African corporations need to step up their performance to explore most of the continents’ economic opportunities. No African-owned company is in the Fortune 500 yet.
To progress, firms should consider these seven sectors for opportunities: Wholesale and Retail; Food and Agribusiness; Health Care; Financial Services; Information Communication Technology; Energy Manufacturing (Electricity/Power); and Construction. All these sectors are characterized by high growth and high profitability. In manufacturing particular, it is estimated that Africa could nearly double its output from US$500billion today to US$940billion in 2030. Three-quarters of that could come from meeting domestic demand. Today, Africa imports one-third of the food, beverages and similar processed goods it consumes. It appears that our politicians seem to have a coherent strategic plan only if they are in opposition.
“To build profitable pan-African businesses, there are several key steps that firms can take. When tapping consumer markets, the firm needs to develop a detailed understanding of income, competitive landscape, and intelligence and geographic trend including the very different growth and stability profiles of each African country. Thriving in business markets will require them to offer products and develop sales forces able to target Africa’s relatively fragmented private sector.
“Companies looking to grow across the continent should develop a strong position in their home market, use that as a base for expanding into markets well beyond their immediate region, adopt a long-term perspective, invest in talent, and build the partnerships needed to sustain success over decades. The best-performing multinationals in Africa to date have been patient and built a wide footprint; most have been in Africa for longer than thirty years, and more than half are present in more than ten countries.”
According to the Organization for Economic Cooperation and Development, foreign direct investment in Africa dropped 46% in the second quarter of 2016. It is true that the investment landscape has changed and there have been both economic and political hits in recent years, but this has not derailed the continent’s growth-story. The International Monetary Fund projects that Africa will be the world’s second-largest economy within the next few years.
Five key outlined strategies that are essential in the development of Africa
- Intra-African Trade Possesses Vast Opportunities
With the 54-nation Continental Free Trade Area, Africa’s own mega trade deal, even the smallest African economies could see a lift. If duties are lowered and incentives introduced, manufacturers could see benefits from setting up production and assembly operations in multiple African countries. That could lead to development in electronics, machinery, steel and construction materials, chemicals (for industries, Pharmaceuticals, Veterinary), textile production and processed foods.
Most of the automobile firms in the world have manufacturing plants in Africa, yet African countries go to different continents to purchase automobiles. Coherently, Africa should buy from Africa.
An increase in local beneficiation of the commodities sector could be a driver of growth and development – such as processing local commodities (Cocoa, minerals, coffee and cotton) to add value to the country rather than exporting them in raw state. That said, it will continue to be a challenge for regions with poor power and infrastructure to compete as global manufacturers.
- African Consumers are Changing
With the growth of Africa’s middle-class, Aliska sees development of new expectations. Educated, urban professionals are young, brand-aware and sophisticated in terms of their consumption. Retailers and consumer brands want to anticipate and drive buying preferences in fashion, home and lifestyle products – but they know they need international standard supply chains if they are to meet demand. The largest economic forces in Africa are small to medium enterprises, working to meet this new demand and competing with global brands.
- Digital Transformation
Africa leads the world in mobile adoption, which continues to offer the biggest cross-sectional economic opportunities. Mobile payment networks, pioneered in East Africa, opened the wired, global economy to poor, unbanked city and rural dwellers. Most Telecommunication networks are using mobile money technology to manage individuals’ and business’ money. One can withdraw, deposit, transfer and make payments using mobile money. Fedco has used mobile money to reach out to new African suppliers and farmers. These mobile initiatives have achieved huge successes.
In 2014, Ethiopia set up a telephone hotline allowing small farmers immediate access to advice from agronomists – with over 3 million calls madein the first six months of the pilot programme. Mobile technology is the area where Africa has pushed beyond boundaries in the developed world, and African tech engineers are pushing to innovate.
- Africa is Diversifying
African economies are finally beginning to diversify beyond commodities, though this is still in the early stages. Africa is seeing a returning diaspora that recognises the potential and opportunities in their own countries. This population supports local economic growth with their skills and talent by acting as “first movers”, investing back in their communities.
At the same time, African countries are beginning to place bets on non-commodity areas where they can be competitive. And they are packaging themselves to appeal to a broader set of investors. Recognizing they can no longer count on growing investment from China, every country now has what are called ‘Investment Promotion Agencies’, which act as one-stop-shops for investors, assisting with registration, taxes, and other steps to establish companies locally.
- Africa Can Lead in Sustainable Development
In energy, technology, supply chain design and other areas, Africa has the ability to look at what works elsewhere then style its own answers. It can openly embrace new technology and ideas, with no historical imprint from which to break free. It can develop flexible fuel grids that generate power with a mix of abundant wind, solar, hydro and bio energy, alongside conventional fuels such as oil and gas, which are also abundant.
Business leaders are hungry for vibrant new markets, and consumers know the reality. Globalization means there are too few remaining frontiers. As the developed world matures, it becomes increasingly difficult to trade in their sectors. This is as a result of factors ranging from legislation to terrorism, and opportunities for corporate growth keep getting more limited. There are few places where entrepreneurs and businesses with ideas and an appetite for risk can still bring value and find long-term growth if they are persistent, creative and determined. Africa is still a place of endless opportunities.
The writer is with Aliska Consult