This article is an excerpt from a report by EY, titled ‘Why Africa is becoming a bigger player in the global economy’
As investment spreads to more sectors of the African economy, investors are also thinking in new ways about its geography. Investment rationales are less frequently based on country-level economics, and more often focused on urban areas, corridors and regions. Leading cities, such as Lagos (Nigeria), Johannesburg (South Africa) and Nairobi (Kenya) stand out for their financial-technology hubs, middle-class consumers and connectivity.
Africa’s leading cities account for 80% of consumers with the disposable income to acquire assets such as cars, televisions and appliances, according to research from Fraym, a US consultancy. Beyond the top three, other prominent cities in sub-Saharan Africa are: Luanda, Angola; Khartoum, Sudan; Dar es Salaam, Tanzania; and Addis Ababa, Ethiopia.
Kinshasa, the capital of the Democratic Republic of the Congo, stands out as a city with consumer power. It’s on the western side of the country, and a 2,000 km drive from the conflict at its eastern border. “Kinshasa is an under-told story because of the broader narrative,” says Fraym CEO, Ben Leo. “There’s scale in Kinshasa, and a surprising amount of consumer power.”
For the long term, cities have the potential to serve as anchors for region-based investment strategies, in particular given the 2019 announcement of the African Continental Free Trade Area. “It’s going to be a long journey, but 2019 will be remembered as the year Africa finally ‘got’ trade,” says Larry Eyinla, EY Africa regional tax leader. “It’s a monumental commitment that will produce the largest free-trade area in the world.”
The deal is also a signal to investors at a time when they are evaluating global supply chains. In the EY Global Capital Confidence Barometer in March 2020, 52% of executives said the pandemic has led them to consider relocating some of their functions. “Africa can make a stronger play for manufacturing and supply chain opportunities that have been anchored in the east,” says Rod Wolfenden EY Africa markets leader.
The survey also found 36% of companies had already accelerated investments in automation, which suggests Africa will have to compete with technology as well as other regions. “We could see supply chains move back to the US and Europe, because companies will be thinking very hard about having sources too far away from their consumers,” says Eyinla.