Acha Leke, Senior Partner, McKinsey Johannesburg
Although Africa's
growth has slowed, the long term fundamentals are strong, big business
opportunities lie ahead and the overall outlook is positive. These facts are contained in the latest
McKinsey Global Institute Report just released today titled, Lions On The Move
II: Realizing The Potentials of Africa's Economy.
According to the
MGI’S new report, four fundamentals are likely to underpin Africa's economic
growth. Firstly, Africa has the fastest
urbanization rate in the world. Over the next ten years, 187 million more
Africans will live in cities—equivalent to half the US population today. Secondly,
it has the biggest working-age population in the world of 1.1 billion in
2034—larger than in either China or India. Thirdly, it has the largest reserves
in the world of many key natural resources (e.g., 60 percent of the world’s
unutilized but potentially available cropland, and the largest global reserves
of vanadium, manganese, and many others). Additionally, Africa has the chance
to leapfrog old technologies using mobile and digital (e.g., penetration of
smartphones expected to hit 50 percent in 2020 vs. 18 percent in 2015).
The new MGI report
confirmed that spending by consumers and businesses in Africa today totals $4
Trillion. By 2025, the total could be $5.6 Trillion. Household consumption is
expected to grow by 3.3% a year and reach $2.1 Trillion by 2025. The total
could be $5.6 Trillion, reflecting an expanding African consuming class. Business
spending is expected to grow from $2.6 Trillion in 2015 to $3.5 Trillion by
2025, and Africa has an opportunity to nearly double manufacturing output from
$500 Billion today to $930 Billion in 2025. AFRICA’S economies are no longer a
story about exporting commodities- but about tapping into vibrant domestic
demand. Accelerated industrialization could lead to a steep change in productivity and and the creation of 6-14
million stable jobs over the next 10 years.
Acha Leke, a
McKinsey Senior Partner and Report Co-author, said: “Our new research shows how
in coming years Africa will benefit from strong fundamentals including a young
and growing population, the world’s fastest urbanization rate, and accelerating
technological change. These will help drive rapid growth in consumer markets
and business supply chains, and will offer opportunities to build large,
profitable industrial and services companies. "Tapping Africa’s consumer markets will
require companies to have a detailed understanding of income, demographic, and
category trends. Thriving in business markets will require businesses to offer
products and develop sales forces able to target the relatively fragmented
private sector. But what our research also shows is how much work needs to be
done both by companies themselves and by Africa’s governments to translate
opportunity into tangible economic benefits.” To make the most of the
opportunities, Africa needs more large companies. MGI’S new database of
Corporate Africa, shows that the continent has 700 companies with revenues of
more than $500 million, of which 400 companies have revenues of more than $1
Billion. AFRICA’S companies are growing faster and are generally more
profitable than their global peers. "Africa’s
top 100 companies have achieved success by developing strong positions at home,
staying the course to build their businesses over decades, integrating what
other companies would usually outsource, and investing in building and
retaining talent. Further success is possible in six high-potential sectors
with high growth, high profitability, and low consolidation. These are:
wholesale and retail, food and agro-processing, health care, financial
services, light manufacturing, and construction."
Governments need to
play a stronger role in unleashing renewed dynamism. Six priorities emerge from
this research. Firstly, mobilize more
domestic resources, taking bold steps to mobilize more of its own funding to
finance development. Secondly, aggressively diversify economies, encouraging
growth in high-potential sectors in close cooperation with business, based on a
clear understanding of their countries’ comparative advantages. Then accelerate
infrastructure development and deepen regional integration.
Additionally,
create tomorrow's talent, ensuring that educational and training systems build
work-relevant skills, and that students are aware of, and encouraged to enter,
these vocations and that the private sector builds on best practice. Finally,
ensure “healthy” urbanization, so that cities grow with the infrastructure
required to make the biggest positive economic and social impact possible. Delivering
on these six priorities will require the vision and determination to drive
far-reaching reforms in many areas of public life—and capable public
administration with the skill and commitment to implement such reforms.
ENDS
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