Africa's Quantum Leap: Will you be there when it happens?
Friday, 22 August 2014
There would certainly appear to be a lot of reasons to stay away from Sub-Saharan Africa (SSA) at this time. For some executives, postponing one’s African entry and expansion plans might make life a bit easier and many corporate boards would be sympathetic to this suggestion.
But here’s the thing: despite all the challenges, the hardships and the risks of doing business in Africa, the economy is actually booming. It is booming because of the energy and ambitions of nearly 1 billion SSA people and because many of the most pressing barriers to development are slowly but surely coming down. Democracy is on the march. Power is on the agenda and has been privatised in places like in Nigeria. Economic growth in SSA is forecasted to reach 5.2% in 2014, up from 4.7% in 2013. Nigeria, Africa’s largest economy, has a current estimated GDP per capita of $2,827 (which is expected to rise to $3,781 in 2018, an increase of 7.5%). This will not only improve the quality of lives, but also generate a consumer class that is more demanding.
From a sector perspective, Resource Development continues to play a major role, but Telecommunications, Consumer Goods and Real Estate are also expanding. Major African companies like Airtel Africa, South Africa’s Shoprite and Nigeria’s Dangote Group are expanding rapidly, driving intra-African investment. Mobile Technology is pioneering leapfrog business models in Financial Services, Agriculture, and Healthcare while E-payment services are going viral due to their affordability. All these elements make SSA an attractive destination for investors.
Furthermore, in order to facilitate this, African Governments have figured out they need to co-operate on a regional basis. Take the U.S.-Africa Leaders Summit earlier this month for example: $7 billion in new financing was announced to promote exports and investment in Africa under the Doing Business in Africa (DBIA) Campaign. Other commitments amounting to over $33 billion in key sectors such as Clean Energy, Aviation, Banking, Construction and Power are aimed at stimulating economic growth in Africa. A United Nations report released earlier this year showed that FDI flows to Africa increased almost 7%, reaching close to $56 billion last year, and this trend is set to rise.
As a comparison, I first visited China in 1983 when there was not a single private car. By 2008, China had become both the largest market and the largest producer of cars. In just 25 years. Few major companies that did not enter China in 1990s are successful there today.
One could say that parts of Africa are where China was in 1983, but moving even faster. Africa’s business people are making it in extraordinarily challenging conditions – the business equivalent of distance training at altitude. They can create the entire business ecosystem – power, security, infrastructure, human capital – because they cannot take it for granted. And the relentless expansion of Africa business empires, like Dangote, are a testament to these capabilities.
So one can put Africa in the too hard for now category, but if one does, there may be no second chance. To take one example, the war for African banking supremacy is already on. Nigeria, Moroccan and South Africa banks are securing their positions to be one of the top 3-4 banking groups in Africa in 2030, at 20, 50, and 100 times their scale today. Only two international banks are really in the mix, and the chance to be in the game is rapidly disappearing.
As Woody Allen put it, ‘80% of life is showing up’. You can choose to not show up in Africa, but by ceding the battle, do not be surprised if an African company comes after your domestic market in 15 or 20 years.