Is Nigeria’s consumer class stimulating FDI? A critical analysis of emergent economic influence.

By Carla Sterley [1]

IOA analysis in brief | As Nigeria’s middle class has developed, opportunities for growth in the country’s consumer sector have emerged. This has sparked the interest of Multinational Corporations (MNCs) looking for investment opportunities in Africa, allowing for Nigeria to open their economy to international players.

Key points:

  • Nigeria’s consumer class is expanding, resulting in a rise in consumption of consumer goods
  • Increased consumption means that opportunities for investment by global players in the retail industry have increased
  • This economic influence has both positive and negative implications for the population’s financial future

Nigeria’s middle class is influencing the country’s international economic outlook, allowing for increased foreign direct investment (FDI) opportunities in the consumer industry.  The West African country, which is one of Africa’s fastest growing economies, is home to a growing middle class – a consequence of a strong economy, high rate of urbanisation and the growth of educated professionals earning competitive salaries. This development has resulted in a middle class economic outlook and the transformation of a demand-driven economy. This is especially evident in the consumables and electronics sectors of the state’s economy. Demand for goods has stimulated interest from foreign investors, generating additional FDI.

Africa’s consumer class

The prevalence of natural resources, internal structural changes and increased political stability in certain states, has allowed for economic growth, enabling select African states to improve citizen’s circumstances through education and job development. The African Development Bank (AFDB) asserts that 13% of the continent’s population forms part of an expanding middle class, which, based on the cost of living on the continent, refers to people who spend between US$2 and US$20 per day. As per current growth rate trends, the AFDB forecasts Africa’s middle class to grow from 123 million to 1.1 billion by 2060, which would encompass 42% of the predicted population.

This has led to the emergence of an African middle class, many of whom have increased consumerist interests. Consequently, international firms are now interested in expanding in areas of growing consumption of goods.


The development of a consumerist class in Nigeria

Nigeria is a prominent example of this middle class growth. The continent’s most populous country, with 182.2 million people, was named Africa’s biggest economy by the International Monetary Fund (IMF) in October 2016. Nigeria’s rapid economic growth was reflected in an increase in specialized professionals that form part of Nigeria’s middle class which grew by 600% between 2000 and 2014. This growth gave the country 4.1 million middle class households, which is 11% of its total population.

As well as the increase in middle class households, families are getting smaller, there is an increase in people owning their own houses and businesses, and heads of households have salaried jobs. The prevalence of disposable income in Nigerian households has generated interest from large international businesses and Multinational Corporations (MNCs) involved in the consumer sector to invest in the country’s economy. Investment in consumer markets is due to a large middle class target market and a lack of local completion in the consumer sector.


What does increased opportunity for investment look like?

Nigeria is in the top twenty countries worldwide, as well as the top country in Africa, for receiving FDI. Investment platforms include sectors such as oil and gas, telecommunications, consumables and health and wellness. Investment in Nigeria’s telecommunications sector is showing strong growth, with investments currently standing at US$68 billion, with US$35 billion directly stemming from FDI.

Retail sector growth and investment is increasing gradually. Dutch-owned supermarket SPAR opened in Nigeria in 2009, and American retail company, Walmart, will enter the country’s consumable market in the near future.

Families shopping in Africa’s retail giant, Shoprite, in Nigeria in 2015. The emerging middle class continues to drive growth in the retail industry. Photo courtesy Reuters/Staff Available from http://bit.ly/2o7DpCb
The small percentage of FDI in the Retail sector shows the opportunity available for future investment by global players. Data courtesy of Analyse Africa.

As the graph above shows, FDI in the retail sector only formed 3% of total FDI in Nigeria in 2015. This demonstrates that there are further opportunities for growth in the country’s retail market. As the Nigerian formal retail market is still developing from traditional outdoor markets into shopping centres, no local or international supermarket chain has been able to establish a national presence yet. As a result, Walmart faces little international competition other than from the South-African owned Shoprite brand. Shoprite entered the Nigerian market in 2005 and now has 12 stores, with further potential to open another 800 stores.


Families shopping in Africa’s retail giant, Shoprite, in Nigeria in 2015. The emerging middle class continues to drive growth in the retail industry. Photo courtesy Reuters/Staff Available from http://bit.ly/2o7DpCb
Families shopping in Africa’s retail giant, Shoprite, in Nigeria in 2015. The emerging middle class continues to drive growth in the retail industry. Photo courtesy Reuters/Staff
Available from http://bit.ly/2o7DpCb

Future growth – does this mean increased inequality?

International investors are increasingly attracted to Nigeria’s consumable market.  The country is an ideal investment opportunity, owing to its economic position on the continent, large population, emergent middle class and the minimal threat the country faces in its consumer sector. As the country’s middle class expands further, so too will FDI, not only in the consumables sector, but in all aspects of the country’s economy. International investment is also likely to contribute to positive growth in the country’s economy due to job creation. This in turn will fuel the expansion of the burgeoning middle class.

The growth of the middle class across the African continent has a significant and positive role to play in the continent’s economic, as well as political future, as a consequence of a growing international financial presence by important global players. The involvement of large international firms, could negatively impact on local enterprise as more consumers opt for the convenience and quality associated with established international brands. This has the potential to increase financial inequality on the continent for those who are unable to take advantage of opportunities stemming from the FDI that the global players will offer.


[1] Carla Sterley is a consultant for IOA. Her interests lie in the international political economy, and foreign policy on the African continent, peacekeeping and conflict resolution