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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.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Crude Oil Holds Steady Above $55 Per Barrel on Tuesday

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Crude Oil Holds Steady Above $55 Per Barrel on Tuesday

Brent Crude oil, against which Nigerian crude oil is priced, rose from $54.46 per barrel on Monday to $55.27 per barrel as of 9:03 am Nigerian time on Tuesday.

Last week, Brent crude oil rose to 11 months high of $57.38 per barrel before pulling back on rising COVID-19 cases and lockdowns in key global economies like the United Kingdom, Euro-Area, China, etc.

While OPEC has left 2021 oil demand unchanged and President-elect Joe Biden has announced a $1.9 trillion stimulus package, experts are saying the rising number of new cases of COVID-19 amid poor vaccine distribution could drag on growth and demand for oil in 2021.

On Friday, Dan Yergin, vice-chairman at IHS Markit, said in addition to the stimulus package “There are two other things that are going with it … one is of course, vaccinations — in the sense that eventually this crisis is going to end, and maybe by the spring, lockdowns will be over.”

“The other thing is what Saudi Arabia did. This is the third time Saudi Arabia has made a sudden change in policy in less than a year, and this one was to announce (the) 1 million barrel a day cut — partly because they are worried about the impact of the surge in virus that’s occurring,” he said.

Also, the stimulus being injected into the United States economy could spur huge Shale production and disrupt OPEC and allies’ efforts at balancing the global oil market in 2021.

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Crude Oil

Crude Oil Pulled Back Despite Joe Biden Stimulus

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Crude Oil Pulled Back Despite Joe Biden Stimulus

Crude oil pulled back on Friday despite the $1.9 trillion stimulus package announced by U.S President-elect, Joe Biden.

Brent crude oil, against which Nigeria’s oil is priced, pulled back from $57.38 per barrel on Wednesday to $55.52 per barrel on Friday in spite of the huge stimulus package announced on Thursday.

On Thursday, OPEC, in its latest outlook for the year, said uncertainties remain high in 2021 with the number of COVID-19 new cases on the rise.

OPEC said, “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”

“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”

Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have a significant impact for the next few months.

The complex remains in pause mode, a development that should not be surprising given the magnitude of the oil price gains that have been developing for some 2-1/2 months,” Jim Ritterbusch, president of Ritterbusch and Associates, said.

Still, OPEC left its crude oil projections unchanged for the year. The oil cartel expected global oil demand to increase by 5.9 million barrels per day year on year to an average of 95.9 million per day in 2020.

But also OPEC expects a recent rally and stimulus to boost U.S. Shale crude oil production in the year, a projection Investors King experts expect to hurt OPEC strategy in 2021.

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OPEC Says Uncertainties Remain High in 2021

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OPEC Says Uncertainties Remain High in 2021

The Organization of the Petroleum Exporting Countries (OPEC) on Thursday said global uncertainties remained high going forward in 2021 but kept its oil demand forecast unchanged.

In the cartel’s latest oil outlook for 2021, oil demand is expected to increase by 5.9 million barrels per day year on year to 95.9 million barrels per day. The prediction was unchanged from December’s assessment.

However, OPEC and allies, said: “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”

“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.

Crude oil rose to $57 per barrel this week after incoming US President Joe Biden announced it would inject $1.9 trillion stimulus into the world’s largest economy.

But the recent rally in the commodity and stimulus announcement is expected to boost US crude oil output and disrupt OPEC+ production cuts strategy for the year.

The 2021 supply outlook is now slightly more optimistic for U.S. shale with oil prices increasing, and output is expected to recover more in the second half of 2021,” OPEC said.

Still, OPEC, in its forecast “assumes a healthy recovery in economic activities including industrial production, an improving labour market and higher vehicle sales than in 2020.”

“Accordingly, oil demand is anticipated to rise steadily this year supported primarily by transportation and industrial fuels,” the group said.

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