

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Geopolitical Uncertainty Drives Gold Prices Higher Despite Fed Rate Cut Concerns

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As tensions simmer in the Middle East and concerns loom over Federal Reserve policy, gold continues its upward trajectory, defying expectations and reinforcing its status as the ultimate safe-haven asset.

The latest surge in gold prices comes amidst escalating geopolitical tensions in the Middle East.

Reports suggest that the United States and its allies are bracing for potential missile or drone strikes by Iran or its proxies on military and government targets in Israel. Such a significant escalation in the six-month-old conflict has sent shockwaves through financial markets, prompting investors to seek refuge in gold.

Despite initial setbacks earlier in the week, gold resumed its blistering rally, buoyed by the specter of geopolitical uncertainty.

On Wednesday, the precious metal witnessed its most significant decline in almost a month following a hotter-than-expected US inflation readout.

This unexpected data led traders to recalibrate their expectations for Federal Reserve interest rate cuts this year, causing the yield on 10-year Treasuries to surge above 4.5%.

However, gold’s resilience in the face of shifting market dynamics remains remarkable. Even as concerns mount over the Fed’s rate-cutting trajectory, the allure of gold as a safe-haven asset persists.

Prices hover just shy of a record high reached earlier in the week, propelled by robust buying from central banks.

Market analysts interviewed by Bloomberg anticipate further gains in gold prices, citing continued geopolitical tensions and strong momentum in the market.

The precious metal’s near-20% rally since mid-February underscores its enduring appeal as a hedge against uncertainty and inflationary pressures.

At 9:54 a.m. in Singapore, spot gold rose 0.3% to $2,341.58 an ounce, signaling continued investor confidence in the metal’s resilience.

The Bloomberg Dollar Spot Index, meanwhile, remained relatively unchanged near its highest level since November.

Silver, often considered a bellwether for precious metals, held steady after reaching a three-year high, while platinum and palladium also registered gains.

As the world navigates through a complex web of geopolitical tensions and economic uncertainties, gold remains a beacon of stability in an increasingly volatile landscape.

Its ability to weather market fluctuations and maintain its allure as a safe-haven asset reaffirms its timeless appeal to investors seeking refuge amidst uncertainty.

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