AFRICA: The benefits, opportunities and key growth drivers

From rapid urbanisation to bountiful reserves and resources, Africa has many enticing facets which are presenting opportunities to investors

Africa has registered accelerated economic growth for more than a decade. Despite the recent economic slowdown in some African countries, the region as a whole has solid longterm economic fundamentals and the rate of return on foreign investment is higher in Africa than in any other developing region in the world.

This has meant the continent has rapidly become an extremely popular and worthwhile place for large companies and SMEs to invest and do business in.

This is only likely to continue as companies are becoming increasingly knowledgeable of the continental market, through hiring specific African business experts or boosting their knowledge through courses, such as emlyon business school’s MOOC (Massive Online Open Course) ‘An Introduction to Doing Business in

Africa’ – which is updating companies’ skillsets for an African-specific business environment. There are a rising number of benefits, opportunities and key growth drivers in the region.

So, what are the main drivers for companies to invest and do business in Africa?

Growing population and workforce – Africa will account for 3.2 billion of the projected four billion increase in the global population by 2100. Its working age population will increase by 2.1 billion over the same period. Its workforce will be larger than those of either China or India by 2034.

Rapid urbanisation – Africa is in the early stage of its urbanisation.

The continent will soon be by far the fastest urbanising region in the world. According to McKinsey, the population of urban Africa is expected to increase by an average of 24 million people each year between 2015 and 2045.

Since productivity in cities is more than twice as high as it is in the rural areas, urbanisation will contribute positively to Africa’s economic growth. The challenge will be to handle the rapid urban expansion, including provision of housing and associated services.

Technological developments – The impact of technological developments could be significant in Africa because the continent is in its relatively early stages of adoption of the internet, digital technologies and big data that is leading to new business models and improving business operations. SubSaharan Africa had by far the fastest rate of new broadband connections between 2008 and 2015 at 34 percent per year. Broadband penetration in this part of Africa is expected to increase from 20 percent in 2015 to 80 percent by 2020. Africa has the advantage of being able to leap frog directly to use the latest technology – the penetration of smartphones is expected to hit at least 50 percent in 2020, up from only 18 percent in 2015. East Africa is also already a pioneer in mobile payments – 70 percent of Kenya’s adult population has access to mobile banking, for instance.

Important reserves of resources

– Africa has significant natural resource wealth: 60 percent of the world’s total amount of uncultivated, arable land and approximately 30 percent of the earth’s remaining mineral resources. AfDB (African Development Bank) estimates that Africa’s extractive resources could contribute over $30 billion a year in government revenue for the next 20 years. Furthermore, beyond extractives, land, wildlife reserves and national parks offer an opportunity for tourism and related economic activity.

Regional integration is particularly relevant in Africa. Indeed, the majority of Africans live in countries where domestic markets are too small and fragmented to achieve the economies of scale necessary to compete internationally. Sixteen African countries are landlocked, more than in any continent, making regional integration a prerequisite to reaching sustainable growth. Overcoming such challenges is central to ensuring that Africa can take advantage of its increasing economic attractiveness to the rest of the world.

New trade partners – Western Europe and North America are still among the top source regions for capital investment in Africa, but they need to face the increasing competition of investors from the Asia Pacific region (mainly China) as well as those from Africa (mainly South Africa, Morocco, Nigeria and Kenya) to build influence on the continent. In 2016, Asia Pacific became the second-largest source of FDI (foreign direct investment) projects and the largest capital investor. Companies from the Asia Pacific region were also the largest contributors to FDI jobs to Africa. Intra-African investments are also increasing significantly and

countries such as Morocco have invested heavily in Africa. Indeed, trade between Morocco and Sub-Saharan Africa has been on an upward trend since 2009, with an annual growth rate of 13 percent between 2000 and 2015.

Despite recent shocks and challenges, Africa’s household consumption and business spending are both growing strongly, offering companies a $5.6 trillion opportunity by 2025 according to McKinsey Global Institute.

The rate of return on foreign investment is higher in Africa than in any other developing region in the world. Investment interest by multinational corporations is not just growing rapidly, but also expanding beyond the traditional extractive industries to other fast-developing sectors in Africa. It truly is a great time for companies to seize the opportunities that Africa offers, and to invest and do business on the continent.