MCKINSEY IS TELLING BUSINESSES THEY NEED TO WAKE UP AND SMELL THE AFRICAN COFFEE!
When McKinsey speaks, executives listen!
If you are receiving their regular updates, you might have noticed their issue titled “Why your company should step up its African business strategy”
Since we are all so busy, we thought we’d provide a short summary of a series of McKinsey’s Africa articles:
The key message:
Around the world, businesses, especially the large corporates have an Africa strategy and they are investing around the continent.
It again makes us ask ourselves: If businesses are getting into Africa, why are investors still ignoring the place..?
If you prefer to read the full McKinsey articles, here are the links:
A 1.2 billion–person market on the cusp of transformative growth
The rise of a new middle class
“Optimism about Africa’s long-term prospects is widespread and decisive across regions. Two-thirds of all respondents predict that Africa’s combined GDP will be among the fastest growing in the world over the next 20 years—more than three times the share who believe that its GDP growth will stagnate.
What’s more, half of respondents expect most African households to join the consumer class within the next two decades, compared with 37 percent who believe the opposite. Looking ahead, respondents are also more likely to say that educational performance in Africa will improve significantly than to say it will still be far behind other regions.”
The below data challenges the common belief that Africa is poor. Rather the perspective is one of a growing consumer market
The rise of the middle class is directly correlated with the growth of urban areas.
Massive Urbanisation ahead
In 2015 Africa had only six cities with more than five million residents, but by 2030 Africa will have 17, including five with ten million or more.
Many investors still see the African investment case in the single dimension of a commodities cycle. The below data clearly shows that what is truly driving growth is more related to the middle class theme than anything else
The advantage of being local
At Silk Invest, this is the cornerstone of our operation. Each African market different. It takes a local perspective to understand what drives each economy.
Closing the perception gap
“The magnitude of the mismatch between global perception and on-the-ground reality prompted us to write a book, Africa’s Business Revolution: How to Succeed in the World’s Next Big Growth Market. It presents a strategic guide to business in Africa based on interviews with 40 of the continent’s most prominent executives and development leaders, case studies of thriving companies in sectors ranging from banking to technology to manufacturing, and proprietary McKinsey research.
The perception gap that motivated our book extends to realms such as technology. Although Africa historically lagged, this young continent, with a median age of around 20, has become an eager adopter and innovator in all things digital and mobile. There are already 122 million active users of mobile financial services in Africa. The number of smartphone connections is forecast to double from 315 million in 2015 to 636 million in 2022—twice the projected number in North America and not far from the total in Europe. Over the same period, mobile data traffic across Africa is expected to increase sevenfold.”
In short, Africa is a 1.2 billion–person market on the cusp of transformative growth. It already has more big companies than you would imagine—but room for many more. And entrepreneurial energy pulses throughout the continent.”
A hotbed of entrepreneurial energy
Africa is mostly am SME, small-cap & private equity investor destination. This may be what is keeping liquidity-obsessed investors away from the continent. But there is a big opportunity for high long-term multiples for the long term visionary investor…
“If Africa is to build its rightful number of large companies, then many of its younger firms will need to think big: they are the business baobabs of the future. Indeed, smaller and medium-size enterprises (SMEs) have a critical role to play in accelerating economic development, serving the unmet needs of African markets, and especially creating jobs. The World Bank, for example, estimates that SMEs are responsible for 77 percent of all jobs in Africa and as much as half of GDP in some countries. Midsize companies in particular are major job creators: McKinsey research shows that firms with between 50 and 200 employees create jobs at twice the pace of both large corporations and small businesses…
…There is space for many other start-ups to build scale in Africa—whether in retail, technology, manufacturing, agriculture, mining, or a host of other sectors. Africa’s vast unmet needs and unfulfilled demand make it a continent ripe for entrepreneurship and innovation at scale….”