CONTEMPORARY AFRICA
Nigeria, Zambia, Ghana, Ethiopia, Tanzania, Uganda and Mozambique, once among Africa’s poorest and most politically challenged states, are now among the best performers on the continent, with some of the highest growth rates and measures of gross domestic product (GDP) in the world.
This sea change in Africa’s fortunes has seen growing interest in the continent’s bounty from resource-hungry emerging markets – China and India key among them – for more than a decade. Standard Bank predicts that China’s investment could rise by 70 per cent from its 2009 figure to $50 billion by 2015 and that the volume of bilateral trade between China and Africa might rise to $300 billion by 2015.
China has been a key driver of the global commodities ‘super cycle’ that has been turning since the dawn of the new century. The heightened demand for Africa’s oil and minerals, due in part to China’s resource-intensive growth over the past decade, has been a trigger not just for growth, but for large investments in infrastructure as part of offset agreements for acquisition of those resources. New emerging market interest in Africa has also provided a catalyst for global investors to pay attention to what Africa has to offer. Executives who have been sitting on the fence are taking a closer look at the investment opportunities.
Since 2008, emerging market performance has stood in sharp relief to the relative decline of developed world economies following the global financial crisis that pushed investors to look for frontier markets with better potential. Africa, which has experienced average growth of more than four per cent for a decade, seems to fit the bill.
One clear signal of the way the world has changed is reflected in the appeal in 2011 by a former colonial master, Portugal, to its former colony, Angola, for investment to boost the eurozone country’s ailing economy. Angola has been one of the fastest growing economies in the world, with double-digit growth between 2004 and 2008, touching nearly 20 per cent in 2005. Angolan companies have already made significant investments into Portugal in the banking sector, telecommunications and energy and this appears set to rise as Portugal faces further GDP contraction.
Africa’s high population growth, of major concern to development experts a decade ago, is now regarded by some as a key driver of growth and new investment. It is seen as a ‘demographic dividend’ on the back of sustained economic growth across the continent – rather than as a crisis waiting to happen. The African Development Bank in 2011 stated that the size of Africa’s middle class, which it measures as being people of higher than the average income among Africans, but with a lower average than elsewhere, has tripled over the last 30 years to 313 million people, or about 30 per cent of the continent’s population.
Standard Bank of South Africa estimates that more than half of Africa’s population will be living in urban areas by 2030 and 60 per cent by 2050 when the population is expected to be two billion. This trend will have particular significance in already heavily populated countries such as Nigeria, where the cities are likely to have 140 million more people living in them by 2050, and South Africa and Angola, which could see up to 80 per cent of their people living in cities.
Urbanisation, too, was viewed as a major threat to Africa’s progress a decade ago but is now seen as an inevitable part of growth, providing opportunities in a range of sectors because of economies of scale and easy access to infrastructure – which are now considered to be tools in the advancement of socio-economic well-being. Urban poverty rates in Africa are about 35 per cent, compared to 52 per cent for rural areas.
Underpinning this new economic order is greater relative political stability. Peaceful governing transitions through elections have become the norm in many countries. Although Africa experienced two coups d’etat in 2012, in Mali and Guinea Bissau, the continent has generally become more adept at taking action against blatantly undemocratic actions – even though it has failed to act effectively on the subversion of democracy through rigged elections and human rights abuses in countries such as Zimbabwe. Nonetheless, several ‘liberation era’ leaders, many with dubious political records, are moving on and the door is opening to younger leaders more in tune with the growing numbers of young people that make up Africa’s population of one billion.
New technology has played a positive role. The impact of mobile phones has been significant, driving economic growth by enabling business activity at a new level. By 2012 there were more than 700 million mobile phone users in Africa and it is predicted that by 2015 the continent will have the highest mobile subscription rate in the world. This phenomenon has unleashed a range of new opportunities for Africa’s inhabitants in trade, banking, information flows, consumer messaging and other areas. New sea cables connecting Africa to the world have pushed up the availability of bandwidth by more than 60 per cent since 2010, albeit off a low base. The highest increase was in sub-Saharan Africa – 82 per cent to reach 368 Gbps – and in North Africa, which increased by 45 per cent to reach 433 Gbps.
Global brands are jostling for centre stage in an increasingly crowded marketplace as the African consumer becomes a target for international companies, particularly from developed countries, but also from emerging markets and Africa itself. Marketing executives say the message to African consumers needs to expand outwards from traditional media to social networks and mobile phones as people on the continent become increasingly sophisticated.
Multinationals from developed countries are positioning themselves for increased competition from emerging markets. Standard Chartered Bank, brewer Diageo and manufacturers Unilever and Nestlé are among the firms that are ramping up their investments. Nestlé has invested $446 million in Nigeria alone since 2003 and planned another investment of more than $80 million in 2012, with a view to doubling the size of its Nigerian business by 2015. Standard Chartered, which makes ten per cent of its profit from African operations, planned to double its number of branches in Nigeria in 2012 and is looking at expansion elsewhere on the continent, while Diageo has been on the acquisition trail to boost African sales, which already account for 14 per cent of total group sales and have shown annual growth of 15 per cent since 2007.
African companies, too, are growing and expanding. Corporate entities from South Africa, which has been a serious investor on the continent for almost two decades, retain a strong foothold in most sectors and a new wave of top executives from Africa’s biggest economy is rolling across the continent. In other large markets, the number of multinationals is growing as companies in Nigeria, Kenya and other places increasingly take a regional view and are setting up shop, both in their immediate hinterland and further afield.
These companies are mostly in a few sectors – financial services, agriculture and consumer goods. But there is also growth in oil and gas where, out of about 800 companies operating in the sector, more than 100 are African players – in addition to several dozen African state-owned oil companies.
Increasing amounts of private equity are chasing acquisitions and funds are seeing new interest from emerging markets as they exit thriving African companies. The growth of the African private sector has been one of the key changes over the past decade, with West and East African firms in banking, retail and manufacturing increasingly focusing on regional expansion.
Many governments have improved the operating environment for private investors. The World Bank’s Doing Business Index shows that African countries are among the fastest reformers in recent times, with 36 out of 46 countries measured between June 2010 and May 2011 having implemented reforms in at least one of the areas measured by this report. In the six years up to 2011, 43 sub-Saharan countries had made the regulatory environment more business friendly while steps had been taken to harmonise regional business regulation, for example with the 16 Francophone countries that are members of the Organisation for the Harmonisation of Business Law in Africa (OHADA).
African entrepreneurs have a new-found confidence, not least due to the ‘leap frog’ new technologies and media that have given them effective new business tools. Skilled Africans are returning to the continent to take up opportunities with both international and African companies, opportunities that are proliferating in an era of increasing pressure for local hire.
