As the United States remains mired in one of its slowest economic recoveries of the post-WWII period and the euro zone grapples with recession, Africa shines as a land of opportunity.

With more than 900 million increasingly affluent consumers, the continent of Africa is one of the globe’s fastest-growing emerging markets.

To be sure, Africa wasn’t immune to the global financial crisis of a few years ago, taking its lumps from the sharp drop off in international trade and foreign direct investment that went along with it. However, the continent fared better than the rest of the world thanks to its growing consumer class and solvent banks.

As the developed world struggled because of its cash poor consumers, African consumer spending proved extremely resilient, in large part because many Africans now work in local services. While overall global gross domestic product (GDP) shrank by -0.7 percent in 2009, continental African GDP grew by 3.1 percent (see chart, below).



That trend likely would have continued were it not for the first rumblings of trouble on the continent in 2010. While the Arab Spring didn’t come into full bloom until early 2011, by late 2010 sporadic protests against authoritarian governments were already breaking out across North Africa, as Tunisians and others demanded greater political freedoms and action on food inflation. As the regimes in the region cracked down, citizen anger boiled over and the Arab Spring came violently to bloom.

Strongmen Sent Packing

During that fateful period, the dictator of Tunisia was overthrown in less than one month after being in power for 23 years. The same happened to the dictator of Egypt, who had been in power for 30 years. Libya’s strongman Muammar Gaddafi was overthrown and killed by a vengeful mob, after 42 years in power. Violent street protests spread like wildfire throughout the region—a situation that’s never good for business.

Given North Africa’s dependence on both tourism and the oil trade, growth in the region was heavily affected by the bloody upheavals, as tourists opted for other destinations and Western governments were hesitant to do business with regimes that were tottering.

With the cessation of hard currency inflows and the fact that business in Tunisia, Egypt and Libya essentially came to halt for about six months, North African GDP grew by just 0.5 percent in 2011 (see graph, below).



As you can see from the graph, while the Arab Spring dampened growth in North Africa and pulled overall African growth down to just 3.4 percent for 2011, growth in sub-Saharan Africa barely registered a blip that year because it has few direct ties to the northern end of the continent.

Sub-Saharan Africa, which includes most of the continent’s economic powerhouses such as South Africa and Nigeria, has long been the primary growth driver of the continent. When African consumers spent about USD860 billion in 2008, nearly 70 percent of the spending occurred in the south. That spending trend is expected to hold true for the rest of this decade and next.

The United Nations estimates that by 2020, Africa’s collective GDP will be worth about USD2.6 trillion, while the continent’s consumer spending is expected to reach USD1.4 trillion. This surge in growth and spending will be largely driven by that fact that nearly 130 million African households will have some level discretionary income by 2020.

The growth doesn’t end there. The UN estimates that 1.1 billion Africans will be of working age by 2040 and about half of them will be living in cities.

About 65 percent of that money is expected to change hands in sub-Saharan Africa, where poverty reduction programs have made significant headway over the past two decades and governments have been largely stable and open since the late 1980s.

Future Beacons of Growth

These conditions have given rise to a more stable business climate, helping local entrepreneurship flourish and paving the way for a flood of foreign investment—particularly from the farsighted and shrewd Chinese, who are eager to secure access to the continent’s natural resources. Officials from China have aggressively courted Africa’s various governments and businesses, forging deals designed to nurture the Middle Kingdom’s long-term economic needs.

That lust for oil, gold and agricultural resources has been a major driver of Africa’s economic growth; the continent’s resources sector accounted for about 24 percent of GDP growth during the last decade. However, all of that investment has also fueled consumer-oriented businesses.

According to data from the African Development Bank, the wholesale and retail sectors drove about 13 percent of GDP expansion in that period, making it the second most important growth driver.

The service sector’s share of GDP will continue to prosper. According to data from the McKinsey Global Institute, only about 28 percent of Africans lived in cities in 1980. By 2008, about 40 percent of Africans were urban dwellers and 85 million of those households earned USD5,000 or more a year.

Incomes of at least USD5,000 are a key source of business prosperity on the continent. Once incomes reach that point, Africans typically begin spending about half on items other than food. McKinsey estimates that in 2008 about 43 percent of Africans belonged to this emerging consumer class. By 2020, more than half of Africans will have some level of discretionary income, with more than a quarter of those earning in excess of USD10,000 a year

Much of that income growth will be driven by the fact that many African economies have reached a critical mass of sorts. Some are still at an early stage of development and are largely dependent on commodity exports; Libya, Algeria and Chad are good examples. However, others already represent well-developed service-oriented economies, as exemplified by South Africa and Morocco.

About 10 major economies serve as African growth engines, according to the Organisation for Economic Cooperation and Development and the World Bank. About 30 other African countries, including Kenya, Uganda, Ghana and Ethiopia, are at the point in their development where they’re becoming more dependent on domestic services and less on exports. These countries will be Africa’s future beacons of economic growth.

We’re already seeing signs of that advancement.

It is estimated that in September, the number of Africans with a cell phone passed the 735 million mark. Not only is that a lot of phones, it also means that more than half of Africans now own a mobile phone, a penetration rate that’s expected to reach nearly 100 percent by 2030.

Moreover, about a third of Africans are expected to have bank accounts by 2012 and about 20 percent, mostly urban dwellers, have Internet access.

The growing penetration rates of those key services are a clear indication that Africa and its consumers will be salient sources of global growth in 2013 and beyond.

For my favorite investment play on the African consumer, see this month’s Stock Spotlight.