The 'great debate' lives on: Where should African entrepreneurs focus?
A fundamental question for entrepreneurs in Africa remains as relevant as ever a decade later
Today marked Day 1 of the Jack Ma Foundation’s 6th annual Africa Business Heroes Summit & Grand Finale in Kigali, Rwanda.
Tomorrow, one entrepreneur out of these ten will walk away with the grand prize of $300K in grant funding, while the 1st and 2nd runners-up will receive $250K and $150K respectively.
Don’t cry for the other seven finalists — they’ll each receive $100K.
But beyond the fanfare of the event, a session titled ‘The great debate’ caught my eye.
It posed this controversial question: “Basic needs or the middle class: where should African entrepreneurs focus?”
A live poll split the audience — 49% believed entrepreneurs on the continent should prioritize basic needs, while 51% favored focusing on the middle class.
And the entire thing reminded me of an article I wrote in 2017, “Should African entrepreneurs target the few affluent or the many low-income consumers?”
“History doesn't repeat itself but it often rhymes.”
Africa’s middle-class mirage
The debate continues on nearly a decade later partly because the data keeps evolving — and not necessarily in the direction many expected.
While the narrative of “Africa's fast-growing middle class” persists (at least in some circles), recent evidence suggests otherwise.
Consumer spending across the continent is indeed rising, but this growth is driven primarily by population growth — not rising incomes or an expanding middle class.
A look at the distribution of Africa’s population by consumer segments since 2000 shows that the growth of the middle class (those consuming $11 or more a day) has stalled over the last decade.
Are we building businesses for a middle class that may never materialize at the scale once predicted?
With the debate still very much alive, I thought it timely to revisit my analysis from 2017.
The following is a ‘reprint’ of that article, which challenges the notion that targeting Africa’s affluent consumers is the primary path to entrepreneurial success.
Should African entrepreneurs target the few affluent or the many low-income consumers?
Originally published July 2017.
In the 2017 Harvard Business Review article ‘3 Things Driving Entrepreneurial Growth in Africa,’ Ronald Klingebiel, professor of strategy at the Frankfurt School of Finance and Management, and Christian Stadler, professor of strategic management at Warwick Business School, identify (from an interview of 100 entrepreneurs) three routes to investment & entrepreneurial success in today’s Africa:
A focus on affluent customers at the top of the pyramid,
Control over land, industrial equipment, and other factors of production, and
Innovation in distribution to reach a widely dispersed customer base
The authors conclude:
“…It is paramount to bear in mind that most money is made [in Africa today] in ways so conventional that Western investors might need to take off their augmented reality goggles to spot them.”
While the authors are correct that today, large-scale economic success in Africa comes predominantly from more traditional models & industries and that Western investors in African markets need to adjust their thinking to match on-the-ground realities, their premise that targeting customers at the ‘top of the pyramid’ in Africa will lead to long-term success is controversial.
One recurring theme that has emerged from experienced on-the-ground operators in African markets is the latent opportunity awaiting entrepreneurs who can discover ways to profitably serve Africans at the base of the pyramid.
For example, in a 2017 World Economic Forum article on doing business in Africa, Tanzanian businessman Mohammed Dewji highlights that the rise of bottom-of-the-pyramid African consumers and companies profitably serving them is one of several key trends driving large-scale private sector growth on the continent.
“When CK Prahalad published ‘The Fortune at the Bottom of the Pyramid,’ he was speaking directly to the many African entrepreneurs that understood the world’s poor and their untapped buying power. Companies on the continent are learning how to serve these consumers while making money in the process.” — Mohammed Dewji
And in ‘How Iroko went from pioneer to powerhouse,’ I explore how & why IROKO, a leading African subscription-video-on-demand (SVOD) platform, pivoted to target lower-income African consumers in 2014.
Given raw demographic patterns and purchasing power trends, it’s clear that the BoP represents a strategic market for companies doing business in Africa.
For example, according to seminal but now-dated research from the IFC (The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid – PDF), Africa’s BoP “is by far the region’s dominant consumer market”, with 71% of the continent’s aggregate purchasing power.
More recent analysis from Euromonitor International finds that in South Africa, one of the continent’s most developed countries, a full third of the adult population live at the base of the pyramid, while in Nigeria, the continent’s most populous country, close to half of the adult population do so. And data from EIU Canback, a sister-company of The Economist, shows that just 10% of Africans earn above the threshold of $10 a day.
While Klingebiel and Stadler write that investors should want African entrepreneurs to focus on the top of the pyramid, the truth is that risk capital tends to be drawn to larger market sizes and growth rates.
In Africa today, affluent customers at the top of the pyramid make up only a sliver of the population and purchasing power, and this segment of the population isn’t likely to experience significant growth in the near future.
Targeting Africa’s low-income consumers is the larger overall B2C opportunity and telcos, CPG/FMCG companies, and some banks operating in the region have increasingly shaped their organizations around this reality.
Although it involves several challenges (for example, requiring the development of innovative inroads into the informal economy in some cases or re-thinking pricing strategies), entrepreneurs and investors who are able to successfully navigate these roadblocks will be richly rewarded.
Fast forward to 2025
Time has a way of testing theories, and a lot has happened since that article was written in 2017.
IROKO has largely abandoned consumers in Africa entirely.
Critiques of CK Prahalad’s The Fortune at the Bottom of the Pyramid (e.g., it overestimates the size of the BoP, their purchasing power, and the profitability of serving them) have become more prominent.
And it’s now commonly accepted across the continent nowadays that ‘tech’ founders should tread carefully with B2C business models targeting non-essential goods and services.
Here’s relevant food for thought for Africa-focused innovators and investors alike from one of the continent’s most successful private equity investors:
While I argued in 2017 that the base of the pyramid represented the larger overall B2C opportunity, the consumer landscape hasn’t evolved as many predicted.
The middle class hasn’t expanded significantly and many companies that moved to target lower-income consumers in African markets — like Diageo in Nigeria or IROKO — have since changed tack.
At the end of the day, the most promising approach may be in focusing on fundamental infrastructure and services that create value regardless of how consumer segments evolve — precisely the supply-side focus that Lawani describes.
Where do you stand on the ‘great debate’? Let me know in the comments 👇🏽
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