Like Brazil featured a couple of weeks ago, the sub-Saharan African economy is set for significant growth in 2010. According to experts, this continent has huge potential and, as its population becomes wealthier, the opportunities for business development will increase. African countries do, however, still have some way to go in terms of getting the infrastructure in place to support growth, the question is whether Africa's rising wealth and access to natural resources will make up for any structural shortcomings in the short-term.
Experts agree that African economies will bounce back from the global recession more quickly than their Western counterparts. Richard Harvey, former CEO, Aviva and Advocate for the charity Concern Universal explains: "There have been a number of years of unprecedented economic growth, in percentage terms, in the years preceeding the global recession, for many African economies. The recession has set back that growth through a fall in demand and prices for exports, lower foreign direct investment, reduced remittances and lower aid budgets. However, a modest resumption in world economic growth should see many African economies return to growth well ahead of United Kingdom,Europe and the US."
Drilling down more specifically into the figures, Richard Laing, Chief Executive, CDC Group plc has this to offer: “The IMF expects real growth in sub-Saharan Africa to be 4.1 per cent in 2010, despite the effects of the recession. That is coincidentally the same as the tiger economy of Singapore and in stark contrast to Europe's negative growth of 4.2 per cent in 2009 and flat for 2010.
"Africa offers all sorts of opportunities. It is rich in mineral resources, has a thriving agricultural sector, and has a rapidly growing consumer base. This latter point is particularly powerful as large numbers of people have discretionary spend for the first time in their lives. They want products that we take for granted such as confectionary, soft drinks and shampoo. They want mobile telephones, the number of African mobile phone subscribers grew by 96 million in the year to March 2009, which is more than China, making Africa the region of the world with the fastest rate of subscriber growth. They want bank accounts, insurance and other financial products. They want better schooling and healthcare and are prepared to pay for it. All of these sectors offer great opportunities. Africa does suffer from poor infrastructure but I see that as an opportunity to get involved and to invest in this area. In electrical power, for example, there is a massive shortfall of capacity and the need for further investment, where good returns can be made,” Richard Laing continues.
There are, however, major issues with infrastructure that some African countries need to address to attract investment and capitalise on opportunities for economic growth. Mike Eyre, Executive Director, IPSA Group plc comments on the situation in South Africa: "South Africa's social uplift programme, its economy and past wealth rely heavily on the nationwide availability of reliable low cost electricity. For decades the economy benefited from a well-managed and well-resourced national electricity utility, one of the largest in the world fuelled on indigenous low cost coal. Those days are gone forever. The market failed to create an environment for private investment in new power generation capacity and the country faces a damaging US$50bn 'emergency' new generation capacity building programme with already major delays through indecisiveness and inadequate management resources.
"The country has already experienced two years of major power cuts with industry instructed to cut back on 10 per cent of its consumption. The downturn is reducing power cuts to some extent but they will return shortly as the mining and mineral sectors are recovering. Electricity prices are rising rapidly and will continue to do so and existing and new businesses are not able to request new capacity as there is none available. It is not entirely clear to me how this will play out economically, but in my opinion it is a good model to watch and learn from as the UK and other first world countries, who are likely to follow a similar loss of national electricity generation capacity in the next five years through their inability to make tough national policy decisions on balancing issues such as environment, low cost electricity wind and nuclear," Mike continues.
Organisations invested in the continent have to contend with much political and social strife, but as Wayne Borchardt, Senior Executive: Strategy, Accenture explains this shouldn't be a deterrent: "Africa represents a clear business opportunity for companies in search of new markets to power their drive to achieve high performance in today's tough economic conditions. To be sure, it presents some distinct challenges - but, as we have shown, many companies are already finding ways to overcome these challenges and mitigate the risks they face, thus turning the African market into their next frontier of growth."
There is no doubt that Africa will offer plenty of opportunities in the coming year, but Charlie Wagstaff, Founder and Managing Director, Criticaleye, warns that venturing onto the continent requires a long term commitment: "Having lived on the continent and operated across the sub-Saharan region prior to Criticaleye, there arguably opportunities. Using South Africa as a launch pad, Africa can offer substantial prospects to a global business. But risk assessment does mean a 'long play' and much prior planning."
For more information about Africa, some of the business opportunities there and issues to be aware of, we have some excellent insight on Criticaleye. Trade Not Aid is the summary of a recent speech by Richard Harvey (quoted above) at a Criticaleye Drinks party. Also see Doing Business in Africa, an article based on a debate with Niall FitzGerald, Chairman of Reuters and John Varley, Group CEO of Barclays, which offers an overview of why and how to do business in Africa.
Please let me know if you have any comments on today's update.
I look forward to seeing you soon,