Africa ' s overall annual GDP growth averaged just 3.3 % in 2010-2015
OPINION : AFRICA STILL RISING average growth has declined , some African economies have thrived in recent years . Indeed , aggregate GDP has been dragged down since 2010 by faltering growth among oil exporters and security-related crises in the Sahel and North Africa ; but in the rest of Africa , GDP growth has accelerated , from 4.1 % in 2000-2010 to 4.4 % in 2010-2015 .
Second , Africa is undergoing a profound long-term transformation , characterized by rapid digitization , urbanization , and growth in the working-age population , which will outnumber the labor force of China and India by 2034 . That demographic trend could unlock future growth by advancing economic diversification , spurring domestic consumption , and supporting industrialization .
In fact , today ’ s high-growth countries – including Côte d ’ Ivoire , Ethiopia , Kenya , and Tanzania – have made substantial progress in reducing their dependence on commodity exports , in favor of trade , investment , and domestic consumption . And many lower-growth countries could head down a similar path .
New research by the McKinsey Global Institute ( MGI ) shows that spending by Africa ’ s consumers and businesses already totals $ 4 trillion . By 2025 , private spending could reach $ 5.6 trillion – $ 2.1 trillion by households , and $ 3.5 trillion by businesses .
This represents a huge opportunity for Africa ’ s manufacturers . We believe that Africa can almost double its manufacturing output , to nearly $ 1 trillion , by 2025 , with about 75 % of that growth tied to production for local markets . The question is whether manufacturers will manage to exploit the growth potential that lies in front of them .
African firms have not yet proved capable of meeting existing domestic demand . Africa still imports about one-third of the food , beverages , and similar processed goods it consumes , whereas the Association of Southeast Asian Nations imports about 20 %,
Africa ' s overall annual GDP growth averaged just 3.3 % in 2010-2015
and South America ’ s Mercosur trade bloc imports just 10 %. Africa even imports 15 % of the cement it uses , despite having abundant raw materials to make it at home .
To be sure , African business has made great strides in recent years . Today , 400 African companies have annual revenue of more than $ 1 billion , and 700 have annual revenue of more than $ 500 million . On the whole , these large companies are growing faster – and generating higher profits – than their global peers .
But there is still a long way to go . Large African ( excluding South African ) firms ’ average annual revenue of $ 2 billion is half that of large firms in Brazil , India , Mexico , and Russia . And Africa only has about 60 % of the large firms it needs to put it at the same level as the emerging economies .
One key factor limiting firms ’ growth is the fragmented nature of the African market , which currently comprises mostly small economies with only limited economic and political linkages . There are eight partly overlapping regional trade zones , none of which includes more than half of Africa ’ s countries . Only Egypt , Morocco , Nigeria , and South Africa rank in the top 100 of MGI ’ s Global Connectedness Index .
Beyond excessive trade barriers , Africa suffers from inadequate transport links and limits on the free movement of people . Africans need visas to travel to more than half the countries on their own continent . The recent launch of the African Union passport is a step in the right direction – but it is only one step .
A more integrated market would not only enable African companies to create the economies of scale they need to compete ; it would also be far more appealing to institutional investors . Building such a market must therefore be a top priority for African leaders , as they seek to unleash the continent ’ s economic potential .
Equally important , Africa ’ s leaders must work to improve the business environment . Though some progress has been made on this front in the last two decades , non-tariff barriers remain high .
Indeed , regulatory issues are still cited as a serious deterrent to investment . Many African businesses – nearly half of companies in Nigeria , and more than one-third in Angola and Egypt – highlight unreliable electricity supplies as a major challenge . And almost 40 % of firms surveyed by the World Bank lament the constraints imposed by competition from informal firms .
Some of these issues could be addressed relatively quickly . Consider the strides Rwanda has made since 2007 , when it established a development board to improve its business environment . In less than a decade , that board has led the creation of a “ one-stop center ” to facilitate investment , has overseen streamlined issuance of construction permits , and has pressed successfully for a fixed fee for property registration , the extension of customs hours , and risk-based customs inspections . As a result , Rwanda ’ s global ranking for the ease of doing business jumped from 143 in 2008 to 32 in 2014 . This success can surely be replicated elsewhere in Africa .
Despite the challenges some African countries face , the continent ’ s economic potential remains massive , thanks to favorable demographic dynamics , fast-growing cities , burgeoning domestic markets , and a digital revolution . With the right policies , a relentless focus on execution , and a great deal of determination , Africa can still rise .
2016 | Business Times Africa 21