Why Multinationals Companies should be optimistic about Africa's economic growth

By Patrick Mayoh

Most people rightly associate Africa with poverty, political coups, famine, displaced families and economic stagnation to name just a few. I wonder who has not heard of Ethiopia, Dar four or Rwanda. Yet this state of things seems to be about to change. And I would not be surprised just as my title suggests, if Africa becomes the next economic success story of the next decade

Now to the fact; I have been reading a couple of articles and reports on the continents from the Mc Kinsey Global institute, when it comes to data and facts, Mc Kinsey is definitely the best in the game. Therefore when recently I realised they had not only one but quite a fair amount of reports and encouraging figures about the continent I became quite intrigued. One of those articles actually looked into those factors that account for the economic growth of the continent. Others focused on investment opportunities and some interestingly emphasized on those areas of the continent where growth would be more likely to take place. Personally I believe three things are to be learned from this research and for potential investors on the continent.

Firstly Mc Kinsey Global Institute made frequent mentions to the rise of the "African Consumer". A term that simply indicates that more and more Africans have seen their income increased. In fact according to figures released by the MKGI in 2009 at least 80 million households on the continent earned $5000 per annum, the level at which a family can start making savings and spend on items other than food or clothing. According to Norbert Dorr managing director of Mc Kinsey in South Africa this is set to grow and to increase in the future; as a matter of fact in 2014 such households will reach 106 million. African even has more middle class households than India which means in a very near future strong demand for local and more sophisticated products will soar. No wonder why the giant retailer Wal Mart recently made a move to South Africa in what could be described as an unprecedented move for the American retail giants on the continent.

Secondly The collective GDP of the 53 economies of the continent in 2008 amounted to $1.6 trillion roughly equal to Brazil or Russia. The continent's GDP rose by almost 5% between 2000 and 2008 the double of what would happen in the 1990s. True,natural resources may have a great deal to with that namely the sharp increase in oil prices and other mineral but MKGI research also indicate that natural resources only account for 1/3 of the continent's real growth. Actually, structural and internal reforms across the continent's governments have a great part to play. With average inflation rate reducing from 22% in the 1990s t0 8% in the 2000s, Africa's economies were able to reduce their foreign debt by 1/4 as well as reducing their budget deficit by 2/3. The message is clear, given the right internals changes and provided the same policies are applied across all the countries at a consistent rate, Africa could be braced for the same level of foreign direct investments seen in china.

Urbanization will spearhead the economic boom of the continent. In the 1990s just 28% of Africans lived in the city, this is just set to change as approximately 40% of Africans live in cities even more than in India and roughly about the same like in China. The good news is, by 2030 this percentage will increase to 50% and Africa's top 18 cities will cumulate a spending power of $1.3 trillion according to the MKGI. Although urbanization usually brings misery and even more poverty like in mumbai of India, in Africa the trends are set to be reversed with a boost in productivity and greater investments in infrastructure and other related industrial activities, creating jobs and allowing companies to have a greater economies of scale. Africa is expected to have a working force of 1.1 billion by 2030 even more than China and India boosting economic growth and infrastructure investment between 2006 and 2009 averaged $19 billion.

Conclusively there are definitely good reasons to invest on the continent. The stereotypes attached to the Africa's economies might be detrimental to investors as the continent seems to be booming with opportunities. Indeed Africa is changing.

References

Acha Leke, Susan Lund, Charles Roxburgh, and Arend van Wamelen (2010) What is driving Africa's growth

available on the following link: https://www.mckinseyquarterly.com/Economic_Studies/Productivity_Performance/Whats_driving_Africas_growth_2601

McKinsey Global Institute (2010) Sizing Africa's opportunities growth

available on the following link:

https://www.mckinseyquarterly.com/Economic_Studies/Productivity_Performance/Sizing_Africas_business_opportunities_2633

McKinsey Global Institute (2010) Can Africa continue to grow?

Available on the following link: