Is Africa the new market for the future?

Posted in Finance Articles, Total Reads: 2362 , Published on 03 December 2011
Advertisements

An acronym “BRIC” emerged in 2006 consisting of Brazil, Russia, India and China constituting the four emerging economies in the global scenario. But the world was oblivious of the fact that sooner, South Africa, after decades of poor performance, is likely to join the league leading to the emergence of new term called “BRICS”- S for South Africa.

 

Africa

Going through the statistics reveal that Africa experienced a GDP growth rising from 2.3% in 2009 to 4.7% in 2010 and further expecting a growth of about 10% in 2011. The recovery in Africa after years of colonial rule is strengthened, due to many factors such as rebound of export demand and commodity prices, huge FDI in attractive extractive industries, return of tourists, higher infrastructure investment, high consumer demand, increased investment in service sector example telecommunications, and good harvests in some sub regions. We all know that any country’s organisation, suppliers, customers, competitors and publics operate in a macro environment of forces and trends, increasingly global that shape opportunities and pose threats. So, with the rapidly changing global picture, any country must monitor six major forces: Demographic, Economic, Socio-Cultural, Natural, Technological and Political-Legal.

Let’s start our analysis with the first Macro environment factor – Demographic. It’s a well known fact that “In any economy, people make up markets”. Fernand Braudel once quoted, “In understanding Africa, geography is more important than history. The geographical context is not all that matters, but it is the most significant.“ Thus an in-depth knowledge of demographic developments in Africa helps us understand the key reasons for its growth. The accelerating population growth is often considered an impediment to a country’s economic growth but not in every aspect is this true. Africa experienced a growth of 3% in 2010 from 2.3 % in 1950’s. But this population growth has increased the ratio of youth thus increasing the working man power of the country. Population growth and urbanization often go together, and economic development is closely correlated with urbanization. The literacy level and the quality of education also saw a constant increase thus enhancing the awareness of the working labour.

The second factor which comes into picture is the economic factor. Once the poorest continent, is showing considerable signs of development and scope due to the better implementation of economic policies and structural reforms. They have successfully cut domestic and economic imbalances, thus enhancing economic efficiency. The emergence of Africa’s consumer classes is good news for the multinationals. Although the per capita income of masses has increased, still the purchasing power remains well below that of customers of the developed world. So the foremost priority of the multinationals today is to design and come up with new innovative products that cater specifically to the needs and wants of the locals. Still the growing consumption among the middle classes is playing an increasingly important role as a driver of economic growth. The other major challenge faced by multinationals is that though African market consists of one billion potential customers, but they are spread among more than fifty countries at different stages of development. So, the company need to develop relations with the governments and the local regulator. The biggest asset of Africa lies in the untapped abundant store of natural resources. These stores are the biggest attraction to the global world. Examples of some of biggest global investments in Africa include Tata group, Bharti Airtel, Sasol, MTN, AngloGold, Barloworld, Banks like Standard, ABSA, Netbank and SOE’s like Eskom, IDC, and DBSA.

The third important factor is the socio cultural factor. Africa consists of 53 countries in all having great extremes with some being the wealthiest for example Nigeria, Algeria and also the poorest say, Zimbabwe and Congo. All the countries vary largely in terms of income per capita, savings, debt, beliefs, language, values, culture, habits and thus provide huge market opportunities for the multinationals. So, the companies need to segment the market, target according to their core competency and deliver value to the mass potential consumer market available.

The fourth one which plays a key role is the Natural factor. In today’s economy, huge oil reserves directly lead to large opportunities as the demand for these resources is constantly rising leading to sharp increase in prices. Huge reserves of natural resources with high demand in the global economy especially countries like India and China provide huge market opportunities. Over the last couple of years, the concept of a green economy has also surfaced in the policy discourse. The concept was taken up against the backdrop of recent food, fuel, climate change–related and economic crises, from which African countries were not immune. Delegates to the Seventh African Development Forum in October 2010 called on African governments to “prioritize and promote green economy as a vehicle for addressing the challenges of climate change impacts on ecosystem sustainability and harnessing the opportunities provided by its vast and diverse ecosystems and natural resources.”

Next comes, the technological factor. The major advantage of the fact that so many countries have come late to the development is that now they have leapfrogged and the applications that they have developed are far more advanced than you could see in some of the most developed countries like United States. Tech savvy entrepreneurs and emerging businessman are daily innovating new ways to keep up with growing demands and needs of Africa’s increasingly tech enabled markets. Various programs such as A Self Assistance Program, ECA Science and Technology Network (ESTNET), Natural Resources and Science and Technology (CNRST2) help technological advancements for rising economy.

The last factor involved is politico – legal. Various laws and regulations imposed by the government assure a steady paced growth in the African economy.  For example the implementation of The African Growth and Opportunity Act in 2000 has proved able to foster US–Africa trade. African exports to the US increased from $23 billion in 2000 to $81 billion in 2008. Various Groups like the Southern African Development Community (SADC), comprising of 15 countries including South Africa and Angola, and the Economic Community of West African States (ECOWAS), have been working to remove obstacles to trade across the continent. The OHADA Treaty aims to create standard business laws and institutions in 16 countries, mostly from French-speaking Africa. Finally, the regulated Micro Finance Institutions(MFI) are responsible for the rapid growth and cost containment in the region.

Hence, reducing and containing inflationary pressures, increasing the ratio of domestic savings to GDP, strengthening fiscal performance, increasing private sector investment, restructuring public expenditures and improving export performance are some of the factors leading to the growing opportunities for Africa.

As once quoted by Jim Myers, president of the American Chamber of Commerce in South Africa: "The sophisticated business environment of South Africa provides a powerful strategic export and manufacturing platform for achieving global competitive advantage, cost reductions and new market access."

Thus all the above stated factors combined leads to an emerging power in the global economy called AFRICA.

This article has been authored by Ruchi Gupta from IIT Roorkee.


Advertisements


If you are interested in writing articles for us, Submit Here