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Africa’s GDP, up 4.9 per cent per annum in real terms between 2000 and 2008, has been accelerating at more than twice the rate of growth the continent achieved in the 1980s and 1990s. The size of the region’s 53 individual economies, as measured by GDP, now collectively bear comparison with Russia and Brazil. And beyond the thriving resources sector, so vital to a continent with 10 per cent of the world’s oil and 80 to 90 per cent of metals such as chrome and platinum, industries from telecoms and banking to retail and construction are quietly flourishing.
While Africa’s economic momentum is increasingly acknowledged, the issue for governments, multinational companies and NGOs is the extent to which the sources of the new prosperity are sustainable. Is this a glittering economic firework display whose sparkle will quickly fade - or is it the long awaited economic take-off that presages Africa’s wider integration into the global economy?
Our research offers grounds for at least cautious optimism. Poverty, disease, infant mortality rates and corruption remain formidable challenges. But data suggests that the new economic foundations are built on more than just a worldwide clamour for natural resources. Overall progress towards economic diversification is encouragingly strong. Export competitiveness is healthier than ever. And the market opportunity for global companies could be worth at least $2.6 trillion in annual revenues by 2020.
Sceptics argue that Africa’s growth has been narrowly focused in recent years, a claim that does not survive closer scrutiny. Natural resources, for instance, directly accounted for just a quarter of Africa’s GDP growth in the period 2000-2008, or less than a third if Government spending from resource-generated revenue is included. Our analysis, moreover, shows that GDP has been growing at similar rates in African countries without significant resource exports as in those that have them.
Much more remains to be done, of course, to create the diversified and export oriented economies that will guarantee a sustainable future. But our analysis identifies significant pockets of hope that should spread encouragement across the whole continent. Africa’s four most advanced economies, Egypt, Morocco, South Africa and Tunisia, already have significant manufacturing and service industries and are well placed to expand them. While handicapped by much higher unit labor costs than say China and India, these leading ‘diversifiers’ can capitalize on their European links to develop higher value added production.
Among oil exporting countries, the continent’s fastest growing group of economies, Nigeria stands out for its efforts to reduce dependence on oil exports, with government actions to liberalize telecoms and consolidate banking behind the strong growth in services since 2000. Among transition economies Ghana, Kenya and Senegal are increasingly exporting manufactured goods (processed food, chemicals, apparels and cosmetics) within Africa. And even poor, ‘pre-transition’ countries like Ethiopia, the Democratic Republic of the Congo and Mali are working to create a more stable business and political environment, paving the way for a measure of diversification.
Such signs of commercial vibrancy, albeit tentative in many places, is not just good news for the continent itself. Our projections show that there will be substantial new business opportunities for global companies over the next decade, notably in consumer-facing industries, agriculture, the resources sector and infrastructure.
The largest opportunity is to provide food, housing, cell phones, bank accounts, healthcare, education and other goods and services to Africa’s growing number of consumers. Global Insight projects that consumer spending on the continent will rise to $1.4 trillion by 2020, a figure we estimate could jump significantly if investment in infrastructure and agricultural production exceed general expectations. Demand, we anticipate, will be concentrated in five mega-cities with more than $25bn a year in household spending (Cairo, Johannesburg, Lagos, Cape Town and Alexandria), plus more than a dozen other urban locations with consumer markets worth more than $10bn annually. The impetus to growth will come from the continuing rise of discretionary spending: whereas roughly 57 million African households had an income of $5,000 or more in purchasing power parity terms in 2000—the threshold above which they start spending roughly half their income on non-food items - the number of such households is set to reach 105m by 2014.
Infrastructure also looks set for a significant new boost: the private sector, for example, now accounts for 13 per cent of the region’s $72bn infrastructure spending, up from seven per cent in 2000, while among foreign investors the Chinese have increased their investments in Africa by 45 per cent annually in recent years. Agriculture, meanwhile, is ripe for the sort of ‘green’ revolution that has transformed Asia and Brazil, while resources will continue to present new possibilities for firms seeking to help Africa monetize its natural wealth.
There have been too many false dawns for the ‘lost’ continent of the world economy – and World Cup excitement was no guarantee that this was not another one. Africa’s potential, however - home to one in five of the planet’s young people by 2040, a labor force equal to China’s and the lion’s share of the planet’s uncultivated arable land and natural resources – has never been greater. To realize this potential, governments must intensify their efforts to end conflict, build on the success of recent micro-economic reforms, and continue to encourage business through privatization, free trade agreements and lower corporate taxes. The outside world, meanwhile, needs to better distinguish between individual countries and clusters, rather than treating the continent as a single entity. In so doing they will see signs that the broader based economic growth on which a bright future depends is finally starting to take root.
Charles Roxburgh is the London-based director of the McKinsey Global Institute, McKinsey & Company’s business and economics research arm. Norbert Dörr is the director and managing partner of McKinsey’s Sub-Saharan Africa Office.
"Restless City": An African Immigrant′s Experience Monday, April 30, 2012 Directed by Nigerian-born filmmaker Andrew Dosunmu, Restless City tells the story of a young man surviving on the fringes of New York City, where music is his passion, life is a hustle, and falling in love is his greatest risk. #Kladogo: Surviving the Streets of Kampala Friday, April 27, 2012 “My name is Byandali Geoffrey. I’m originally from Bugerere,” he tells me. Geoffrey has been on street for less than a year, but is not sure how many months.
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Does Africa have the staying power?
was created created on Tuesday, July 13, 2010. Does Africa have the staying power? has been tagged with keywords: McKinsey, McKinsey Global Institute, economic growth, business, opportunity,
Tags: McKinsey, McKinsey Global Institute, economic growth, business, opportunity Category:Arts & Culture
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