Investment Opportunities In Africa : In 2010, after a decade-long commodities super cycle, a report by McKinsey Global Institute. The progress and potential of African economies revealed an optimistic growth story in Africa.
But the recent drops in the prices of oil and other commodities have changed the picture, with the average annual growth rate for the region slowing from 5.4% between 2000 and 2010, to 3.3% between 2010 and 2015.
In light of this, McKinsey’s latest research report. Realizing the potential of Africa’s economies, highlights a number of economic realities and new opportunities that businesses should be aware of.
1. B2B services represent a larger opportunity than consumer market
With Africa’s consumer market has made headlines over the last decade, McKinsey’s that the relatively untapped business-to-business (B2B) sector offers an even a larger opportunity. In 2015, companies in Africa spent $2.6tr on B2B – 40% of which was in Nigeria and South Africa.
2. Cities are key to capturing Africa’s consumer opportunity
Household consumption is expected to grow by 3.8% per year over the next decade, from $1.4tr today to $2.1tr. To tap into this opportunity, McKinsey advises consumer-facing companies to focus expansion strategically on key, large cities.
“Per capita consumption in large cities is 79% higher than the average of these cities’ host countries.
“Consumption is highly concentrated in a small number of cities—just 75 cities across Africa accounted for 44% of total consumption in 2015; this will increase to 49% of total consumption by 2025.”
3. Nigeria account for more than 20% of African consumption by 2025
Nigeria’s current struggles with slower growth, local-currency weakness, and high inflation have placed pressure on consumers. However, McKinsey research shows that the populous West African market will account for more than 20% of African consumption in 2025.
4. Large African companies are growing faster than global peers
According to the report, the continent has 700 large companies with an annual revenue of more than $500m each, with 400 generating more than $1bn per year
“In addition, there appears to be significant potential for further growth given the fact that these six sectors today remain relatively fragmented: consolidation could unleash even more opportunity for corporate Africa,” notes the report.
However, Africa has only 60% of the number of large firms in other emerging regions. Furthermore, their $2bn average annual revenue is half that of large firms in Brazil, India, Mexico and Russia.
“Companies looking to grow across the continent should develop a strong position in their home market, use that as a base for expanding into markets well beyond their immediate region, adopt a long-term perspective and build the partnerships needed to sustain success over decades, and be ready to integrate what would usually be outsourced.”