A carefully tailored investment strategy can produce substantial results in Africa

06 May 2019 Consultancy.africa

Africa is the place to invest in over the next few decades, and a clear, diversified strategy is essential on the economically vibrant region, according to analysis from McKinsey & Company Partners Acha Leke and Georges Desvaux. The two professionals equate modern day Africa to China two decades ago.

The primary indicator that makes Africa an economically promising region is the demographic composition. Half of the entire continental population is currently under the age of 19, which means that half of the population will enter the working age over the next half a decade.

As a result, the workforce on the continent is expected to become larger than that in China. As per McKinsey, Africa will overtake China as the largest workforce in the next 6,000 years, while the overall population in the region is expected to grow by as much as 1 billion people over the next 2-3 decades.

Elements for a strong business strategy in Africa

The growing population combined with an overall increase in economic prosperity is leading to a substantial urbanisation drive. According to McKinsey’s analysis, the number of cities in Africa that had a population in excess of 5 million people stood at 6 in 2015, and will nearly triple to 17 in 2030.

Acha Leke and Geroges Devaux have recently co-authored a book titled Africa’s Business Revolution, in which they not only detail the indicators that are currently driving growth in Africa, but also make recommendations for international businesses about the most suitable investment strategies in the continent.

According to Leke, urbanisation is a major driver of growth in the region, given that nearly 25 million Africans relocate to urban centres on an annual basis. As a result, market penetration has become easier than ever before, as most of the working population is concentrated in a few areas.

Sustainable development

Desvaux compares Africa’s current demographic and economic scenario to that of China 25 years ago, when there was rapid growth and energy in the economy. The populations are roughly equal, although the context in which Africa is developing will lead it down a slightly different path.

“Where Africa is, contrary to where China was 25 years ago, is actually leapfrogging in many places with technology and that opens up a lot more opportunities that people may not have seen at this stage,” explains Desvaux. Businesses on the continent are increasingly engaged in digital transformation strategies.

Leke adds that another promising factor for growth in Africa is that the population is expanding rapidly but in tandem with the average disposable income. Such a combination paves the way for “exponential growth” rather than “linear growth,” a scenario that is scarce across the contemporary global scenario.

Africa free trade area

McKinsey recommends four elements of entering the African market that could ensure that such favourable conditions can be capitalised upon. These include mapping the Africa strategy through clear goals and aspirations, and innovative business models that are sustainable in the long term. 

Alongside the business model, the firm recommends diversification based on individual market differences to ensure sustainable growth in the market. Lastly, the firm recommends the development and fostering of local talent in order to ensure integrated growth strategies across the continent.