Insight: As Africa's consumers rise, so does inequality

Tue Jan 24, 2012 10:05am EST
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Duncan Miriri

NAIROBI (Reuters) - In a cafe on the terrace of a Nairobi mall, well-heeled Kenyans sip coffee as shoppers in the car park navigate between BMW X5s, Toyota Land Cruisers and Mercedes. A nearby cinema last month advertised an array of Hollywood fare including Brad Pitt's "Moneyball."

Sales at this Java House outlet along the Ngong Road were up last year, says Kevin Ashley, a Californian who co-founded the chain of 14 coffee houses 13 years ago. Kenya's rich and new middle classes have a growing taste for lattes and ice cream.

That's just one sign that African states such as Kenya are changing. Even as rich countries face a slowdown, sub-Saharan African economies are expected to post nearly 6 percent average growth in 2012, according to the IMF. A study by the International Finance Corporation, part of the World Bank, has pointed to the potential of the continent's more than 1 billion people, millions of whom have moved out of subsistence agriculture and into urban jobs over the past decade. Such promise has helped fuel foreign investment. Kenya alone has had a capital influx of billions of dollars in recent years: the latest official figures show around $800 million came in in 2008.

But the wealth on show at the mall has a flip side. The consumption boom has been fueled by fast-growing credit. In Kenya and elsewhere that has sucked in imports - cars, shoes, clothes, wines and whiskies - and swelled the current account deficit. Inflation in Kenya is now nearing 20 percent. As always, high inflation hurts the poorest most.

Java House employs 700 workers and plans to open new outlets soon, but its co-owner worries about price rises. The cost of sugar, electricity and gas has doubled. A volatile currency has fed into coffee prices, which are paid in dollars. A sack of green coffee costs close to $500, up from $150-200 per sack three years ago.

"This particular case right now of inflation is a dangerous phase," Ashley says. People who were taking a bus to work may now walk, somebody who was driving may take a bus, and somebody who was eating in Java might now carry their own food to work.

The risk is that Africa's consumers are harvesting their gains before their economies can bear it, economic analysts say. As more people see inequalities widen, that could fuel unrest.

"Minimum wage-earners in urban centers in East Africa are encountering a simply unprecedented squeeze," said Aly Khan Satchu, a Nairobi-based independent trader and analyst, and himself solidly middle class. Inflation is a major concern, he said. "It creates a sort of reverse Robin Hood effect where the poor carry the main burden."   Continued...

<p>An interior view of a branch of Nairobi Java House in Nairobi, January 20, 2012. REUTERS/Noor Khamis</p>