This week we are picking up from where we left off! First, let us give you an indication of the vastness of the continent of Africa to put the size of the markets into perspective, before we dive into what exactly the opportunity per sector is. Take a look at this map:
As you can see, Africa is large enough to fit the US, China, Taiwan, the UK, the whole of India, Eastern Europe, Italy, Switzerland, Germany, France, Spain, Portugal, Belgium and The Netherlands inside it! Perhaps not what you expected?
Well, the world atlas has always depicted Africa as a much smaller continent than it actually is according to scale. This map is the realistic image of just how vast the enormous continent actually is. Then, when we consider the number of people that occupy this vast land, we start to talk of Africa in multiples!
In addition, there are so many examples of modern development across the continent and if we look past the stereotypes, we can see that the new Africa is starting to paint a different picture. Why? Because African economies are genuinely on a growth path as opposed to a lot of global north economies that have been slowing down!
First, a quick overview of what an economy needs to be considered as growing…
Economic growth is defined as an increase in the amount of goods and services produced per head of the population over a period of time. However, any country needs two things in order for its economy to grow:
- A large population and
- A growing middle class or people with money to spend.
Did you know that by 2100, 90% of the world's population will live in Africa or Asia? There will be more people living in Nigeria, India and China than in the United States by this time. This is an indication of where a large proportion of the customers of the future are located. So, business is growing in Africa as well as the number of potential customers who can afford to pay for goods and services.
Another key component of a growing economy is a growing middle class. According to the African Development Bank, these are people with yearly incomes exceeding USD$3,900 (or a per capital expenditure of USD$2-$20 day). There are now around approximately 350 million people in this bracket (34% of the continent) plus 55 million “wealthy” people. The wealthy are consumers whose per capita daily expenditure is above USD$20. This bracket of consumer accounts for just 5% of the population.
Put in terms of how we live, the middle class are people that have a job and make enough money from their day jobs to afford food, rent and school fees for their kids’ education. Perhaps they go and watch a movie at the cinema every weekend and travel to a nice destination once a year for holiday. Simply put, people in Africa now have more money to spend because they are trading more from the continent. This brings us to the opportunities by sector.
The African Economic outlook - the journal which focuses on the economics of most African countries backs up the information that the following industries are currently key industries for Africa: Renewable Energy, Education, Infrastructure Development, Healthcare, Mining, Technological Services, Agriculture, Logistics and the entire supply chain that compliments the industry.
For example, the food sector in Africa is set to become the next multi-billion-pound global industry. Since the pandemic, food security through imports has been high on many governments’ agendas, including the UK’s. The products coming out of Africa are in high global demand and international businesses can source these resources far cheaper. Other sectors that present opportunities include Manufacturing & Production, Entrepreneurship as well as the Creative and Cultural industries.
It is worth noting that Africa is leapfrogging in many places thanks to technological advancements. The last few years have seen a proliferation of technology hubs, incubators and accelerators that have been used as mechanisms to engage the new generation of young Africans trying new ideas. The World Bank estimates the existence of about 90 innovation hubs in over 30 countries in Africa. The Co-Creation hub in Nigeria and the iHub in Kenya, have been recognised as best-performing models.
Startups at different phases require different types of financing and over the years the trend has moved from savings and loans from family and friends to more formal forms of funding, such as seed funding from competitions or equity financing.
Public-private partnerships are also on the rise. The informal sector contributes about 55% of sub-Saharan Africa’s GDP, while SMEs make up 95% of African businesses. There are therefore partnership opportunities to create an enabling environment for entrepreneurship to thrive in areas such as skills transfer.
There is also an emergence of online retailing platforms such as Jumia in Nigeria. Such platforms encourage intra-African and international trade while enabling entrepreneurs locally.
Despite these advancements, here are some reasons businesses do not succeed in Africa:
1. A lack of knowledge on internationalisation best practice.
2. Their go-to-market approach, in other words, getting carried away by an opportunity they have not fully understood.
3. The lack of procedural awareness and knowledge of the hierarchy of systems, all of which affect and prolong the commencement period of a business.
4. Treating Africa as a single entity and not respecting the vast differences between the regions and countries within it.
When entering the market, businesses need to avoid adopting a ’one-size-fits-all’ blanket approach, as this does not constitute a recipe for success. They also need to need to understand the working environment on the ground by assessing the areas other similar companies have found most challenging. Risk can further be reduced by gaining insight into all the various business components, from property registration to credit accessibility. Finally, businesses need to familiarise themselves with the legalities of a country to minimise risk and potential susceptibility to corruption.
We recommend establishing partnerships rooted in trust as they are critical to the survival of operations, especially given the strong local business culture. Therefore, businesses need to understand the supply chain structure, the market and local consumer trends before entering a market as unique as Africa.
If you would like to discuss your opportunity in Africa further, feel free to contact us directly. We are always on hand to offer advice and guidance to support you and your business endeavours.
To your success!