Despite the current challenges experienced by many of Africa’s biggest economies, global consulting firm, McKinsey remains optimistic of Africa’s growth trajectory being sustained into the future.
The latest McKinsey Global Institute Report just released today, 15 September titled, Lions on the Move II: Realizing the Potentials of Africa’s Economy, the consulting firm estimates that that spending by consumers and businesses in Africa currently stands at $4 Trillion. However, the firm forecasts that consumer spending in Africa by 2025 could rise to $5.6 Trillion.
Household consumption is expected to grow by 3.3% a year and reach $2.1 Trillion by 2025 but total could be $5.6 Trillion, reflecting an expanding African consuming class. Business spending is expected to grow from $2.6 Trillion in 2015 to $3.5 Trillion by 2025, while Africa has an opportunity to nearly double manufacturing output from $500 Billion today to $930 Billion in 2025.
The report lists four fundamentals likely to underpin Africa’s economic growth. These include; fastest urbanization rate in the world that will see up 187 million Africans living in cities over the next 10 years, equivalent to half the US population today; biggest working-age population in the world of 1.1 billion in 2034—larger than in either China or India; largest reserves in the world of many key natural resources including 60 percent of the world’s unutilized but potentially available cropland, and the largest global reserves of vanadium, manganese, and many others and finally Africa has the chance to leapfrog old technologies using mobile and digital with penetration of smart phones expected to hit 50 percent in 2020 as against 18 percent in 2015.
Acha Leke, a McKinsey Senior Partner and Report Co-author, said: “Our new research shows how in coming years Africa will benefit from strong fundamentals including a young and growing population, the world’s fastest urbanization rate, and accelerating technological change. These will help drive rapid growth in consumer markets and business supply chains, and will offer opportunities to build large, profitable industrial and services companies.”
“Tapping Africa’s consumer markets will require companies to have a detailed understanding of income, demographic, and category trends. Thriving in business markets will require businesses to offer products and develop sales forces able to target the relatively fragmented private sector. But what our research also shows is how much work needs to be done both by companies themselves and by Africa’s governments to translate opportunity into tangible economic benefits.”
The report notes that in order to make the most of the opportunities available, Africa needs more large companies. MGI’S new database of Corporate Africa shows that the continent has 700 companies with revenues of more than $500 million, of which 400 companies have revenues of more than $1 Billion. AFRICA’S companies are growing faster and are generally more profitable than their global peers.
McKinsey urges African governments to play a stronger role in unleashing renewed dynamism in six priority areas including; mobilizing more domestic resources by taking bold steps to mobilize more of its own funding to finance development; aggressively diversify economies, encouraging growth in high-potential sectors in close cooperation with business, based on a clear understanding of their countries’ comparative advantages and accelerate infrastructure development and deepen regional integration.
McKinsey also recommends that governments create tomorrow’s talent, ensuring that educational and training systems build work-relevant skills, and that students are aware of, and encouraged to enter, these vocations and that the private sector builds on best practice and finally, ensure “healthy” urbanization, so that cities grow with the infrastructure required to make the biggest positive economic and social impact possible.
