It is undeniable that Africa is beginning to find its feet, and starting to run… fast. Once called a ‘hopeless continent’ – a view that was hardly unique to The Economist – Africa is now referred to as ‘the last investment frontier’ by those with a flair for drama and a catchy phrase. The continent’s growth story has sparked media attention and publications like How we made it in Africa originated from the recognised need for an understanding of Africa’s business potential and opportunities.
Naturally there are large hurdles and chances of failure too. Africa, in many ways, still holds on to a number of characteristics that awarded it with its ‘hopeless’ stigma 12 years ago. For this reason, international companies have often had to dip a toe in countries such as South Africa, Kenya and Nigeria with the plan of eventual expansion across the continent in mind.
Africa’s growth is fascinating. It’s exciting. It’s part of the solution not only for Africa’s problems, but companies hurt by economic troubles in the Western world can benefit too.
But how did this turn around happen for Africa? Why the sudden increased investor interest now? According to an interesting report by professional services firm PwC, the 2008 global recession can be thanked in part.
The ‘need’ for Africa
The global recession hit developed markets hard, with Africa only really feeling residual effects. Since then, and with the Eurocrisis, international firms have been looking for markets with growth potential.
“On average, developing countries have an expected five-year compound annual growth rate [CAGR] that is more than twice that of developed economies. Sub-Saharan Africa, Kenya and Nigeria have five year expected CAGRs of 5.5%, 6.3% and 6.6% respectively,” stated the report. “Each of these five-year CAGRs is more than double the average CAGR of developed economies around the world.”
In July, Chinese President Hu Jintao opened the fifth China-Africa Cooperation Forum with the announcement that China will offer an additional US$20 billion in loans to Africa over the next three years. This is double the amount that was offered at the 2009 forum and is a symbol of Africa’s importance for China.
In the past 10 years, China has been a huge investor on the continent. In order to fuel their own growing economy and population, the BRIC powerhouse requires access to Africa’s vast reserves of minerals and other natural resources.
“Global demand for these commodities remains high, resulting in more regular trade and an increase in investor interest for exposure to businesses involved in the production, transportation and trade in commodities,” according to PwC’s research.
“With an already higher than average growth rate, Africa is fast becoming an attractive place to do business – even more so as the vast informal trade sector on the continent means that measured growth over the past decade is likely to have been understated,” added PwC’s report.
Telecoms industry has taken off
Africa’s infrastructure remains significantly underdeveloped. Power outages and inadequate transport infrastructure have resulted in high costs for trade and operating a business. While there are many infrastructure projects in the works, today’s infrastructure just doesn’t meet the demand of Africa’s developing business environment and growing population.
However, the telecommunications sector has taken off like nowhere else in the world and has considerably increased the ease of doing business on the continent. “This has come about thanks to major developments in mobile telecommunications and the laying of a number of submarine fibre-optic cables linking Africa to the rest of the world.”
This is unique to Africa as the continent has managed to leapfrog older technologies. Many Africans do not have a landline, computer, or even a bank account but use their mobile phones to communicate with the world, search the internet and transfer money.
Increased demand and consumption
Africa’s growing consumer base is both a catalyst of growth, and a result. Historically, back when the continent was deemed ‘hopeless’, demand and consumption in Africa was lower than other parts of the world. According to PwC’s research, a significant reason for this low consumption is related to the availability of products.
“In developed economies, unmet demand is generally a result of consumers wishing to upgrade their products. In Africa, however, this demand is most often the result of products not being available at all.”
While infrastructure is partly to blame for this low consumption in the past, today’s Africa is telling a different story. Consumerism is on the rise with a rapidly growing middle class who can borrow money from banks and transact with ease. This is a result of a maturation of Africa’s banking sectors, particularly in the area of mobile banking.
Africa needs to spend the next decade dealing with the various challenges faced by companies. If governments and businesses can collaborate on this, then we haven’t even begun to see how far the continent can grow.