The performance of some of Africa’s largest economies in 2018 does not inspire confidence for the year ahead.
The business trends shaping Africa in 2019 and beyond
Nigeria has endured a slow recovery from a recession caused by falling oil prices, as has Angola. South Africa entered recession for the first time in a decade.
But away from the flagship economies, emerging powers and international trends offer the prospect of new success stories.
Global management consultancy McKinsey & Company’s new book “Africa’s Business Revolution” identifies areas of potential progress and opportunity across the continent based on original research and interviews with hundreds of CEOs from leading African companies. The authors find regions that recall China before its own period of explosive growth, and suggest pathways that could yield similar gains.
Rapid urbanization will greatly expand the consumer class with disposable incomes, the authors predict, which will lead to a massive increase in business and consumer spending — rising from $4 trillion in 2015 to $5.6 trillion in 2025. In the same period, increased Internet penetration will add $300 billion to the continent’s GDP — roughly equivalent to South Africa’s output.
With the help of Acha Leke, co-author of “Africa’s Business Revolution” and chairman of McKinsey’s Africa office, we pick out some of the major trends and stories to watch in Africa in 2019 and beyond.
When McKinsey surveyed the top 30 African economies in 2011, they found 25 were experiencing “accelerated growth.” In the most recent survey of the same countries, the figure was just 13. Rather than the continental powerhouses, it is the mid-sized economies such as Ethiopia and Ivory Coast that offer the greatest promise.
Leke picks out Ivory Coast as a model of stable progress, having recorded steady growth since emerging from a civil war and financial crisis around the turn of the decade. He cites high levels of government investment and infrastructure development in partnership with Chinese firms as key factors in the country’s performance, and suggests that “huge investor interest” from the private sector can keep the economy buoyant. The coming years should see growth become more inclusive with progress in sectors such as health and education.
While the European Union is under strain from resurgent nationalism within member states, African countries are choosing closer alignment. The Continental Free Trade Area (CFTA) will create one of the world’s largest free trade blocs, with 44 countries now signed up. Of the major economies, only Nigeria has abstained, and Leke believes that position is likely to change in the near future.
Progress on the deal will be supplemented by the easing of travel restrictions between African nations. McKinsey research shows 21 of the 54 states now allow visa-free or visa-on-arrival access to all African nationalities — up from just three in 1983 — which has led to increases in business and tourism visits. Rwanda and Mauritius are among the leading beneficiaries.
Leke cites ongoing progress with business-friendly reforms as a cause for optimism in the coming years, with faster processing times for permits and registrations and reduced tariffs becoming continent-wide trends. Four African nations feature among the World Bank’s top 10 most improved for ease of doing business. With unprecedented numbers of major businesses in Africa seeking to expand and diversify in multiple countries, Leke believes it is imperative that barriers are further lowered — and that governments recognize this too.
“Africa’s Business Revolution” projects the value of manufacturing across the continent will double to $1 trillion by 2025, and create up to 14 million jobs in the same period. This should ensure greater self-sufficiency as well as a healthier trade balance with a shift towards exports. Leke points out that in some cases falling commodity prices have forced governments to embrace diversification of their economies, breeding long term resilience. Nigeria’s oil price crash led to greater emphasis on manufacturing which should lead to scaled-up exports in the coming years.
Progress in the pharmaceutical industry is associated with multiplier benefits such as technology advances and improved health indicators. From a low base, pharmaceutical companies in Africa could see rapid gains in the coming years. McKinsey estimates the sector could be worth $65 billion by 2020 — triple its value in 2013.
To realize such gains will require a more easily-navigable regulatory system, scaled-up production infrastructure, and shrewd specialization. Not all African countries have the resources to deliver in the sector but McKinsey suggests that regional hubs in more advanced economies such as Nigeria and Kenya could be “viable if carefully executed.” Local production could lower the cost and improve the quality of medical drugs, as well as aiding the development of high-value skills and technology.
Rural electrification remains one of the continent’s major challenges, with around 600 million people in Africa still unconnected. But one of the continent’s most encouraging technology stories is that entrepreneurs and start-ups are stepping into the breach.
Kenya-based company M-Kopa’s home solar energy kits have already connected an estimated 600,000 households, financed by mobile money, and that figure is likely to soar in the coming year with heavyweight investors supporting the venture. The company expects to pass $100 million a year annual revenue in the coming years.