The below is an excerpt from PwC’s recent Africa Business Agenda report.
With average GDP growth in sub-Saharan Africa more than halving from 3.4% in 2015 to just 1.5% in 2016, the region has witnessed its biggest economic slowdown since the 1990s.
Experiencing a perfect storm of difficulties, such as a decrease in commodity revenues, tighter financing conditions, growing poverty, pandemics, extreme weather events and insecurity, Africa remains a giant with feet of clay.
As underlined by the findings of our latest CEO Survey, African business leaders have much reason to be concerned about their organisations’ growth prospects and those of the continental economy.
Despite the slowdown, Africa is also experiencing a number of economic advances that presents the continent as a ‘land of promises’. Indeed, there are several significant trends that could offer new opportunities and benefits for the population, firms and governments.
Demographic and social change
Africa is experiencing rapid demographic growth and will represent 50% of the world’s population growth from now until 2050, with the potential to become the leading worldwide labour provider and consumption market.
The young working population will attract a large amount of manufacturers and service providers as Asia, Europe and North America contend with aging populations.
In order to respond to the demand, African governments will have to strengthen educational policies. Africa will be obliged to go from a largely unskilled labour force to a skilled workforce in order to develop its full potential.
Agriculture will be one of the keys to success in terms of supporting Africa’s growing population. Due to the collapse in commodity prices, African governments cannot rely on imports anymore and will have to reinforce food security and agricultural development policies in order to satisfy the needs of their growing populations.
According to an FAO study, The Resource Outlook to 2050, the use of arable land will increase in Africa, especially in sub-Saharan countries, where it is expected to increase from 133 million hectares in 1961/3 to 300 million hectares by 2050.
The World Bank explains that this potential increase is due to the fact that a lot of arable land isn’t exploited by agriculture, especially in tropical climate regions.
But the under-utilisation of arable land is only part of the equation – there is also a lot of suitable cropland that is yet to be exploited (in some countries, exceeding 50 million hectares).
Emerging middle class
The African Development Bank (AfDB) suggests economic growth in Africa is tightly linked to an emerging young and technologically savvy middle class. As highlighted in our megatrends analysis, 350 million Africans belong to the fastest-growing middle class in the world.
Due to assumptions of continuous growth, the emergence of this new middle class brings exciting new business opportunities for international and local companies, but also represents a challenge for policymakers and businesses, particularly since middle-class growth and rapid urbanisation are closely bound together.
Due to rapid urbanisation, there will be 12 megacities (over 10 million people) in Africa by 2025. In order to respond to investors’ needs and strategies, PwC set out to identify cities that offer the best opportunities to firms looking for current and future business. The findings of this research are summarised in PwC’s Into Africa: The continent’s Cities of Opportunity report released in 2015.
Our approach is based upon four criteria: infrastructure, human capital, economics and demographics (including society).
Based on these criteria, four of the five top cities are in North Africa. This can be explained in part by infrastructure maturity and an established regulatory framework that favours stable economic and cultural environments.
Africa will have 12 megacities by 2025. In the ‘Cities of Opportunity’ ranking, PwC focused its analysis on GDP, attractiveness to foreign investors, population growth and the growth of the middle class. Most of the cities in this ranking could reach the top of the overall ranking by making organisational changes that focus on education, employment, infrastructure development and technological connectivity.
With rapid urbanisation, energy, food and water supplies will soon become central concerns – and those will be exacerbated by climate change.
According to the United Nations Economic Commission for Africa, a climate increase of more than 2°C could mean a loss of 4.7% of GNP due to a decrease in agricultural productivity. A temperature rise of 2.5ºC to 5ºC would have even worse effects, such as famine for 128 million people and a high risk of flooding for another 108 million.
Rapid urbanisation will make energy, food and water supplies greater concerns.
African Union member states have agreed on a common climate change policy, but this scenario is appearing more and more complex as some industrialised countries, notably the US since the election of Donald Trump, are refusing to honour the 2015 Paris Agreement.
Supported by the world’s highest mobile broadband growth rate, technological breakthroughs in Africa could be a potential answer to some of the concerns raised by the demographic boom, the middle class’ needs, rapid urbanisation and even the impact of climate change.
The digital disruption the continent is experiencing stands to strengthen healthcare, promote education and create jobs that would be a potential answer to the challenges of growing populations. These themes are explored further in Disrupting Africa: Riding the wave of the digital revolution.
Technological innovation could facilitate successful urbanisation.
This African technological leap could drive efficiency in public services, facilitating the organisation and execution of infrastructure projects that grow in parallel with the continent’s rapid urbanisation.
Some megatrends (demographic explosion, growth of the middle class, rapid urbanisation and the technological revolution) are favourable to development. But in order to grow and expand its potential, Africa will need to face the political and economic repercussions of climatic change, not to mention safety and political instability in some areas.
The sustainable development of the continent will remain a long-term project as, for the most part, governments still need to implement the policies needed to spearhead economic diversification, investment in reliable infrastructure and accelerated intra-African trade.
Edouard Messou is Regional Senior Partner for PwC in sub-Saharan Francophone Africa.