Top 10 Business Opportunities In Ethiopia – Africa’s potential as a growth market for business remains underestimated and misunderstood – as does the potential for business to play a transformative role in solving the continent’s greatest challenges.
Landry Signé Senior Fellow – Global Economy and Development, African Growth Enterprise Professor and Executive Director – Thunderbird School of Global Management, Arizona State University Distinguished Fellow – Stanford University
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Consider one question: How many companies in Africa earn annual revenues of $1 billion or more? Most global executives and academics we speak to estimate fewer than a hundred. Many answer “zero.” The reality? More than 400 such companies exist — and they are, on average, growing faster and more profitable than their global peers.
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Africa’s rapidly growing population and markets present important opportunities for business in an environment of slowing global growth. At the same time, more innovation and business investment is essential to meet Africa’s unmet demand for goods and services, close the gaps in its infrastructure, create jobs, and reduce poverty. Here, we describe the scale of African business opportunities in key sectors and suggest steps investors can take to translate that opportunity into profitable, sustainable ventures.
Five bold business opportunities Africa’s current population of around 1.2 billion people is predicted to reach 1.7 billion by 2030.
Africa’s real GDP grew at an average annual rate of 5.4 percent in 2000-2010, driven in almost equal measures by labor force growth and productivity growth. After a slowdown caused by the shocks of the Arab Spring in 2011 and the collapse of oil prices in 2014, Africa’s growth has recovered and its future prospects look bright. Two indicators from the World Bank underline the continent’s promise. Firstly, of the 10 fastest growing economies in the world in 2018, six were in Africa – with Ghana at the top of the world ranking. Second, in the World Bank’s 2019 Doing Business index, five of the 10 countries that have improved the most are in Africa, and a third of all the reforms recorded globally were in sub-Saharan Africa.
The economic acceleration and improving business environment are underpinned by five long-term trends, all of which are unlocking transformative growth in key economic sectors.
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Africa’s current population of about 1.2 billion people is projected to reach 1.7 billion by 2030. More than 80 percent of Africa’s population growth over the next few decades will occur in cities, making it the fastest-growing urban region in the world. At the same time, incomes are rising across much of the continent, creating new business opportunities in the consumer market.
In total, we expect annual spending by African consumers and businesses to reach $6.66 trillion by 2030, up from $4 trillion in 2015. These trends are driving growing markets in a variety of sectors where Africans have needs unmet, including food, beverages, pharmaceuticals, financial services, healthcare and education.
An industrial revolution is underway in Africa as manufacturers ramp up production of everything from processed food to motor vehicles.
We calculate that African industries have the opportunity to double production to nearly $1 trillion within a decade (Figure 5.1). Three quarters of that growth is likely to come from manufacturing to replace imports and meet growing local demand. But there is also an important opportunity to grow manufacturing exports and make Africa the world’s next great manufacturing center as industries move away from China to lower cost regions. The ongoing revolution among industries without smokestacks, such as tourism,
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Agri-industry, and some information and communication technology services, can be a development accelerator as these industries share three key characteristics of traditional manufacturing – exporting, higher productivity, and high labor intensity.
Poor infrastructure is one of the key barriers to investment and growth in Africa. For example, almost 600 million Africans do not have access to the electricity grid. But while Africa’s infrastructure still lags behind that of other developing regions, significant progress has been made: Africa’s annual investment in infrastructure has doubled to around $80 billion a year since the beginning of this century . That’s a big opportunity for investors and entrepreneurs with the imagination to help solve Africa’s infrastructure challenges.
Africa has long been known for its abundance of resources in agriculture and mineral resources. So far, however, Africa has struggled to translate these resources into shared wealth and sustained economic development. New innovations and investments promise to change that picture and create exciting growth opportunities for businesses. For example, in oil and gas, Africa is rich in unexplored regions with high potential, and the continent has a huge unmet demand for energy. We estimate that the domestic gas market in Africa will grow by 9 per cent a year until 2025, by which time the continent could use up to 70 per cent of its own gas.
Sub-Saharan Africa saw the world’s fastest rate of new broadband connections between 2008 and 2015, and mobile data traffic across Africa is expected to increase sevenfold between 2017 and 2022. Africa has more than 120 million active mobile money accounts, over 50 percent of the global total; this has made many people jump over traditional banking products. This trend will allow companies to improve productivity, speed up transactions, and access wider markets, and could add $300 billion to the continent’s GDP by 2025.
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Africa’s 54 countries are diverse in terms of population, levels of development, growth rates and stability. Although Nigeria has almost 190 million people and Ethiopia and Egypt each have over 90 million people, most African countries have populations below 20 million. Similarly, nine countries make up three quarters of Africa’s GDP, and in 2030 three countries will represent almost half of household consumption on the continent: Nigeria (20 percent), Egypt (17 percent), and South Africa (11 percent). Many smaller countries, however, are growing rapidly and increasing their share of continental GDP and consumption. We expect East Africa and Francophone Central and West Africa to significantly increase their share of overall African consumption.
Africa’s annual investment in infrastructure has doubled to about $80 billion a year since the beginning of this century
In order to serve a significant market, companies must therefore draw up a coherent geographical portfolio with priority countries and cities of operation. We designed one tool, the McKinsey African Stability Index, to support businesses and investors in balancing their portfolios (Figure 5.2).
Three distinct groups of countries emerge from this analysis, each accounting for about a third of Africa’s GDP:
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Stable growers. These economies are less dependent on resources for growth and are proceeding with economic reforms and increasing their competitiveness.
Vulnerable growers. Each of these countries has at least one of three types of vulnerability. Some, such as Angola and Nigeria, are highly dependent on resource exports. Other countries, such as the Democratic Republic of Congo, face security or governance challenges. Finally, countries like Mozambique are vulnerable to macroeconomic difficulties. For investors, fragile growers offer promising growth potential, but they also pose risks that need to be properly assessed and understood.
Slow growers. This group includes Libya and Tunisia, countries affected by the Arab Spring, and Africa’s second largest economy, South Africa. Investors will need to assess growth opportunities at a sector level or use their activities as a base to expand into other parts of the region.
We also encourage investors to think about Africa’s cities, not just its countries, as they build their portfolios in Africa. By the end of the next decade, Africa will have almost 90 cities with at least one million inhabitants (Figure 5.3). Rapid urbanization
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Is one good reason why companies should make cities the central focus of their African growth strategies. Equally important, though, is the fact that the per capita consumption in the big African cities is almost double the average of the host countries of these cities.
Although successful African companies vary widely in their geographic and sector focus, what they have in common is the imagination to see the continent’s unmet needs as opportunities for entrepreneurship, and the long-term commitment required to build businesses of meaningful scale. Indeed, the fastest growing and most profitable businesses in Africa usually see challenges as a driver for innovation.
Successful African innovators are also well aware of the obstacles to the success of their businesses, and are careful to build long-term resilience into their business models. Consider the example of Nigeria’s Dangote Industries, which manufactures goods in huge quantities, and has made founder Aliko Dangote Africa’s richest person. Dangote has built a shock-proof manufacturing model through vertical integration of the supply chain, on-site power generation, robust government engagement, and an in-house manufacturing academy.
For entrepreneurs willing to solve problems and innovate to meet Africa’s unmet needs, there is tremendous opportunity for growth.
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African pioneers are often driven by a deeper purpose. They look at Africa’s high levels of poverty and its gaps in infrastructure, education and healthcare, and they don’t see obstacles to business, but human issues that they feel responsible for solving. Strive Masiyiwa, chairman of the pan-African company Econet Group, said: “Africa is a continent with extraordinary challenges, and it is a copout just waiting for governments to deal with them. If you see a problem, then think about how you can solve a piece of it.”
For entrepreneurs willing to solve problems and innovate to meet Africa’s unmet needs, there is tremendous opportunity for growth. One example
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