AFRICA - THE NEXT GROWTH MARKET
Posted on : Thursday, 24th November 2016
Africa is currently home to five of the fastest growing economies in the world. According to a global study, the continent's economy is forecast to grow to $2.6 trillion in 2020 from $1.6 trillion in 2008, fuelled by booms in mining, agriculture and development of ports, roads and other infrastructure. This rapid economic growth is what is creating substantial new business opportunities in the region.
Over the past decade, Africa’s real GDP grew by 4.7% a year, on average—twice the pace of its growth in the 1980s and 1990s. This growth was observed across all nations and sectors. By 2009, Africa’s collective GDP of $1.6 trillion was roughly equal to Brazil’s or Russia’s, making the continent among the fastest-expanding economic regions in the world today.
While the Chinese economy has slowed down, along with a slump in the Middle East economy due to low oil prices, the African economy has been steadily on the rise. In fact, Africa was the only continent that grew during the recent global recession. Though Africa’s growth rate slowed to 2% in 2009, it bounced back to nearly 5% in 2010 and has continued to grow ever since.
As Africa’s economies progress, opportunities are opening in sectors such as retailing, energy, banking, infrastructure-related industries, resource-related businesses, and all along the agricultural value chain. Consider that telecom companies in Africa have added 316 million subscribers—more than the entire U.S. population—since 2000.
According to a UN survey, Africa offers a higher return on investment than any other emerging market. The main reasons highlighted for this are competition being less intense, the presence of fewer foreign companies and a huge pent-up consumer demand. Companies that desire revenues and profits can no longer ignore Africa.
Getting in early to a developing market allows companies to build up strong brands and sales channels that can reap big profits in the long run. This has been China’s strategy in Africa over the past two decades. It has aggressively promoted trade and investment, courting countries by offering aid in exchange for favourable trade terms. Good local partners are also key to success in the African market.
Africa’s long-term prospects are strong, because both internal and external trends are propelling its growth. Africa will continue to profit from the global demand for oil, natural gas, minerals, food, and other natural resources. The continent has an abundance of riches; including 10% of the world’s oil reserves, 40% of its gold ore, and 80% to 90% of its deposits of chromium and platinum group metals. To exploit them, African governments are forging new types of partnerships in which buyers from countries such as China and India provide up-front payments, invest in infrastructure, and share management skills and technology.
Since 2000, African countries have cut their combined foreign debt from 82% of GDP to 59% and reduced budget deficits from 4.6% of GDP to 1.8%, which sent inflation rates tumbling from 22% to 8%.
Many people picture Africans as subsistence farmers, but there’s a sizable middle class on the continent. By 2008, 16 million African households had incomes above $20,000 a year—a level that enabled them to buy houses, cars, appliances, and branded products. Africans spent $860 billion on goods and services in 2008—35% more than the $635 billion that Indians spent, and slightly more than the $821 billion of consumer expenditures in Russia.
If Africa maintains its current growth trajectory, consumers will buy $1.4 trillion worth of goods and services in 2020, which will be a little less than India’s projected $1.7 trillion but more than Russia’s $960 billion, which should make Africa one of the fastest-growing consumer markets of this decade.
