No longer stalled on the cusp of change, Africa is in the midst of a historic transformation that is remaking the continent and the globe.
Africa’s population growth will lead the world for the next 50 years, making it the fastest-growing consumer market. In Sub-Saharan Africa, huge new oil and gas discoveries in Kenya, Mozambique, Nigeria, Angola and Tanzania can make the region a potential energy powerhouse. With up to 60% of the globe’s unplanted arable land, Africa is developing the potential to feed itself and become an agricultural export giant. And by 2060, it will have the world’s largest workforce, a pool of low-cost labor that will help it industrialize and plug into the global value chain at last.
“For the first time, the world needs Africa more than Africa needs the world,” says Geoffrey White, CEO of Agility Africa.
What Africa lacks is connectivity. The race is on to link rural and urban, landlocked and coastal, east and west, north and south – Africa markets to world markets. “Africa is the least integrated continent in the world,” says Ibrahim Mayaki, chief executive officer of the New Partnership for Africa’s Development.
Deficient infrastructure – power, transportation, water, sanitation and other basics – depresses private-sector productivity by 40%, the World Bank says.
Most problematic is energy supply. The World Bank says the 48 countries of Sub-Saharan Africa – with a population of 800 million – generate the same amount of power as Spain, a country of 45 million. Thirty of those countries experience chronic power outages.
Household electrification stands at 43%, leaving 600 million people and 10 million small and medium-sized businesses in the dark. The average cost of electricity in Africa is three times as high as in the United States and Europe, despite its vast reserves of coal, oil and natural gas and its unmatched capacity for hydropower, geothermal, wind and solar generation.
Power demand is forecast to increase more than 90% by 2035. “There are any number of large, well-funded projects in the works, but most won’t come on line soon,” White says. “Everything else is dependent on the ability to boost supply, expand grids, improve reliability, lower prices and find alternatives for people, farms and businesses off the grid.”
- AFRICA FACTS – SIDEBAR
Africa’s population of 936 million could be 2.4 billion by 2050. Workforce from 617 million today is expected to grow to 1.6 billion by 2060.Gross National Income per person at $1,615 in Sub-Saharan Africa is marginally ahead of South Asia’s $1,474 but a long way behind the world average of $10,566.37% of Africans live in cities today; 50% are expected to live in urban areas by 2030African GDP growth is estimated at 4.6% in 2014 and is projected to grow to 5.2% in 2015-2016.
Elsewhere in the world, two-thirds of rural residents are within two kilometers of a paved or all-season road. In Africa, only one-third of people in the countryside live that close to a decent road. Fifty-four years after its independence, the Democratic Republic of Congo, Africa’s second-largest country, still has no roads connecting one end of the country to the other.
Roads carry more than 80% of African goods and 90% of passengers. Lack of paved surfaces makes transport of commercial goods and people difficult, expensive and dangerous (Africa accounts for one-fifth of the world’s road fatalities). Vehicle overloading is common, and high transport costs add up to 75% to the cost of African goods. The dearth of good roads is “isolating people from basic education, health services, transport corridors, trade hubs and economic opportunities,” says the African Development Bank (AfDB).
Massive, ambitious road projects are underway across Africa. One seeks to upgrade and connect nine existing highways that would link Cairo, Egypt and Dakar, Senegal. Another would connect West African countries Ivory Coast, Burkina Faso and Mali.
Even less developed is Africa’s rail network, vital to movement of bulk commodities such as the farm goods, minerals and other products at the heart of the continent’s economy. Most rail lines date to colonial days, and 13 Sub-Saharan countries have no railway.
Air transport remains expensive by international standards. African countries have not made good on promises to deregulate. Consequently, intra-African connections are limited, airspace is overly restricted, fares are high, and safety issues persist.
Improvements in air connections would quickly make African perishables – vegetables, fruit, meat, fish – staples in homes and restaurants of Europe and Middle East and provide Africa with much-needed foreign exchange.
Durban, Dar Es Salaam, Mombasa, Djibouti and Abidjan are vying to become dominant sea ports, but Africa’s 64 ports are “badly in need of investment and regulatory reforms to remove the bottlenecks and chronic congestion problems,” the AfDB says. Port costs, 50% higher than in other parts of the world, need to come down to cut the cost of production and contribute to growth.
“Transportation corridors create trade routes and urban clusters large enough for consumer companies to target,” says Essa Al-Saleh, CEO of Agility GIL. “Underinvestment in African infrastructure has spillover effects that take time to reverse. Investment is pouring in now, so you are starting to see some of these big gaps in the supply chain get filled.”
Connected, At Last
The connectivity provided by the mobile telecommunications revolution has been transformative for Africa, the world’s fastest-growing and second-largest mobile market. There are eight mobile subscriptions for every 10 people – 760 subscriptions in all – up from just 15 million in 2000. (Household access to mobile phone services is double the access to piped water.)
Kenya’s M-Pesa and other carriers have turned phones into tools for payment, essentially giving millions of “unbanked” people a bank. Mobile phones also are the way most Africans access the Internet, where broadband coverage is otherwise low (16%).
Information previously unavailable – especially outside of cities – is now at the fingertips: education, professional training, remote medical diagnosis and treatment, weather updates, crop reports, and market pricing.
IT incubators and development hubs have sprung up across Africa, producing software and African mobile applications. Kenya is building a massive technology city, Konza City, in hopes it can be Africa’s answer to the Silicon Valley in the United States.
The Coming ‘Green Revolution’
Dependent on international food aid for so long, Africa is slowly gaining the ability to feed itself and could eventually supply food for Europe, the Middle East and parts of Asia.
Nearly 230 million Africans work the land but most remain subsistence farmers rather than growing crops and raising livestock commercially. Total yields are increasing, but that’s mainly because more land is under cultivation. Modern techniques are not in practice: water storage, use of machinery, improved planting methods, soil conservation, fertilizer, high-quality seed, irrigation, and animal husbandry.
Post-harvest crop losses are an estimated 40% because of bad storage and processing or because inadequate road and rail access cuts growers off from markets.
Sub-Saharan Africa has abundant water, including Lake Victoria and four of the world’s longest rivers (Nile, Congo, Zambezi, Niger). Irrigation could boost crop yields by 50%. Today, less than 5% of Africa’s cultivated acreage is irrigation-equipped, but that area accounts for 20% of the value of agricultural production.
“Urbanization will drive a green revolution in Africa,” White says. “Demand from the cities is pushing growers and commercial agriculture providers to modernize and boost output.”
Money, Knowledge Pour In
The private sector in Africa has become the largest driver of growth and jobs, surpassing the public sector, aid and remittances. Africa’s share of global trade is up, but only to a miniscule 3.1%. Intra-African trade – another measure of connectivity – is only 11% of total African trade.
“African countries are losing out on billions of dollars in potential trade every year because of a fragmented regional market and because cross-border production networks that have spurred economic dynamism in other regions, especially in East Asia, have yet to materialize,” says the AfDB.
Investors and multi-nationals see that fragmentation giving way rapidly to integration. South Africa’s Shoprite supermarket chain is building 47 new outlets across the continent. Other South African powerhouses such as Standard Bank, Coca-Cola Sabco, MTN, Nando’s and Tiger Brands are pushing into new markets too. Meantime, Nigeria’s giant Dangote Cement is investing in Zambia, Cameroon, South Africa and Tanzania.
In 2013, foreign direct investment (FDI) fell in every region except Africa and Latin America. Only North America ranks ahead of Africa in terms of attractiveness, according to a 2014 Ernst & Young investor survey. South Africa, Ghana, Nigeria, Kenya, Mozambique, Tanzania and Uganda have drawn the most interest.
For four decades, mining and fuel have accounted for over half of Africa’s exports, compared with 10% in Asian and advanced economies. Even in countries with mineral and energy wealth, there is a strong desire to diversify by expanding consumer sectors and lessening reliance on commodities. Extractive-sector FDI was the lowest ever as a share in 2013 as investors put money into African technology, media, mobile telecoms, retail, consumer products, financial services and infrastructure.
Banks from China, India and Europe are investing, along with Japanese automakers. Walmart, Nokia, H&M, and Ericsson, Microsoft, Intel, Primark, Tata, Huajian, Airtel, and IBM also have made big Africa bets.
If anything, investment is outpacing the development of fresh talent. Ernst & Young says multi-national and regional companies rely too much on expatriates and are looking to find skilled workers in other African countries or the returning African diaspora. “The war for talent in Africa is just beginning,” the firm says. “Organizations in Sub-Saharan Africa are currently weak in those talent-management skills they deem to be a high priority.”
- FOREIGN INVESTMENT – SIDE BAR UNDER “GOVERNANCE IMPROVING”Foreign direct investment in Africa rose to an estimated $50 billion in 2012, from $15 billion in 2002. Top 10 sectors ranked by number of projects (2003-2012)Financial services – 958Business services – 469Coal, oil and natural gas – 461Metals – 419Communications – 407Software & IT – 356Food and tobacco – 313Hotels and tourism – 240Automotive & OEM – 198Transportation – 197Sources: fDi; Ernst & Young
Bureaucracy and corruption remain stubborn foes. Nearly one in two people reported having paid a bribe in the past 12 months when interacting with public institutions and services, according to the AfDB.
Even so, governance is clearly improving. Twenty Sub-Saharan countries are considered democracies versus just four in 1991. Botswana and Cape Verde score respectably in Transparency International’s Corruption Perception Index, ranking alongside more developed nations.
Across Sub-Saharan Africa, the costs of a business start-up have fallen by more than two-thirds over the past seven years and the time required for business starts has fallen by half. “New property registration programs, improvements to trading across borders, simplified tax processes, improved solvency framework, and strengthened investor protections have contributed to growth,” says the AfDB.
The tiny Indian Ocean island of Mauritius has become a business showcase, rising to No. 19 in the World Bank’s Doing Business indicators. Rwanda gets credit for adopting global best practices such as one-stop construction permits, ease-of-credit reforms and simplified tax payment. Zambia and Zimbabwe created Africa’s first one-stop border post, shortening wait times for trucks from three days to same-day and for passengers from three hours to 30 minutes. Ghana is working to create a cross-sector online business directory to match SMEs with investors and suppliers.
No ‘False Dawn’ This Time
Since 2000, African GDP has risen 5% a year, and real income per capital has grown 2.1% a year. The percentage of people living in poverty has fallen slowly but steadily since 1981, leading economists and others to believe that Africa will remain on the rise.
The World Bank says 27 African countries are now “middle income,” and another 13 will be middle income in 10 years. The IMF says 11 of the world’s 20 fastest-growing economies will be African through 2017.
Within a generation, Ernst & Young says, “the likes of Nigeria, Ghana, Angola, Egypt, Kenya, Ethiopia and South Africa will be considered among the growth powerhouses of the global economy.”
Fifty-two African cities now have populations of 1 million or more, the same number as Europe. Several, such as Dar es Salaam and Kinshasa, are among the fastest-growing cities in the world.
|ity||Country||2015 Population (M)||2025 Population (M)|
|Dar es Salaam||Tanzania||4.2||6.2|
|Cape Town||S. Africa||3.6||3.8|
Source: United Nations Human Settlements Programme (UN Habitat)
Mombasa is vying to become one of the dominant east coast ports; but with port costs in Africa 50% higher than the rest of the world, investment and efficiency are essential to stimulate trade. Elsewhere, efficient ports unload and move containers out of port in two or three days. In Sub-Saharan Africa the average is 14 days.