Kenya’s consumers grow despite inflation

In a cafe on the terrace of an upmarket Nairobi mall, well-heeled Kenyans sip coffee as shoppers in the car park navigate between BMW X5s, Toyota Land Cruisers and Mercedes.

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 many African states such as Kenya are changing.

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 2008.

But the wealth on show at the mall has a flip side. The consumption boom has been fuelled 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 per cent.

Java House employs 700 workers and plans to open new outlets soon, but its co-owner worries about price rises.

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, (with a dollar exchanging at about Sh87).

The risk is that Africa’s consumers are harvesting their gains before their economies can bear it, economic analysts say.

“Minimum wage-earners in urban centres in East Africa are encountering a an unprecedented squeeze,” said Aly Khan Satchu, an 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.”

Western investors have become accustomed to Africa as a boom story in recent years. Since the financial crisis, investors have ventured into Africa in search of higher returns.

In Kenya, firms have been hiring and property prices have risen exponentially, creating a feel-good factor for home owners, especially in towns and cities. That, in turn, has fed the appetite for consumer goods.