Ghana's expanding middle class

Ghana's expanding middle class reshapes industrial growth prospects

As the economy grew following the discovery of domestic oil in 2007, expectations of increased consumer spending soon followed. Ghana has much to offer retailers: by regional standards, it offers a relatively affluent consumer base in a stable environment; furthermore, the formal retail supply is limited, providing opportunities for growth.

While these supply and demand dynamics are encouraging, recent economic difficulties have presented some obstacles. Indeed, a weak exchange rate environment and high inflation rates have dented consumer appetites and hit a variety of retailers. As such, much of the optimism present at the beginning of the decade has been tempered by a more challenging short-term environment.

Performance

Generally, the performance of the sector has reflected that of the wider economy. For example, according to AT Kearney, a global research firm, between 2013 and 2015 retail sales fell by 12.2% to $15bn. As Ghana is a particularly price-sensitive market, the inflationary environment and subsequent decline in spending has especially affected certain goods. For example, the food segment and luxury goods have suffered. High-value imports from the US declined from $105.5m in 2014 to $65.3m in 2015, a drop of 38%. As the retail markup on high-value products is relatively small – ranging from 10% for domestic goods to 20% for US goods – retailers have little room to absorb the effects of price inflation. Depressed spending and rising costs has had a ripple effect throughout the sector.

Sector Drivers

However, the long-term opportunities in the market are promising, thanks in large part to Ghana’s young and growing population. More than 50% of citizens are under the age of 25, providing a stream of tech-savvy and eager consumers to the potential retail market. Although the dependency ratio stands at 73%, most of this comes from the youth dependency ratio, which is 67.2%. As such, the dependency ratio is expected to shrink rapidly in the coming years as the working-age population swells and brings more purchasing power to the consumer base. The country already compares favourably with other African markets in terms of income levels. According to audit, tax and advisory firm KPMG, Ghana is one of just six countries in sub-Saharan Africa in which the middle class – composed of individuals with a daily income of at least $8.44 – exceeds 1m people.