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A Different Type of Oil and Diamonds

Is the wealth of Africa all from diamonds and oil? Perhaps, but not always the types of diamonds and oil that you might think. Although mining and oil are important industries historically, there is much more to the African opportunity than natural resources. While petroleum production has grabbed the headlines, Bidco Oil Refineries, Inc., in Kenya has created a business with more than $160 million (Ksh12.8 billion) turnover, based in large part upon a different kind of oil: cooking oil. Bidco began producing oil in 1991 at its Thika factory. Through very effective marketing and packaging, with products sized for any budget, it became the leading manufacturer of edible oil, fats, and soaps in east and central Africa. Bidco understands the market, from the low-income customers in Kibera who buy oil in small packages to the upper-income consumers who log on to its "Jikoni.com" website to download recipes. (The site attracted more than 11,000 registered users in mid-2006, including members of the diaspora community outside Kenya.) Bidco built over 51 percent market share in Kenya, and the company exports oil, detergents, and other products to more than a dozen African countries, including Tanzania, Uganda, Rwanda, Burundi, Ethiopia, Sudan, Eritrea, Zambia, Malawi, Madagascar, Democratic Republic of Congo, Zanzibar, and Somalia. Not all the valuable oil in Africa comes out of the ground.

In South Africa, companies are mining a different kind of "diamond," the so-called Black Diamond, an emerging middle-class segment that is driving economic growth. Discussing this new segment, Melanie Louw, an economist for ABI, a bottler of Coca-Cola beverages in South Africa, noted that the "Black Diamond" segment has created a fundamental shift in the economy. "This has had a multiplier effect that has boosted the economy up to the point I believe that our economy has structurally changed," she said in an interview in her offices in Johannesburg in 2006. "We have lifted up to a whole new realm of economic growth." The study by the University of Cape Town's Unilever Institute that identified this Black Diamond segment called it "the most exciting market opportunity in our history." It is another sign of Africa's rise.

Although South Africa's market is farther along the curve than most of sub-Saharan Africa, the roughly 400 million people in the middle segments of the entire African market (Africa Two) are a growing opportunity everywhere in Africa, as we consider in Chapter 3, "The Power of Africa Two." Some marketers break South Africa into lifestyle segments (LSMs), on a scale of 1 to 10. They have had to recalibrate their scales over the past five years, as LSM 5 has moved up to consumption patterns that were once associated with higher segments.

In December 2007, Cape Town hosted the first "lifestyle festival" for the Black Diamond segment (followed by similar festivals in Johannesburg and Durban in 2008). The festivals celebrated what organizers call the "Afropolitan" products and brands that cater to the lifestyle of South Africa's black middle class (www.blackdiamondsfestival.co.za). This emerging South African middle class, which is growing at an estimated rate of 30 percent per year, is also driving up housing prices in the country.9 "The past ten years have been the most exciting years we have had," said Louw. "We've seen amazing changes in consumer behavior. In terms of lifestyle, trends such as health and wellness, and even packaging preferences have changed completely. The economy structure and labor structure have changed profoundly."

Although the top 4 companies on the 2007 list of the largest Africa companies as ranked by African Business are in metals and mining or oil and gas (Anglo American plc, Bhp Billiton plc, Anglo American Platinum Corp. Ltd., and Sasol Ltd.), among the top 20 companies are consumer goods (SABMiller plc), telecom (MTN Group Ltd., Orascom Telcom, Itissalat Al Magrib, Telkom SA), banks (Standard Bank Group Ltd., FirstRand Ltd., Absa Group Ltd.), and real estate companies (Liberty International Plc). There is still tremendous interest in Africa's natural resources, but could cooking oil and Black Diamond consumers be the oil and diamonds that will be most significant to Africa's future rise?

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