The performance of some of Africa’s largest economies in 2018 does not inspire confidence for the year ahead.
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. Follow CNN Africa on social media
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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. Read MoreWith 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.
The ascendent middle powers
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. This picture taken on July 24, 2018 shows workers on a construction site of the new olympic stadium in Ebimpe, ahead of the African Cup of Nations (CAN) 2021.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.
A closer union
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.The African Heads of States and Governments pose during African Union (AU) Summit for the agreement to establish the African Continental Free Trade Area in Kigali, Rwanda, on March 21, 2018.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. Factory employees work on a car assembly line at the Renault-Nissan Tanger Car Assembly Plant in Melloussa, east of the port city of Tangiers on March 12, 2018. McKinsey research suggests the greatest gains are to be made through advanced manufacturing, citing Morocco’s burgeoning car industry as an example. Ethiopia’s industrial parks are also delivering strong returns and could be profitably imitated elsewhere. Developing partnerships with Chinese firms, drawing on their resources and expertise, will be a major asset for African manufacturers 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. Photos: Africa's solar start-upsPower of the sun – Solar energy innovator Henri Nyakarundi with his portable mobile charging kiosk in Rwanda.Hide Caption 1 of 12 Photos: Africa's solar start-upsNyakarundi said he wanted to do something that not only solves a practical problem — charging empty cell phones — but also has a social impact by creating micro businesses for people.Hide Caption 2 of 12 Photos: Africa's solar start-upsIn a recent development, Nyakarundi has decided to make the franchising opportunity free for women and those with disabilities. “They are the most vulnerable group in Africa,” said the businessman.Hide Caption 3 of 12 Photos: Africa's solar start-upsA brand new prototype, developed in Germany with funding from Microsoft and software company Autodesk, will launch this autumn, offering wifi and intranet services to rural communities. Hide Caption 4 of 12 Photos: Africa's solar start-upsNyakarundi’s kiosks are designed for places with high footfall, such as bus stops and marketplaces.Hide Caption 5 of 12 Photos: Africa's solar start-upsThe bulk of ARED’s revenue comes from advertising on the side of the kiosks, which can also be rented out to charities such as the Red Cross, pictured. Hide Caption 6 of 12 Photos: Africa's solar start-upsOther African start ups using solar energy to reach customers off the grid include M-KOPA Solar, a Kenyan company that has launched a low-energy solar television.Hide Caption 7 of 12 Photos: Africa's solar start-upsAs well as televisions, M-KOPA Solar provides solar solutions for radios, lighting and other appliances for customers in Kenya, Uganda and Tanzania. Hide Caption 8 of 12 Photos: Africa's solar start-upsUgandan company Kiira Motors has launched Africa’s first solar powered bus — and plans to expand the country’s solar vehicle industry.Hide Caption 9 of 12 Photos: Africa's solar start-upsThe bus features two battery bulbs, with one connected to solar panels on the roof to provide firepower for the electric motor. The second bulb is available for charging.Hide Caption 10 of 12 Photos: Africa's solar start-upsSouth Africa’s George Airport has become the first on the continent to be powered by solar energy. It harnesses 41% of its energy from the sun.Hide Caption 11 of 12 Photos: Africa's solar start-upsIn Rwanda, an Africa-shaped 8.5 megawatt solar plant east of Kigali came into full production in December 2015. It has boosted the country’s electricity capacity by 6%.Hide Caption 12 of 12
- M-Kopa’s success is being followed up by Uganda-based Fenix, which had sold 140,000 solar kits by 2017, and BBOXX which distributes kits in 10 African countries. New start-ups are rapidly proliferating to fill the space. These initiatives have created jobs and stimulated economic activity in rural areas. But their true power lies in “opening a whole university of opportunity” for marginalised people, says Leke. From allowing children to do their homework at night to the new possibilities of the Internet, off-grid energy could go a long way to releasing potential across the continent.