Africa – The last great emerging market

1. Africa – The last great emerging market Australia Africa Business Council (NSW) 21 September 2011

2. Africa Today US$1.6 trillionAfrica’s GDP in 2008, approximately equal to Brazil or Russia US$860 billion Africa’s combined consumer spending in 2008 316 millionNew mobile phone subscribers signed up in Africa since 2000 60% Africa’s share of the world’s total uncultivated, arable land 52 Number of African cities with more than 1 million people 20 Number of African companies with annual revenues in excess of US$3 billion Source:McKinsey Global Institute

3. Africa Tomorrow US$2.6 trillionAfrica’s forecast collective GDP in 2020 US$1.4 trillion Africa’s forecast combined consumer spending in 2020 1.1 billionNumber of Africans of working age in 2040 1 in 5 Africa’s proportion of the planet’s young people by 2040 128 million African households with discretionary income in 2020 50% Proportion of Africans living in cities by 2030 Source:McKinsey Global Institute

4. Africa is a Big and Diverse Continent Africa is a non-homogenous continent of 54 countries at different stages of economic and political development. There are 29 exchanges in Africa, representing 38 nations' capital markets. Source:Creative Commons License

5. 1. Improved Macroeconomic Stability… • Improved macroeconomic stability across the African continent has been achieved by (amongst others): • - Reducing the collective inflation rate from 22 percent in the 1990s to 8 percent after 2000. • Shrinking budget deficits from 4.6 percent of GDP to 1.6 percent of GDP. • Reducing the combined foreign debt from 82 percent of GDP to 59 percent of GDP. • - Adopting policies aimed at energizing markets (privatisations, business competition, open trade, lower taxes, strengthened regulatory and legal systems). • Source: World Bank Development Indicators, Political Risk Services, McKinsey Global Institute

6. …Debt Levels Are Becoming More Sustainable • External debt has declined significantly over the last ten years. • External debt is now lower than that of Central and Eastern Europe… • …and is approaching the levels found in Developing Asia. • Source: IMF, African Alliance estimates

7. 2. GDP Per Capita Growth and Increased Savings… • Despite the growth in Africa’s population, GDP per capita continues to grow strongly. • Africa is poised to achieve a sustainable 5% per annum GDP growth rate, which represents a major improvement on the late 1990s. • Sub-Saharan Africa’s savings rate has increased steadily since 2000, and is forecast to surpass the global average in 2011, from a substantially weaker position just 10 years ago. • Source: IMF, African Alliance estimates

8. …Increasing Labour Productivity • Internal structural changes have fuelled an increase in African productivity since 2000, creating a more dynamic business environment, illustrated by: • - More than 1,400 publically listed companies. • - More than 100 companies with revenues greater than US$1 billion. • - 316 million new mobile phone subscribers since 2000. • Source: World Bank Development Indicators, Political Risk Services, McKinsey Global Institute

9. 3. Africa’s Favourable Demographics • Africa’s labour force is expanding faster than anywhere else in the world. • Africa currently has 500 million people of working age (15 to 64 years). • By 2040 the number of Africans of working age is projected to exceed 1.1 billion – more than China or India. • Over the past 20 years three quarters of Africa’s increase in GDP per capita came from an expanding workforce, with the remainder coming from increased labour productivity. • Source: The United Nations World Population Prospect

10. 4. Increasingly Diversified Growth • Economic growth has accelerated across the African continent, in 27 of the 30 largest economies. • Africa’s growth story is only partly explained by the commodities boom. • During the period 2000-2008 natural resources accounted for just 24 percent of Africa’s GDP growth. • Labour productivity has increased by 2.7 percent annually since 2000. • Africa’s growth surge is a result of improved political and macroeconomic stability coupled with microeconomic reforms. • Source: Global Insight, Arab Monetary Fund, African Development Bank, McKinsey Global Institute

11. 5. A Unique Business Opportunity • Africa’s economic growth is creating substantial business opportunities for both local and global companies. • Four categories of opportunities could be worth US$2.6 trillion in annual revenues by 2020. • Consumer-facing sectors present the largest opportunity, and are growing 2-3 times faster than in OECD countries. • Africa’s projected 5 largest consumer markets in 2020 – Alexandria, Cairo, Cape Town, Johannesburg, and Lagos – will each have more than US$25 billion a year in household spending and be comparable in size to Mumbai and New Delhi. Source:McKinsey Global Institute

12. 6. The Rise of the African Urban Consumer • Increased urbanization and an expanding labour force are leading to the rise of the middle-class African consumer. • In 1980 just 28 percent of Africa’s population lived in cities – today 40 percent of Africa’s 1 billion inhabitants do. • By 2030 Africa’s top 18 cities could have combined spending power of US$1.3 trillion. • The number of African households earning US$5000 or more – the level at which people start spending roughly half their income on items other than food – is projected to increase from 85 million today to 128 million by 2020. • Source:United Nations, McKinsey Global Institute

13. 7. Growth in Consumer Spending • Food still accounts for the largest share of consumer spending. • Non-food sectors grow faster as incomes increase. • Current household spending of US$862 billion (2008) is projected to increase by US$516 billion to US$1.4 trillion by 2020. • Source:World Bank Development Indicators, Euromonitor, McKinsey Global Institute

14. 8. Africa and the BRICs • BRIC-Africa trade as a proportion of World-Africa trade grew from 4.6% in 1993 to over 19% in 2008. • China-Africa trade increased from US$3.5 billion in 1990 to over US$100 billion today – two-thirds of Africa’s total BRIC trade. • In 2008 Africa ran a trade surplus of US$20.2 billion with the BRICs. • The proportion of BRIC-Africa trade held by Sub-Saharan Africa has increased from 53% in 1980 to 77% in 2008. • Total BRIC-Africa trade is projected to exceed US$4 trillion by 2030, equal to 10% of BRIC-World trade and 45% of Africa-World trade. • Source: IMF, WTO, Standard Bank Group

15. 9. Opportunity for Increased Intra-Regional Trade • Current trade between African countries remains low at just 12 percent of total imports and exports – less than half the level in other emerging market regions. • Half of Africa’s intra-regional trade occurs within the Southern African Development Community (SADC), in which South Africa trades with its smaller neighbours. • Expanding Africa’s intra-regional trade could provide a significant boost to regional growth. • Source:IMF Direction of Trade Statistics, McKinsey Global Institute

16. 10. African Markets (ex South Africa) Have Been Ignored • Since global market lows in early 2009 African markets (ex South Africa) have largely been ignored by international investors. • While emerging markets in general have doubled over this time period, Africa ex South Africa is essentially flat. • This has occurred despite continued economic growth and constantly improving business fundamentals in these markets. • Source:Bloomberg, African Alliance

17. Finally….Some On The Ground Observations Regionalisation Social change Longer-term focus Expatriate skills

18. Thank you! Any questions?