Africa…Growth Engine?


President Obama spent most of the last week visiting and (correctly) lecturing the Africans on good governance and respect for democratic principles.  He should also have taken the opportunity to help them by highlighting their recent economic successes and opportunities for growth. 

Ethan Kapstein, writing in the July/August 2009 edition of Foreign Affairs, makes a persuasive case for an African economic renaissance.  To wit, Africa has been booming since 2004 averaging 6% economic growth, equal to Latin American rates.  Despite a gloomy global economy, the IMF still predicts 2009 growth of around 1.5% and 2010 growth of 4%.  Great but can this momentum be sustained?

Quietly and mostly by themselves, sub-Saharan Africa has begun to develop the underpinnings of a modern economy.  For all the negative reports about Zimbabwe and Sudan, there are now a number of stable, investor-friendly democracies including Ghana, and Botswana to go along with powerhouse South Africa.   In many parts of Africa, one can now identify a large, educated, and brand-conscious middle class.  Financially, the number of countries with stock markets has tripled since 1990, with market capitalization increasing from virtually nil to $245 billion.  Interestingly, many parts of Africa now boast a stable banking sector with better capital-to-asset ratios than most American banks and competent, inflation-adverse central bankers. 

A number of developments portend continued success.  The increase in the number of Western-educated managers coupled with a creative entrepreneurial class has created a strong foundation for growth. As well, two significant economic drivers, urbanization and digital communications, are accelerating, creating new opportunities for growth, trade and productivity enhancements.  For example, 30% of Africans are urbanized, up from 15% in 1965.  There are now 80 million cell phone subscribers in Africa while Internet usage has quadrupled since 1990.

Naturally, much of this success is precarious and especially vulnerable to commodity prices, protectionism and the vagaries of African politics.  However, growth-focused executives recognize an opportunity when they see it.  Consider the following when developing your “Africa Strategy:”

  1. Africa is not a monolithic market but rather a plethora of markets and segments, within each country.  Products and services must be tailored to suit local needs;
  2. First mover advantage is crucial to securing the best local manufacturing, joint venture or distribution partners;
  3. Given the uniqueness and complexity of many of the markets, relinquishing a strong degree of local control poses the least risk.
  4. The desire for global brands will be tempered by the disposable income of the target segments.  Consider “localizing” products and services for lower costs.
  5. Many multi-nationals are succeeding while many have failed.  Study each group extensively. And, anyone who has visited Africa knows that patience is a virtue.

 

For more information on our services and work, visit us at www.quantaconsulting.com

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