Why Africa, Why Now?

02 September 2014

The positive phrase Africa Rising is now almost as common as the negative images we used to see about Africa throughout most of the previous several decades. Civil wars, coups d'état, natural disasters and famines seemed to be the only news about sub Saharan Africa but now the narrative is changing towards the land of opportunity.

So why Africa?

Sub-Saharan Africa's GDP is projected to reach $2.3 trillion by 2020 and many countries are growing at 7% per annum. Another often quoted statistic is that 7 of the fastest growing economies in the world in this decade will be from Africa. Many of course start from a low base but given the progress of the rest of the world in the last twenty years, Africa has become the final frontier and real progress can be seen in many places. Africa is resource rich and fertile. There are new discoveries of oil and gas being found all the time and vast under-cultivated land and water resources. That is drawing in nations like China looking not only for commodities to fund their own growth but also to secure their position on food.

But of course Africa has had oil and gas in abundance, precious metals, jewels and other commodities for years, so what is different now?  It is consumption not commodity exports that drive growth in wealth and the mobile phone phenomenon demonstrated the potential of the African consumer very well.  Incredibly, a population of a billion (mostly poor) people now has nearly 900 million mobile phone connections. All this has happened very quickly and consumer companies see great potential now as the middle class grows at more than 6% per annum.  This is part of a wider set of favorable demographics: increasing working age cohort, decreasing dependency ratios and ever increasing population.

It's not all good news though...

This more optimistic picture of growing consumer markets and more stability is sadly not the full story.  Perception of risk for investors is higher in Africa than in every other continent and transparency remains a big issue. Most African countries are found in the lowest quartile of the World Bank's transparency index and many have weak institutions and consequently a relatively poor investment climate.

Growth is still severely constrained by poor infrastructure. Economic growth and accelerating urbanisation is putting even more pressure on inadequate power capacity and transport infrastructure remains weak. The World Bank estimates a need for $93 billion of infrastructure investment per annum when less than half of that is actually being spent. Until the continent catches up with this expenditure, power shortages and low transport capacity will continue to frustrate Africa's potential. Health also remains an issue despite some improvements in controlling infectious diseases and many of the most promising economies such as Nigeria and Kenya have internal security problems with terrorist activity. Another major issue is that while primary education coverage has improved, companies still struggle to find the right quality of human capital to implement their plans.

So why now? Take a long term view

Despite these problems which put off investors for understandable reasons, the long term looks promising. There is, as someone said to me recently, always a reason (or excuse) not to invest in Nigeria this year and wait a little longer. However wait too long and you will miss the boat - in the longer term that may be the biggest risk for would-be investors into Africa. The megatrends, as we call them in PwC, are in Africa's favour. The strong demographic growth with improving age mix, the growing middle class, powerful cities being developed by fast-paced urbanisation, the technological innovation that we have already seen in mobile payments for example and growing choice of investment partners from the global south - all creates a powerful mixture that tells me that the next few decades will finally see the growth in Africa that has been dreamed about since independence.

Business may provide the source of wealth creation that the continent has been missing and that six decades of international aid has failed to generate. When recently I stood on the huge reclaimed site of Eko Atlantic City where a new financial centre is emerging from the ocean off the coast of Lagos, I sensed a new confidence and vision for the old continent. Africa is indeed rising at last and I and my colleagues at PwC want to be a part of it.

Paul Cleal | Chair of Africa Business Group
Profile | Follow me | Email | +44 (0) 20 7804 5603

 

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Comments

Classic case of #Riskyopportunityorrewardingobligation#. Either way there is something to lose and potentially so much more to gain.

Nice Piece!

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