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. Last Updated: 07/27/2016

S. African Blacks Fuel Consumer Boom

JOHANNESBURG -- They hang out in glitzy bars, drive luxury cars, compete for the best homes and shop in upmarket stores -- South Africa's black middle class has arrived and is fueling a consumer boom.

Companies, especially retailers, have reported record profits over the last couple of years, thanks mainly to the rapid rise of the black middle class following decades of exclusion from the mainstream economy under white minority rule.

The black middle class, which analysts say stands at about 2 million of the country's population of 45 million, is growing at 40 to 50 percent but is expected to stabilize in the future, according to independent projections.

Several companies are readying themselves to cash in on the emerging black middle class, and their strategy includes opening stores in black townships -- which they shunned for decades.

"This is a hugely powerful consumer group, and it's growing rapidly. ... It hardly existed 15 years ago and now controls a quarter of spending power in South Africa," said professor John Simpson of the University of Cape Town's Unilever Institute.

"The big opportunity is in this growing black market. One of the biggest drivers of the economic prosperity that we have in South Africa is the transformation of our economy and the emergence of black consumers," added Paul Harris, chief executive of banking group FirstRand.

"It is probably the single biggest factor in this resurgence of growth in our country."

Other factors responsible for the record profits include higher disposable incomes due to tax cuts, mild inflation and the lowest interest rates in more than two decades.

South Africa's buying power is estimated at 600 billion rand ($94.6 billion), and the black middle class accounts for 130 billion rand, or 22 percent of the total, the Unilever Institute says.

Imperial Holdings, South Africa's biggest vehicle retailer, says that during the six months to December last year it sold 25 percent of its 63,000 new cars to black buyers.

"Our numbers are pretty much in line with the whole industry, and we expect more growth because more black people will afford cars," Tak Hiemstra, director at Imperial, said.

"It's lower than the population profile, so it has to grow," he added.

A study by the Unilever Institute found that black consumers were more brand-conscious than their white counterparts and favored symbols of style and wealth, such as luxury BMW sedans, over, say, medical insurance.

Ciko Thomas, owner of South Africa's first wholly black-owned BMW dealership, is not surprised by the growth.

"We've always sold our cars to mainly black customers and are growing at around 30 percent per annum," said Thomas, who together with his three partners owns Joburg City Auto.

The black middle class, defined in South Africa as people who earn at least 154,000 rand ($24,870) per annum, has grown by 368 percent between 1998 and 2004, due in large part to black empowerment policies that are intended to increase black participation in the mainstream economy.

Simpson said that, according to his research, South African corporations knew about the potential of the black market but did not understand it.

Woolworths, the country's equivalent of Britain's Marks & Spencer, will open about 10 stores in South African townships -- two in sprawling Soweto, south of Johannesburg.

"We believe that there is an increasingly aspirant black customer in South Africa who has disposable income that they want to spend with us," said Paul Simpson, head of real estate for Woolworths.

He said the group, which focuses on higher-income earners, would be actively seeking more opportunities.

Woolworths, which sells food and clothing under its own name, follows rival fashion retailer Edgars Consolidated Stores and food supermarket group Shoprite. Both have stores in several townships, including in Soweto.

"Not all the black middle class is in the suburbs. Besides, the Woolies brand is growing and is liked," Simpson said.