By Andrew Ngozo
From Africa to the World
From time immemorial – in fact, since the days of colonialism – Africa has been known as an agricultural and mineral hub. In the century or so that has gone by, the continent continues to be regarded as a resource-rich place where any company that seeks to thrive will do well to set up base.
However, today, many countries across the African continent are economic powerhouses in their own right. From banking, consumer goods, oil and gas to technology and telecommunications, Africa – once termed the ‘Dark Continent’ of the world – has a lot to offer the world economy. Before we explore some of the industries that have given Africa a real voice in the world, it is prudent to note that the continent is blessed with a hard-working populace, one that is innovative and has not allowed the continent’s history to stand in the way of progress.
From an African perspective, one cannot help but see a bright future when examining insights by respected global bodies concerning the continent’s industries. According to McKinsey & Company, a multinational management consulting firm with 105 global offices that conducts qualitative and quantitative analysis in order to evaluate management decisions, agriculture is Africa’s largest economic sector, representing 15% of the continent’s total gross domestic product (GDP) or more than USD100 billion annually. It is highly concentrated, with Egypt and Nigeria alone accounting for one-third of total agricultural output and the top 10 countries generating 75%. Say McKinsey’s Kartik Jayaram, Jens Riese and Sunil Sanghvi: “Agriculture generates only 10% of global agricultural output. There is [still] huge potential for growth in a sector that expands moderately, at a rate of 2%-5%.” They point out, however, that the agricultural sector is faced with challenges that inhibit the faster growth of its output. These include underinvestment and enabling conditions. “African agriculture needs business models that can significantly increase the level of investment from the private and public sectors, as well as donors. Transportation and other kinds of infrastructure, stable business and economic conditions, and trained business and scientific talent are some of the basics required in this regard. While many African countries are making great strides in laying the groundwork some are lagging behind,” they note.
A Substantial Player
For Hilary De Grandis and Gary Pinshaw, Africa’s banking sector has grown rapidly in recent years. According to them, sub-Saharan Africa has become a substantial player in emerging-market banking and can easily compare with other emerging markets, such as Russia. The financial sector is outgrowing GDP in most of the continent’s main markets. For example, between 2000 and 2008, whereas Kenya’s GDP grew by 4.4% annually, its financial sector grew by 8.5%. Nigerian banking reform promoted a swift consolidation from 89 to 25 banks between 2004 and 2006. “This unlocked the sector’s potential and bigger banks with better capabilities could drive down their costs, allowing them to penetrate a larger portion of the unbanked population and to ride on the back of rapid economic growth,” says Hilary, and elaborates that new entrants are also gaining share in countries where governments are allowing private banks to enter. Algeria, for example, has been opening up to private players since 1990. From 1990 to 2006, 12 new private-sector banks entered this market. South Africa’s Capitec Bank leverages a technology-driven, low-cost banking model attractive to formerly unbanked customers. Its business model has four pillars: affordability, accessibility, simplicity, and personal service.
The African Consumer on the Rise
Africa is a continent on the rise – much in the same way that its citizens have swiftly moved from being ‘beggars’ to becoming masters of their own destiny. According to McKinsey & Company, many consumers have moved from the destitute level of income of less than USD1 000 a year to the basic-needs (USD1 000 to USD5 000) or middle-income (up to USD25 000) levels. Many local and multinational consumer companies are already thriving in Africa and are delivering fine returns to their shareholders. To succeed, however, consumer companies must address some major challenges, some of which are familiar to businesses operating in other emerging markets. These include a heterogeneous market structure, low affordability levels, underdeveloped distribution and route to market, as well as talent shortages, for, despite the abundant work opportunities, talent remains scarce across Africa. Truly competing and winning in the long-term, however, will require local know-how and talent. At first, companies will need to bridge the gap by using a mix of local and international employees. Local capability-building programmes, attractive career paths, and apprenticeship opportunities will then be critical to achieving long-term success.
From Voice to Data
Telecommunications has been an important driver of Africa’s economic growth in the last decade. The market is increasingly competitive, and world-class local enterprises are emerging in the field of voice and data services. Revenues have increased and profits are made by service providers. On the other hand, investment in telecoms infrastructure has been pegged at about USD15 billion a year and it continues to grow. According to Zakir Gaibi, a principal in McKinsey’s Dubai office, and Andrew Maske, a consultant in the Johannesburg office, annual growth will, however, slow down to the low double digits but remain quite enviable by Western standards as traditional urban markets become saturated. Penetration in major cities such as Abidjan (Côte d’Ivoire), Lusaka (Zambia) and Libreville (Gabon) is 70% or more. They note that still up for grabs are two key pockets of growth: data and rural voice. Many will attest to the growth of the former, as there has been a significant uptake and use of mobile data services across Africa. Even the most remote rural places have cellphone coverage and an average person has a quasi-smartphone to browse the Internet! The African mobile-phone market has surpassed the 500-million-subscription mark.
According to Andrew and Zakir, about 50% of the growth in voice will come from rural areas, but data services are a large growth pocket that has untold potential to contribute to many markets’ GDP. Social welfare improves as well: many small-boat fishermen in Senegal, for example, now use mobile-data services to select the best ports for unloading their catch each morning, increasing sales by 30%. Applications such as mobile health care will also provide significant benefits, helping governments to stretch thin resources further. “McKinsey’s experience in developing markets indicates that 80% of health care issues can be resolved by mobile phone, at a cost per capita that is 90% lower than that of traditional health care models,” they conclude.