Busi­ness trends shap­ing Africa in 2019

The Sunday Mail (Zimbabwe) - - ANALYSIS & OPINION - Kieron Monks

THE per­for­mance of some of Africa’s largest economies in 2018 does not in­spire con­fi­dence for the year ahead. Nige­ria has en­dured a slow re­cov­ery from a re­ces­sion caused by fall­ing oil prices, as has An­gola. South Africa en­tered re­ces­sion for the first time in a decade. But away from the flag­ship economies, emerg­ing pow­ers and in­ter­na­tional trends of­fer the prospect of new suc­cess sto­ries.

Global management con­sul­tancy McKin­sey & Com­pany’s new book “Africa’s Busi­ness Revo­lu­tion” iden­ti­fies ar­eas of po­ten­tial progress and op­por­tu­nity across the con­ti­nent based on orig­i­nal re­search and in­ter­views with hun­dreds of CEOs from lead­ing African com­pa­nies.

The au­thors find re­gions that re­call China be­fore its own pe­riod of ex­plo­sive growth, and sug­gest path­ways that could yield sim­i­lar gains. Rapid ur­ban­i­sa­tion will greatly ex­pand the con­sumer class with dis­pos­able in­comes, the au­thors pre­dict, which will lead to a mas­sive in­crease in busi­ness and con­sumer spend­ing ris­ing from $4 tril­lion in 2015 to $5,6 tril­lion in 2025.

In the same pe­riod, in­creased In­ter­net pen­e­tra­tion will add $300 bil­lion to the con­ti­nent’s GDP - roughly equiv­a­lent to South Africa’s out­put. With the help of Acha Leke, co-au­thor of “Africa’s Busi­ness Revo­lu­tion” and chair­man of McKin­sey’s Africa of­fice, we pick out some of the ma­jor trends and sto­ries to watch in Africa in 2019 and beyond.

When McKin­sey sur­veyed the top 30 African economies in 2011, they found 25 were ex­pe­ri­enc­ing “ac­cel­er­ated growth”.

In the most re­cent sur­vey of the same coun­tries, the fig­ure was just 13.

Rather than the con­ti­nen­tal pow­er­houses, it is the mid-sized economies such as Ethiopia and Ivory Coast that of­fer the great­est prom­ise.

Leke picks out Ivory Coast as a model of sta­ble progress, hav­ing recorded steady growth since emerg­ing from a civil war and fi­nan­cial cri­sis around the turn of the decade.

He cites high lev­els of gov­ern­ment in­vest­ment and in­fra­struc­ture de­vel­op­ment in part­ner­ship with Chi­nese firms as key fac­tors in the coun­try’s per­for­mance, and sug­gests that “huge in­vestor in­ter­est” from the pri­vate sec­tor can keep the econ­omy buoy­ant.

The com­ing years should see growth be­come more in­clu­sive with progress in sec­tors such as health and ed­u­ca­tion.

While the Euro­pean Union is un­der strain from resur­gent na­tion­al­ism within mem­ber states, African coun­tries are choos­ing closer align­ment.

The Con­ti­nen­tal Free Trade Area (CFTA) will cre­ate one of the world’s largest free trade blocs, with 44 coun­tries now signed up.

Of the ma­jor economies, only Nige­ria has ab­stained, and Leke be­lieves that po­si­tion is likely to change in the near fu­ture.

Progress on the deal will be sup­ple­mented by the eas­ing of travel re­stric­tions be­tween African na­tions.

McKin­sey re­search shows 21 of the 54 states now al­low visa-free or visa-on-ar­rival ac­cess to all African na­tion­al­i­ties - up from just three in 1983 - which has led to in­creases in busi­ness and tourism vis­its.

Rwanda and Mau­ri­tius are among the lead­ing ben­e­fi­cia­ries.

Leke cites on­go­ing progress with busi­ness-friendly re­forms as a cause for optimism in the com­ing years, with faster pro­cess­ing times for per­mits and reg­is­tra­tions and re­duced tar­iffs be­com­ing con­ti­nent-wide trends.

Four African na­tions fea­ture among the World Bank’s top 10 most im­proved for ease of do­ing busi­ness. With un­prece­dented num­bers of ma­jor busi­nesses in Africa seek­ing to ex­pand and di­ver­sify in mul­ti­ple coun­tries, Leke be­lieves it is im­per­a­tive that bar­ri­ers are fur­ther low­ered - and that gov­ern­ments recog­nise this too.

“Africa’s Busi­ness Revo­lu­tion” projects the value of man­u­fac­tur­ing across the con­ti­nent will dou­ble to $1 tril­lion by 2025, and cre­ate up to 14 mil­lion jobs in the same pe­riod. This should en­sure greater self-suf­fi­ciency as well as a health­ier trade bal­ance with a shift to­wards ex­ports.

Leke points out that in some cases fall­ing com­mod­ity prices have forced gov­ern­ments to em­brace di­ver­si­fi­ca­tion of their economies, breed­ing long-term re­silience. Nige­ria’s oil price crash led to greater em­pha­sis on man­u­fac­tur­ing which should lead to scaled-up ex­ports in the com­ing years.

McKin­sey re­search sug­gests the great­est gains are to be made through ad­vanced man­u­fac­tur­ing, cit­ing Morocco’s bur­geon­ing car in­dus­try as an ex­am­ple.

Ethiopia’s in­dus­trial parks are also de­liv­er­ing strong re­turns and could be prof­itably im­i­tated else­where.

De­vel­op­ing part­ner­ships with Chi­nese firms, draw­ing on their re­sources and ex­per­tise, will be a ma­jor asset for African man­u­fac­tur­ers in the com­ing years.

Progress in the phar­ma­ceu­ti­cal in­dus­try is associated with mul­ti­plier ben­e­fits such as tech­nol­ogy ad­vances and im­proved health in­di­ca­tors.

From a low base, phar­ma­ceu­ti­cal com­pa­nies in Africa could see rapid gains in the com­ing years.

McKin­sey es­ti­mates the sec­tor could be worth $65 bil­lion by 2020 - triple its value in 2013.

To re­alise such gains will re­quire a more eas­ily-nav­i­ga­ble reg­u­la­tory sys­tem, scaled-up pro­duc­tion in­fra­struc­ture, and shrewd spe­cial­i­sa­tion.

Not all African coun­tries have the re­sources to de­liver in the sec­tor but McKin­sey sug­gests that re­gional hubs in more ad­vanced economies such as Nige­ria and Kenya could be “vi­able if care­fully ex­e­cuted”.

Lo­cal pro­duc­tion could lower the cost and im­prove the qual­ity of med­i­cal drugs, as well as aid­ing the de­vel­op­ment of high­value skills and tech­nol­ogy.

Ru­ral elec­tri­fi­ca­tion re­mains one of the con­ti­nent’s ma­jor chal­lenges, with around 600 mil­lion peo­ple in Africa still un­con­nected.

But one of the con­ti­nent’s most en­cour­ag­ing tech­nol­ogy sto­ries is that en­trepreneurs and start-ups are step­ping into the breach.

Kenya-based com­pany M-Kopa’s home so­lar en­ergy kits have al­ready con­nected an es­ti­mated 600 000 house­holds, fi­nanced by mo­bile money, and that fig­ure is likely to soar in the com­ing year with heavy­weight in­vestors sup­port­ing the ven­ture.

The com­pany ex­pects to pass $100 mil­lion a year an­nual rev­enue in the com­ing years.

M-Kopa’s suc­cess is be­ing fol­lowed up by Uganda-based Fenix, which had sold 140 000 so­lar kits by 2017, and BBOXX which distributes kits in 10 African coun­tries.

New start-ups are rapidly pro­lif­er­at­ing to fill the space.

These ini­tia­tives have cre­ated jobs and stim­u­lated eco­nomic ac­tiv­ity in ru­ral ar­eas.

But their true power lies in “open­ing a whole univer­sity of op­por­tu­nity” for marginalised peo­ple, says Leke.

From al­low­ing chil­dren to do their home­work at night to the new pos­si­bil­i­ties of the In­ter­net, off-grid en­ergy could go a long way to re­leas­ing po­ten­tial across the con­ti­nent.

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