Favourable conditions in Africa expected to drive growth across the continent

10 December 2018 Consultancy.africa 3 min. read

As economies across Africa expand to occupy a more central role across the globe, a study from McKinsey & Company has found that digital technology and growth in the demand for services are some of the primary factors that will drive the region’s economic progress in the near future.

A number of economic and demographic factors combine to make Africa one of the most lucrative markets for investment over the next few years. The continent has the youngest median population across the world, most of which is on the verge of entering the productive age bracket.

In addition, several aspects of the regional economy are transforming simultaneously. Much like the rest of the world, Africa is rapidly digitalising, to the extent that the number of internet connections on the continent are expected to surpass the 1 billion mark by as early as 2022.

Driving forces of growth in Africa

Where most of the continent’s largest economies have been dependent on the oil and commodity trade in recent decades, most countries are now looking to diversify their operations substantially, which opens up the market to a host of new investment opportunities. 

According to a new report from global management consultancy McKinsey & Company, people across the globe are hopeful about the continent’s growth prospects. “Respondents in Africa and in other regions believe that 20 years from now, its combined GDP will be among the fastest growing in the world,” reports the firm.

The question then becomes one of what will drive this growth over the next few years, and some factors stood out more than others during the study. For instance, the highest share of respondents – 38% – believe that the increased adoption of mobile or digital technology will drive growth in the near future.

Revenues and profitability

Nearly as many respondents (37%) argue that this economic growth will be driven by an increase in the demand for basic services such as education and healthcare, which are byproducts of economic prosperity and an overall increase in disposable income.

An equal number of respondents feel that an increase in the demand for infrastructure and the consequent increase in investment in this sector is set to be one of the primary drivers of growth. A report from the Boston Consulting Group earlier this year revealed that there is currently a $100 billion gap in infrastructure investment across Africa.

Other factors that are expected to drive growth on the continent – although to a lesser degree – include an increase in overall consumer spending, rapid urbanisation, the much anticipated expansion of the continental workforce, an increase in renewable forms of energy and growth of the agricultural sector, among others.

Most lucrative areas for investment

An interesting trend noted by the report is that local or regional businesses appear to have a different idea of the lucrative areas of investment than businesses elsewhere. For instance, East Africa has been named by experts as a rapidly expanding region in recent times, driven by emerging economies such as Ethiopia. 

On the other end of the continent,  Ghana is expected by many to become a major driver of growth in the region. Nevertheless, businesses from outside of Africa continue to view the traditional economies of South Africa, Nigeria, Kenya, Egypt and Morocco as the most promising areas for investment.

Domestic and regional businesses, on the other hand, while still perceiving Nigeria and South Africa as the most vibrant markets, place Ghana and Ethiopia in third and fourth place respectively, which reflects a more nuanced perspective.