African lions are still roaring
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African lions are still roaring

African lions are still roaring

Has Africa’s big moment passed before it ever arrived?
That’s been the theme of a number of ‘contrarian’ articles published in the past year or so, all suggesting that for various reasons – from the slowdown in China to the downturn in the commodity boom – the growing belief among investors and business leaders that Africa can become an important engine for the global economy is wrong, or at least wildly overblown.

Despite real short-term problems, we believe this view couldn’t be more wrong.

In fact, all the long-term factors driving African growth, which the McKinsey Global Institute cited in its 2010 report, Lions on the Move, are still in force – and gathering momentum.

We observed then that increased macroeconomic and political stability, wide ranging microeconomic reforms, urbanisation, and the rise of the African consumer were the key ingredients in the African growth formula.

Since then, we have looked into global demand (for labour and goods), digital technologies, and shifting trends in global manufacturing.

All these trends continue to favour Africa:

Africa’s growth will be driven by population and productivity
While labour forces are aging and shrinking in advanced economies, in Africa they are expanding: some 120m people will join the labour force between 2010 and 2020 and the proportion of working-age Africans with stable wage-paying jobs could rise from 28% to 32% – even higher under the right job-creation scenarios.

Africa’s workforce is rapidly becoming more educated, with secondary school enrolment rates increasing 10% over the past decade.

Productivity has been growing since 2000 and in Nigeria and South Africa, is today a much larger contributor to GDP than labour additions.

Urbanisation, which tends to lift productivity as workers shift from farming to jobs in factories and services, continues and could reach 50% of the sub-Saharan population by 2030.

Africa is more than a resources story
Even the large oil-exporting countries now derive more than 40% of their GDP from manufacturing and services, and in many resource-rich nations, agriculture, which can easily lend itself to moving up the value chain in food production, is a larger share of the economy than resources.

According to the IMF, eight of the 12 fastest-growing economies since 1995 are not resource-dependent and have grown faster than the oil exporters.

Africa is developing a large consuming class
In 2010, 90m African households enjoyed incomes of $7,500 per year or more, which puts them firmly into the consuming class. By 2020, McKinsey projects that figure will be 128m and generate spending of around

$1.4 trillion per year, up from $860bn in 2008. Nigeria, the most populous nation, could have more than 141m consumers by then.  

As various trigger points where sales of particular products typically explode are hit, rising consumption can launch a virtuous cycle, creating more and better-paying manufacturing and service jobs, which in turn drives additional demand.

Africa is an attractive production location
As wages rise in China and India, Africa provides an alternative. Foreign capital flows into the continent increased five-fold over the past decade, from $10bn in 2003 to $50bn in 2012.

Multinationals are already investing in apparel, electronics assembly, and other types of low-skill manufacturing.

For example, Huajian Group, a Chinese manufacturer that produces 20m pairs of shoes each year for US companies such as Calvin Klein, Tommy Hilfiger and Guess, built a factory in 2011 in Ethiopia that now employs 1,700 workers.

It was lured by a strong local workforce, ready access to high-quality leather and the local government’s active support. As consumption rises, African players in retail, manufacturing and industrials such as Shoprite and the Dangote Group are also pushing across borders to capture new markets.

Africa is leapfrogging into the global digital economy
With cellular networks and smartphones, Africans don’t have to wait for telephone wires – or even electricity – to reach them.

By 2025 the continent could have 360m smartphone users. The mobile internet is bringing people into the cash economy with mobile payments and allowing farmers – who have been at the mercy of middlemen – to realise a greater share of the value their crops generate.

The mobile internet also promises to make the delivery of critical services such as health care and education far easier. With low barriers to entry, internet entrepreneurs are flourishing in places like Lagos and Nairobi.

Ensure inclusive growth
Maintaining this momentum will require continued improvements to close Africa’s still daunting infrastructure gap. The connection between GDP expansion and poverty reduction also needs to be strengthened to ensure that rising national wealth leads to falling social strife.

By building capabilities to design and administer programmes effectively, the public sector (working with multilateral agencies and donors and tapping private-sector capital and expertise) can spur more inclusive growth and enable a healthier, better-educated labour force to travel to well-paying jobs, return to decent housing at night, and join the consuming class.  

As the US Federal Reserve tapers and demand from China slows, Africa’s economies will have to prove that they can go beyond merely relying on the positive fundamentals that have supported them in the past 15 years.

Taking a continent-wide view, we remain confident Africa can rise to this challenge and deliver the growth, returns on investment, and progress in human development that got us all so excited just a few short years ago.

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Written by African Business Magazine

African Business and its award-winning team is widely respected for its editorial excellence. We provide the all important tools enabling you to maintain a critical edge in a continent that is changing the world. Our special reports profile a wide range of sectors and industries including Energy, Oil and Gas, Aviation, Agriculture to name but a few.

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