Africa, as a continent, can become the world’s next powerhouse, provided all the big players involved – the companies and the governments come together and work even harder than before to ensure all the economies keep striving forward.
Many experts are debating whether Africa’s economies have levelled out and are entering a period of low growth, much like China’s economy which has stagnated after years and years of solid growth. Back in 2010, thirty of Africa’s largest economies were experiencing accelerated growth but the scenario has changed somewhat in more recent times; half of the economies in the region are enjoying higher growth rates but the other half are experiencing slower growth.
During the period from 2010 to 2015, Africa posted an average overall GDP growth of just 3.9% per year which is considerably lower than the annual average of 4.9 % they were enjoying between 2000 and 2008. The low growth rates in the recent times however can be misleading. According to a recent report published by McKinsey Global Institute titled “Lions on the Move II: Realizing the Potential of Africa’s Economies”, the lower growth rate can be attributed to two huge factors; the fall in global oil prices and the unstable political environment created by the Arab Spring in countries like Egypt, Libya and Tunisia. Oil exports are one of the biggest contributors towards Africa’s economy and the fall in prices have hit the industry hard. Apart from this, the rest of the industries in Africa have actually seen growth rates increase to 4.4% in the period 2010-2015 from 4.1% in 2000-2010. Investments are proving to be very attractive as many international firms are moving into Africa. FDI is being directed towards building infrastructure and essential services such as hospitals and schools. Market opportunities are rising with investors seeking to develop a network of value chains across the continent. Novel innovations being piloted in the technology sector.
Africa’s future is in good standing. They have the structure and the means to prevent a stagnation in their growth. They have the highest rate of urbanization in the world, and unlike China, their cities are filling up fast. Moreover, while many nations are struggling to balance their dependent and working age populations, it is estimated that by 2034, Africa will have a higher working age population than China or even India. The innovations in the technology sector as well as the investment in the overall infrastructure are paving the way to unlocking new potentials for consumers and businesses, and let’s not forget why Africa was so attractive to foreigners in the first place; they still have abundant natural resources. With such mechanisms and resources in place it is not a surprise that the International Monetary Fund has predicted Africa to become the second fastest growing region by 2020.
The recent fall in the growth rate seems to have little or no effect on spending by African consumers and businesses, totaling $4 trillion annually and expected to grow even more in the coming years. Household expenditure is expected to grow by 3.8% per year to total $2.1 trillion annually by 2025. Business spending is projected to grow even more, from $2.6 trillion in 2015 to $3.5 trillion by 2025.
The potential is huge for Africa. Based on current projections, Africa has the chance to almost double its manufacturing output to $930 billion in 2025 from $500 billion today. However, the projections are based on the assumption that the countries come together and take decisive and appropriate actions to instil a friendly and nurturing environment for manufacturers. Three-quarters of this potential can be fulfilled by African companies. Currently, Africa can meet three-quarters of their domestic demand in the food, beverage and other similar processed goods sector from Africa-based companies and one-quarter is imported. One-quarter of the potential can be fulfilled by increasing the exports of sectors other than oil. By encouraging rapid acceleration of industrialization, industries can witness an increase in productivity levels and the creation of up to 14 million stable jobs in the next ten years, and as mentioned earlier, Africa will have the workforce to fill these jobs. Additionally, this will give them the chance to reduce their dependency on oil.
Despite the rosy picture all these projections portray, the real question still lingers: will Africa be able to come together to achieve all this? The stakeholders involved need to work harder than ever before to ensure a supportive environment is created for businesses to thrive. At the same time, essential government services need to be implemented. It is imperative that the private and the public sector come together for this. Africa has 700 companies that have average annual revenues of more than $500 million. 400 of those companies earn revenues of over $1 billion annually. Because of the vast opportunities available across the continents, these companies are growing even larger and are more profitable than their global counterparts. However, to reach its potential, Africa needs even more companies like these. Compared to other growing regions with similar corporate landscapes, Africa has a lower number of large companies and they are smaller on average. African corporations must step up their efforts and seize the opportunity before them. The 100 largest African companies built themselves from the ground up through a strong foundation in their domestic markets before venturing out to other geographical locations. They did not focus on short term profit growth but rather invest in the long term with an eye on the future. While corporations in the West outsourced their operations, these companies integrated operations. They chose sectors with high potentials and low levels of consolidation. Most importantly, they invested in their people. They nurtured and retained talent and are now reaping the benefits.
The Governments must do their part as well for them to realize their projections. The McKinsey report suggests key issues in productivity have to be addressed and growth has to be driven through six priority areas:
1. More domestic resources should be utilized by improving access to them
2. Aggressively diversify the economy to reduce dependence on any particular sector
3. Accelerating infrastructure growth by building networks of roads and railroads, as well as schools, hospitals and universities
4. Improve regional integration and resolve conflicts that are destroying some of the nations
5. Invest in the future by nurturing the huge working age population
6. Ensure that urbanization is smoothly done with enough opportunities in the urban areas
It will be difficult to meet the six priority goals. There needs to be a monumental change in how the nations are governed. The quality of public leaders must improve and to do that the institutions must improve. Good leaders are needed who have the vision and the determination to adopt drastic reforms in many public institutions and the leaders need support from capable teams who can implement such reforms. Africa’s performance in recent years has shown that it can achieve such growth. They have the advantage of having 54 different, diverse countries each with their unique features and if they can all come together, they will meet their still unfulfilled potential and lead the world once again towards prosperity.