Africa’s potential as a growth market for businesses, as well as the ability for a business to play a transformative role in tackling the continent’s major difficulties, are both undervalued and misunderstood.
Consider this scenario: How many African businesses have annual revenues of $1 billion or higher? We estimate there are less than a hundred, according to most worldwide executives and scholars we speak with. “Zero” is a common response. What is the truth? There are almost 400 of these businesses, and they are, on average, more lucrative and grow quicker than their global counterparts.
In a world when global development is faltering, Africa’s rapidly rising population and markets present significant business potential. At the same time, more corporate innovation and investment are required to meet Africa’s unmet demand for goods and services, bridge infrastructural gaps, generate jobs, and reduce poverty.
We illustrate the scope of African business potential in key sectors and offer suggestions for how investors might turn those chances into lucrative, long-term businesses.
FIVE BOLD BUSINESS OPPORTUNITIES
In the period 2000–2010, Africa’s real GDP rose at an annual pace of 5.4 percent on average, with labor force and productivity growth contributing nearly equally.
Africa’s growth has recovered after a setback caused by the Arab Spring shocks in 2011 and the collapse of oil prices in 2014, and its future prospects are bright.
Two World Bank statistics highlight the continent’s potential. First, six of the world’s ten fastest-growing economies in 2018 were in Africa, with Ghana at the top of the list.
Second, five of the ten most improved countries in the World Bank’s 2019 Doing Business ranking are in Africa, and one-third of all reforms documented globally were in Sub-Saharan Africa.
Five long-term trends are underlying the economic acceleration and strengthening business environment, each of which is unlocking transformative growth in important economic sectors.
Opportunity 1. A Population That Is Fast Growing And Urbanizing
Africa’s current population of 1.2 billion is expected to increase to 1.7 billion by 2030. Over the next few decades, cities will account for more than 80% of Africa’s population increase, making it the world’s fastest-urbanizing area. At the same time, incomes are rising across most of the continent, resulting in new consumer market potential.
African consumers and businesses are expected to spend $6.66 trillion annually by 2030, up from $4 trillion in 2015. Food, drinks, medicines, financial services, healthcare, and education are among the industries where Africans have unmet requirements, and these trends are fueling growth.
Opportunity 2. Africa Is Industrializing
Manufacturers are ramping up the output of everything from processed food to vehicles, resulting in an African industrial revolution. Within a decade, we estimate that African industries will be able to quadruple their output to approximately $1 trillion (Figure 5.1). Manufacturing is expected to account for three-quarters of that increase, as it seeks to replace imports and fulfill rising domestic demand. However, as industries shift away from China and toward lower-cost regions, Africa has a significant opportunity to boost manufacturing exports and become the world’s next major manufacturing center. Because these industries share three key characteristics of traditional manufacturing exportability, higher productivity, and high labor intensity, the ongoing revolution among industries without smokestacks, such as tourism, agro-industry, and some information and communications technology-based services, can serve as a development escalator.
Opportunity 3. Africa Is Pushing To Close Its Infrastructure Gap
One of the major barriers to investment and growth in Africa is a lack of infrastructure. Nearly 600 million Africans, for example, do not have access to power. While Africa’s infrastructure still lags behind that of other developing regions, significant progress has been made: since the turn of the century, Africa’s yearly infrastructure investment has doubled to roughly $80 billion. This gives a significant opportunity for investors and entrepreneurs with the vision to assist in the resolution of Africa’s infrastructure problems.
Opportunity 4. Innovations To Unleash Agricultural And Resource Wealth
Africa has long been recognized for its richness of agricultural and mineral resources. Africa, on the other hand, has struggled to turn these resources into shared wealth and long-term economic progress. New investments and innovations promise to transform that image and open up new commercial prospects. For example, Africa has a lot of untapped, high-potential oil and gas reserves, and the continent has a lot of unmet energy demand. We estimate that Africa’s domestic gas market will increase at a rate of 9% per year until 2025, when the region will be able to consume up to 70% of its own gas.
Opportunity 5. The Potential Of Increasing Digital And Mobile Access
Between 2008 and 2015, Sub-Saharan Africa had the world’s fastest pace of new broadband connections, and mobile data traffic in Africa is predicted to grow sevenfold between 2017 and 2022. More than 120 million active mobile money accounts exist in Africa, accounting for more than half of the global total; this has allowed many consumers to bypass traditional banking products. Companies will be able to increase efficiency, speed up transactions, and reach new markets as a result of this trend, which might add $300 billion to the continent’s GDP by 2025.
MAPPING THE OPPORTUNITIES ACROSS AFRICA’S DIVERSE COUNTRIES AND CITIES
In terms of population, development, growth rates, and stability, Africa’s 54 countries are different. While Nigeria has a population of about 190 million people and Ethiopia and Egypt each have populations of over 90 million, most African countries have populations of less than 20 million.
Similarly, nine countries account for three-quarters of Africa’s GDP, and three countries will account for nearly half of the continent’s household consumption in 2030: Nigeria (20%), Egypt (17%), and South Africa (17%). (11 percent). Many smaller countries, on the other hand, are rapidly expanding and gaining a larger share of continental GDP and consumption. East Africa, as well as Francophone Central and West Africa, are expected to dramatically increase their proportion of Africa’s overall consumption.
Companies must consequently design a consistent geographic portfolio with prioritized countries and cities of operation in order to service a sizable market. McKinsey’s African Stability Index is one tool we created to help businesses and investors manage their portfolios.
This analysis identifies three main groups of countries, each accounting for around a third of Africa’s GDP:
Growers Who Are Dependable. These economies are less reliant on natural resources for growth, and they are making headway on economic reforms and improving their competitiveness.
Vulnerable Growers. At least one of three forms of vulnerability exist in each of these countries. Angola and Nigeria, for example, are substantially reliant on resource exports. Other countries, such as the Democratic Republic of Congo, are dealing with security and governance issues. Finally, countries like Mozambique are prone to macroeconomic problems. Vulnerable farmers have a lot of potential for investors, but they also have a lot of dangers that need to be well examined and understood.
Slow-Growers. This category comprises Arab Spring-affected Libya and Tunisia, as well as Africa’s second-largest economy, South Africa. Investors will have to evaluate growth potential at the sector level or utilize their current operations as a springboard for expansion into other sections of the region.
When constructing their African portfolios, we also encourage investors to consider Africa’s cities, not simply its countries. Africa will feature approximately 90 cities with a population of at least one million people by the end of the next decade. One significant reason for corporations to make cities a primary emphasis of their African growth strategies is rapid urbanization. But it’s also worth noting that per capita consumption in Africa’s major cities is approximately double that of the countries that host this metropolis.
WINNING IN AFRICA
Although the geographic and industry focus of Africa’s successful organizations varies greatly, they all share the vision to perceive the continent’s unmet needs as opportunities for entrepreneurship, as well as the long-term commitment required to establish businesses of a substantial scale. Indeed, Africa’s fastest-growing and most lucrative organizations view obstacles as a catalyst for innovation.
African entrepreneurs who are successful are also acutely aware of the obstacles to their enterprises’ development and take care to incorporate long-term resilience into their business strategies. Take, for example, Nigeria’s Dangote Industries, which produces commodities in large quantities and has made founder Aliko Dangote Africa’s wealthiest person. Through vertical supply chain integration, on-site power generation, rigorous government involvement, and an internal manufacturing academy, Dangote has created a shock-proof manufacturing model.
African innovators are frequently motivated by a larger goal. They don’t see impediments to business when they look at Africa’s high levels of poverty and shortages in infrastructure, education, and healthcare; instead, they see human issues that they feel obligated to address. “Africa is a continent with tremendous issues, and it’s a copout just to wait for governments to deal with them,” said Strive Masiyiwa, chairman of the pan-African business Econet Group. Think about how you can fix a component of a problem if you notice one.”
There is a significant possibility for growth for entrepreneurs who are willing to solve problems and innovate to address Africa’s unmet requirements. Paga, a Nigerian mobile money firm, has racked up over 8 million customers in less than a decade and now handles $2 billion in payments annually. Viola Llewellyn, Joe Huxley, and Adam Grunewald are among the other creative issue solvers. Many more such businesses and investors are needed in Africa. We sincerely hope that you will be one of them.