Posted in Finance Articles, Total Reads: 2480
, Published on 25 October 2011
Scene-1: Africa - A decade ago
Conflicts chaos and disorder havealwaysbeen looming over Africa. Week administration and leadership always struggled to strike co-operation and integration amongst people. Inadequate transport and power infrastructure scared off industries. Poor human resource quality in terms of soft and hard skills barred growth in services industry. Besides inadequate capital investment, weak process systems and IT with neither accreditation nor certifications crippled growth. This was the scenario a decade back. The scenario now quite different is not the best possible.
Scene -2 Africa - Now
27 out of 30 economies in the continent reporteda growth. Rapid urbanization, rise of bourgeoisie class from a modest 28% in 1980 to about 40% in 2008 is comparable to China and India at the same GDP level. In 2008 roughly 85 million Africans earned yearly $5000 or more which accounted for almost 50% disposable income.
Africa Proliferating industries:
Africa’s recent growth has created great opportunities in industries like Consumer, good, resources, agriculture and infrastructure. The continents household spend was $860 billion in 2008 more than that of Russia and India The countries 5 largest consumer markets are Alexandria,Cairo , Cape town, and the fast growing ones are Ibadan, Dakar. The average growth rate during the period 2002 to 2007 was 8%.
Agriculture sector has been promising for companiestargeting export of processed food and agro-based business. This sector has grown at an average rate of 5.5% between 2002 to 2007 with 12% share in total growth. The world food crisis and inflation was well capitalised for the proliferation of this sector.
Resources: the continents reserve for precious metals and mineral had proved it to be one of best sector for investment. This sector over the same period grew at 7.1% and had 24% share in the overall growth of the continent.
Economies of Africa
The Sub Saharan economies that has major contribution to Africa’s growth can be divided into four categories
Resilient economies- Egypt, Morocco, South Africa and Tunisia diversified its revenue structure. Retail, banking telecom and construction accounted for 70% of it s GDP. Rapid urbanization and growth in consumer spending by 3-5% and increased ties with global economies reduced volatility in growth. However, high labourcost in these parts can be a challenge to expanding export.
Oil exporters-Algeria, Angola and Nigeria earned 1 trillion in between 200 and 2008 honing just their petroleum wealth. While this is good, sustainability to attainsustainability in these their economy should be diversified as was with Indonesia.
Transient- Economies like Ghana Kenya and Senegal have agriculture and resource sectors accounting for 35% of the GDP and 2/3rdof this is due to the export of processedpetroleum, manufactured goods, cosmetics, chemicals and apparels, to other African countries.
Pre-transient Economy- these economies can be categories as poor with GDP of $353. Three of the largest are Democratic republic of Congo , Ethiopia and Mali , that grew on an a average of 7% since 2000. But there growth show high fluctuation.
What went right?
External trends in the world economy&internal restructuring of policies and strategies.
Global surge in oil prices from $20 an barrel to $145 in 2008 and inflation in food prices due to rising global demand brought more export revenue. Growth in commodity sector made 24% of Africa’s GDP. The rest came from retail trade transportation, telecommunication and manufacturing.
Policymakers also realised the need forGovernmentalinvolvement to restore peace, integration, unity and cooperation between countries, communities and masses.Better fiscal and monetary policies ensured controlled inflation, fiscal deficits, energise markets, reduced trade barriers, reduced corporate taxes, and privatised state owned enterprises. These enabled privatebusiness to benefit from economies of scales, greater investment and healthy competition. Besides the socio- economic and demographic shifts also underwent changes. There were government aids to develop varied sources of economic growth from resources and agriculture. It also encouraged financing import good with revenue generated from exports.
While this is the average growth status of the continent individual countries display and range of growth levels. While some are resilient, some are transitions and pre-transition, other are largely oil exporters.
Prospects of Future:
Once the economic surge is visible it is important to assess its sustainability. History is witness that Africa’s growth and development is short-lived. The oil boom during 1970 subsided soon after its rise and remained so for the next two decades.
The global demand for oil, food and other commodity is here to stay. With 10% of the world’s reserves in oil, 40% in Gold, (approx.) 80% in chromium and platinum, Africa is a storehouse of mineral resources.
The discretionary income is projected to rise above 50% over the 10 years reaching 128 million. By 2030 the country’s top 18 cities can have a combined spending power of 1.3 trillion. The increasing socio economic and demographic profile will ensure greater working class population and labour force with promising human capital value.By 2020 Africa is expected to have the world’s largest working age population. The rate of return for foreign investorsbeing higher in Africa than in anothercountry, a sizable quantity of FDI is expected for the continent. An Early entry can give the first mover advantage in each of the growth industries.
Agriculture industry: With 60% of the world’s arable uncultivated last this continent is up for a green boom. Investment in this sector can see sky rocketing growth for business.
Resources industry: Business looking into export of gold, chromium, platinum can look forward to an annual rate of growth at 2 to 4%.
Consumer Goods industry: The household expenditure is projected to be 1.4 trillion over the next decade if GDP grows at the current pace.
Risks of investment in Africa.
Africa’s growth and prospects is dependents on a few economies. Due to its highly varying level of growth between countries across the continent , business strategies for each economy has to be customised to capitalise on specific trends and meander the drawbacks. The most diversified economies have average quality, high cost labour which may hinder growth in exports of labour. As oil exporterssome economies are still vulnerable to problems like political instability, momentum of economic reforms, temptation to resist over expenditure and overinvestment which can harm commodity prices and creating conducive business environment for business. The consumer facing market at a steep rising slope in most economies but keeping their purchasing power, and demand intact is a challenge for marketers. Honing frugal engineeringnew product launch should fit the exact customer demand.
Risk Management and Sustainability Techniques.
Consumer base of Africa is more than 900 million while only more than half lives on less than a dollar a day.To leverage on human capital general education and skill based training should be provided .Good investment in infrastructure willmake doing business easier in these parts. Conducive regulatory reformsand policies by administrators to protect business men, consumers and investors would ensure long term profitability. With the instability in growth in developed economies of the world, Africa should focus on expanding intra African trade so that an export revenue growth is maintained. Encouragement and investment in research and development in eth field of mines like theones found in Ghana and Uganda would strengthen the resource industry. The key issue on pre-transition economies is mainly lack of stable governments and public institutions and sustainability in macroeconomic and agricultural developments.Thus to ensure a sustainable growth it’s not only adequate to have good business strategies but considerable
1.http://www.africa-business.com/features/succeed.html 2.http://allafrica.com/stories/201109240231.html 3.http://www.africaopenforbusiness.com/business.htm 4.http://www.afribiz.net/content/the-dividend-of-africas-demographics-aspects-of-this-growing-consumer-market 5.http://www.au.int/en/sites/default/files/Strategic_Plan2009-2012.pdf 6.http://www.iwim.uni-bremen.de/africa/Suedafrika05/merwe.pdf 7.Sources for graph: Mckensey Global Institute : Lions on the move the progress and potential of African Economies
This article has been authored by Pamela Chandra from Goa Institute of management
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