THE STANDARD/ FRANKLINE SUNDAY-: Mombasa has outpaced Nairobi to emerge the 12th most expensive city in Africa to live in.
Nairobi had long been considered the icon of Kenya’s growing consumerism.
In a recent ranking of Africa’s cities in terms of consumer trends, the coastal city placed only second in East Africa, after Kampala. Nairobi ranks 14 in the index of Africa’s most expensive cities to live in.
The report released by the Economist’s Intelligence Unit (EIU) paints a picture of consumer spending patterns in African cities with Nairobi and Mombasa emerging as two of the top 20 strategic markets in the continent.
“Africa, previously viewed as a marginal location by mainstream investors and companies, is attracting the attention of corporate investors around the globe, not least because of its enviable growth rate,” said Robin Bew, EIU managing director.
The report states that while the world has traditionally looked at Cairo, Johannesburg and Cape Town as Africa’s heavyweight cities, new “underdog” cities are emerging from behind the scenes, demanding their share of foreign direct investment.
“Potential investors are not interested purely in national markets,” states Mr Bew. “Today there are already more than 50 African cities with populations of over a million people, and several cities larger than London. People in cities are easier to reach—and they spend more than their rural counterparts.”
The findings of the report mirror growth and expenditure trends recorded in African economies over the past 15 years, buoyed by improved infrastructure and a burgeoning middle class.
According to data from the African Development Bank (AfDB) Africa’s middle-class has grown three fold in the last three decades. More than 313 million people in Africa are now said to belong to this group.
This has presented a new and ready market for consumer goods with many multinational companies making a beeline for a slice of the pie.
East African Glutton
In East Africa, Nairobi continues to be the consumer juggernaut of the region with an average per capita expenditure of $1, 906 (Sh163, 916).
While this is far below Johannesburg’s leading per capita expenditure, which stands at a massive $7, 436 (Sh639,496) Nairobi’s growing expensive taste points to a worrying expenditure trend.
This has been attributed to the emerging lifestyle trends among Kenya’s young middle class. The report states that Nairobi is the fifth largest market for alcoholic beverages and tobacco with an average per capita spend of $100 (Sh8, 600). Data from the Kenya National Bureau of Statistics states that the average income has grown by 33 per cent in the last three years. In 2008, Kenya’s per capita (GDP) – the country’s mean income – stood at Sh57, 350. In 2011 this figure had shot up to Sh76, 489.
This means that more Kenyans today, particularly those living in urban areas, have money to spend and they are driving up sales in Kenya’s retail market. This has further been exemplified by the growing list of multinational companies that have set up their regional headquarters in Nairobi in the last three years. This is aimed at getting a foothold in the emerging market.
Coca Cola, Visa, IBM, Airtel, Panasonic, and most recently Dell are some of the growing list of multinational companies across all the sectors that have invested billions of shillings in the city.
In addition, there has been an increase in the branch network of retail stores in the country with international supermarket chains now training their sights on Nairobi.
According to a recent study by Consumer Insight, shopping trends in the country are shifting as Kenya’s middle-class keeps on growing and more people shop in supermarkets.
More than 66 per cent of consumers now shop at a supermarkets because of convenience and pricing margins.
About 22 per cent of them admit that supermarkets have good facilities which make them loyal to specific retail stores.
This has seen Nakumatt, Uchumi and Tuskys the top three stores set up massive malls in almost all urban areas particularly Nakuru, Kakamega and Kisii towns. Some retail chains have also gone beyond the boarders to open branches in Tanzania, Uganda and Rwanda.
The impending entry of several other retailers like South Africa’s Massmart, Game and luxury apparel retailers Edgars and Foschini have also stirred Nairobi’s retail market, setting the stage for intense rivalry for consumers.
Spending what we don’t have
However, even as Kenyans spend more and live large, analysts argue that this image could be deceptive and not entirely representative of the common mwananchi’s state of socio-economic growth.
“Looking at increased spending patterns of essential goods alone can be deceiving because there is still muted uptake of more essential things like property which the greater majority of Kenyans cannot afford,” notes the Consumer Federation of Kenya Secretary-General Stephen Mutoro.
“Most of these figures point a picture of people living beyond their means while the cost of living, particularly for the high and low income consumers remains punitive because of our faulty fiscal policies,” he states.
The increased availability of credit has seen more young Kenyans take up loans to finance their flashy lifestyles hurting their ability to invest and in the long run becoming indebted.
Today, more Kenyan consumers are paying for their goods and services using credit cards, an indication of a more liberal financial sector compared to ten years ago when paperless transactions were still at their nascent stage.
This has been made possible by the relaxation of security and credit requirements particularly for salaried consumers.
Data from the Central Bank of Kenya indicates that the number of card payment have increased more than five fold in the last two years alone with many consumers opting for cashless transactions.
However, even as adoption increases, most of the consumers are still ignorant of the dynamics of the credit card system and do not read the fine print before signing up for credit cards leaving many exposed to defaults and punitive fees.
Such are the pitfalls that some consumers fall into forcing them to take up more loans to settle their credit card debt to avoid accruing more interest and hence ending up in a vicious cycle of debt.
According to Johnston Nderi, a corporate finance manager at ABC Capital, the reality of more Kenyans bursting their budgets is made starker when contrasted with the existing tax regime.
“If you look at the middle-class incomes in Kenya not only in Nairobi but also in other urban centers vis-a-vis the taxation policies that we have you see a situation where many Kenyans are actually having to tighten their belts,” he states.
“The consumer basket is particularly harder to balance for Nairobi residents who pay considerably more for other expenses like transport and rent which their counterparts in the rural areas may not be paying,” he states.
The trend of Kenyans spending beyond their means stems from much earlier in life with recent data from Consumer Insight (CI) indicating that Kenyan teenagers and young adults are spending more than Sh252 billion annually.
The findings of the Holla survey released by CI earlier this year stated that Kenyans between the ages of seven and 25 are taking a cue from their older counterparts and breaking the bank to spend what they don’t have.
About 70 per cent of this demographic are unemployed and financially dependent on parents or guardians.
More Spending, no Savings
As more Kenyans sink their money into consumer goods and services, few people are saving or investing their money, putting the country’s growth prospects in jeopardy.
According to the World Bank, the majority of employed Kenyans who save remains short of the recommended African average.
“In most of Africa, saving rates are relatively low, at around 17 per cent of the GDP,” said Mr Wolfgang Fengler, the World Bank’s lead economist for Kenya in an online statement.
“Kenya is no exception and in fact saves less than many of its peers (around 13-14 per cent of GDP over the last five years). This is half of the average for all low-income countries (26 per cent of GDP) and less than neighbours Uganda and Tanzania that have already crossed the 20 per cent mark even though their per capita income is significantly lower.”
The economy needs locals to save more of their income to help the country build the capacity required to provide enough credit for domestic borrowing by government and the private sector.
This is of special importance considering the fact that the government is currently grappling with sources of finance to fund an enormous 1.6 billion expenditure plan for the 2013/2014 financial year.
Data from the Retirements Benefits Authority indicates that awareness on the importance of savings remains low. Just over 15 per cent of Kenyans, mostly in formal employment reported having a form of pension cover.
The situation is worse among Kenyans in the informal sector with more than 80 per cent having no form of financial security at retirement.