Earlier this month, Mckinsey & Company released a report titled: Lions on the Move II:Realizing the potential of Africa’s Economies. The report seeks to showcase some of the opportunities and challenges expected in Africa in the next decade or so. The publication paints a rosy picture of Africa’s potential and the opportunities. Indeed a background of the report shows that African countries are making progress in various issues while also continuing to face teething problems. Africa’s overall growth has slowed in the last 5 years. The main countries contributing to slow down are the North African countries mainly due to slowing economic fortunes especially in Nigeria and Arab Spring in Egypt, Libya and Tunisia. However, in the rest of Africa, between 2010-2015, GDP growth averaged 4.4%. Productivity grew by an average of 1.3%. The decelerating economies have also been the continent’s six largest: South Africa, Nigeria, Egypt, Algeria, Angola and Morocco.The Accelerating countries are: Ethiopia, DRC, Gabon, Madagascar, Namibia, Senegal, Ghana, Gabon, Tanzania and Kenya. Based on these observations the reality is that Africa’s countries show different aspects of growth because the underlying factors affecting economic growth tend to differ from one region in Africa to the other. Therefore both local and foreign investors cannot just use blanket assumptions in making investment decisions in the continent. Nonetheless, Africa’s growth remains promising. By 2050, Africa will contribute up to one quarter of the workforce in the world. During that time also, one in four people in the world will be African. Africa will indeed have arrived in the world stage. Which areas are leading Africa’s projected potential growth? The report is detailed and expansive but I have picked a few of the main areas for basis of this blog post.
Population: The greatest weapon that Africa has is young and vibrant population.
This coupled with high rate of urbanization mean that Africa will have the world’s labour force outpacing China and India. Technological innovations are also expected to contribute to next wave of job creations in as much as it will wipe out some of them. By 2030, the workig age population is expected to be 1.1 billion, larger than that of China or India.In some of the developed countries, one third of the workfore could retire by 2025 whereas the rate of joing the workforce is low in those countries. The challenge is for Africa to develop quality jobs to meet demand or otherwise this opportunity could turn to a disaster.
Manufacturing: Africa has the potential to almost double its manufacturing potential from the current $500 billion to $930 billion by 2025.
This will only happen if African governments can create a conducive environment for manufacturers. Mckinsey outlines: access to electricity and road infrastructure networks as some of the main areas that need to be improved. Kenya is not short of megaprojects: SGR, LAPSSET, expansion of highways, resort cities, geothermal energy and expansion of JKIA and Isiolo airports among others. A lot remains to be seen as how the government will ensure an all round inclusion, demand and supply sides, to ensure these projects serve the purpose they are meant to. In the current state, Africa imports one third of food, beverages and other consumable products. This trend can be reversed if local companies can leverage in value addition of agricultural products. However, for Africa to match and even overtake global manufacturers several things have to be taken into consideration. Low labour costs alone will not be enough to turbo-charge the manufacturing sector. Other aspects such as labour productivity, cheap and reliable electricity, industrial land, movement of goods, financial environment among others are important. One thing I realize is that the reference to ‘affordable and reliable electricity‘ has been repeated many times in the report. Indeed electricity is important for manufacturing, urbanisation and other aspects of processing industries. The focus on connecting more people to the grid has garnered pace in Africa in the recent past. The current kenyan government focus on rural electrification is one of them. Also recall Akon’s Lighting Africa project that aims to connect 600 million people to power. Morocco is set to have the world’s’ largest solar power plant with capability of lighting 1 million homes when completed in 2018. Many opportunities can be unlocked fully with access to electricity. The next major challenge will be ensuring stable and reliable supply.
Corporate Africa: Africa has about 400 companies with combined revenue estimates of over $1 billion annually. However, still there is no Africa-owned company in the Fortune 500 companies. China has 98 on the list. Brazil and India have 7 each. Half-of the Africa’s most successful companies are in South Africa. Mckinsey report recommends that Africa’s companies should focus more on areas that are not yet fully exploited such as:light manufacturing, agri-processing, healthcare, financial services, wholesale and retail and construction. However, for corporate Africa to continue to grow, there needs to be more focus on innovation based growth models. Only 23 out of top 100 companies in Africa have expanded through technological or business model innovation. Innovation-led growth is much higher in other countries especially Asia. Equity Bank is one of those pursuing innovation-led growth. It began by focusing on segments of the population that were financially excluded through agency banking and zero account opening fees. Safaricom also built a new business model by leveraging on mobile phone technology. CBA, has increased accounts from 64,000 to 12.9 million by end of 2015, thanks to M-shwari. It has done this by leveraging on a virtual platform and not much of opening up many branches. As Carol Musyoka put it here in the Business Daily, we are entering a period of data pool with the launch of Equitel whereby customer behaviour will mainly be done through data analytics. There is room for such innovation led growth.
Urbanization: Over the next 10 years, an estimated 187 million people will live in cities across Africa. Urbanization has a strong correlation to GDP because productivity in cities is more than in the countryside. Higher productivity translates to higher incomes, better education, new markets etc. The challenge will however be on how to cope with transportation, decent housing and services for people.
Technology: The last major aspect in the report is tech in Africa. Technology is a major defining force not only in Africa but the world. Usage of internet and mobile phones present the major opportunity in this area. 50% of Africa’s population are expected to be using smartphones by 2020. In 2015, the figure was 18%. Internet has the potential to contribute up to 10% of GDP by the year 2025. This trend is mainly being seen in retail, healthcare, education and banking sectors. There are various trends in this industry that are expected to continue growing. East Africa is the global leader in mobile money, ambulances using mobile phone technology to improve response, education through e-learning, on-demand services through smartphones etc.
Creative industry: This category is not in the Mckinsey report but i believe it is one of the most overlooked sectors despite its massive potential. Creative economy is classified as one consisting of film, design, fashion, crafts, music, performing arts, advertising, literature, TV, publishing and video games. According to Kenya Economic survey as explained by Daily Nation , the creative industry is estimated to be worth 3.4 billion kenyan shillings, employing 67,000 people in 2013. I watched the Kenya national music festival that took place in Kasarani recently, and my brother and i wondered what happens to all these talented people after the show is over. What happens to the best students after they perform for the president every year in state house? The answer: most of those students end up in university taking courses that they have no interest in and end up not getting jobs. Also, in the above article by Daily Nation, Bitange Ndemo says that “global content giants are taking advantage of our irrational behaviour and have started to archive our own cultural material such that in future, we shall buy it from them”.
Nollywood is considered as the second largest movie industry in the world after Bollywood. (in terms of of number of movies produced annually). According to African Business Magazine Nollywood is the second largest employer after agriculture, with about 130 people having temporary jobs per movie and with capability of producing 50 movies per week. Nigeria leverages on fast production and high rate of home consumption. There is differing data about Nollywood but this article by Daily Nation says that it generated $800 million in revenue in 2013. India’s Bollywood contributes $21 billion to the economy of India. In USA, creative industry led by Hollywood is worth a staggering $504 billion having more impact than even the tourism industry, this is according to Guardian. Creative industry, especially the film industry is used to spread worldviews and cultural ideologies. Look at how much we are influenced by American movies. For us to exert more influence in the world, we need creatives to spread our culture globally. Look at the oscar-winner Lupita. Edi Gathegi is also doing great. Lupita has been on the forefront in showcasing Kenyan fashion designs to the world. She even shared ugali recipe on vogue. Check it here. I have digressed from the Mckinsey report but all in all I guess it is upon us to see how we position ourselves to drive growth and opportunities in respective sectors in years to come. The Asian tigers are slowing down, Africa Lions are on the move, let’s go hunting.