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Africa- The New Market

Posted in Finance Articles, Total Reads: 3178 , Published on October 25, 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

  1. 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.
  2. 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.
  3. 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.


  1. 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



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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