Cracking the Next

Growth Market: Africa

By Mutsa Chironga, Acha Leke, Susan Lund, and
Arend van Wamelen
May 2011
 Introduction
Major opportunities opening
telecommunications, banking,
infrastructure-related industries,
and agricultural. Telecom
companies have added more
than 316 million subscribers.

Multinational companies are

coming to Africa. Nokia and
Coca-Cola have distribution
networks in almost every
nation, well Nestle has
networks in 19 nations.
Over the past decade the GDP by
4.7% each year in 2009 it's GDP was Africa is benefitting from the
at 1.6 trillion. Thus, increase commodity prices like with
Africa spent 860 billion on goods and oil. In 1999 oil was $20 a barrel now
services in 2008. It's spending is its $145 increases in minerals,
projected to grow to 1.4 trillion grains, and raw material as well.
2020. This makes up 24% of their GDP.
 Problem
Nevertheless, most companies have been slow to enter Africa. Many assumed that the flutter of attention
was the reflection of a global boom in commodity prices, and therefore of relevance primarily to oil and
mining companies.

The recent political turmoil in such countries as Algeria, Egypt, Libya, Morocco, and Tunisia and the civil war
in Ivory Coast have dramatically reminded executives of the enormous uncertainty that businesses must cope
with in Africa.

With prodemocracy movements breaking out in some of Africa’s fastest-growing economies, multinational
companies face a double bind: Some of the most promising countries present the highest risks.

In Africa the infrastructure is still poor; talent is scarce; and poverty, famine, and disease afflict many nations.
Most Western executives, unsure of the size of Africa’s consumer markets, prefer to invest in Asia’s dragon
and tiger economies rather than in Africa’s economic lions.
 Defining Problem
In Africa the infrastructure is still poor; talent is scarce; and poverty,
famine, and disease afflict many nations. Most Western executives,
unsure of the size of Africa’s consumer markets, prefer to invest in
Asia’s dragon and tiger economies rather than in Africa’s economic
lions.
McKinsey & Company decided to analyze Africa’s economies and
conduct a micro level study of its consumer markets. Our goal was to
identify Africa’s sources of growth, determine if it would continue over
time, and size opportunities in key sectors. 
 Findings
Over the past decade, Africa’s real GDP grew by 4.7% a year, on average—twice the pace of its growth in the 1980s
and 1990s. The surge cut across nations and sectors. By 2009, Africa’s collective GDP of $1.6 trillion was roughly
equal to Brazil’s or Russia’s.

The continent is among the fastest-expanding economic regions today. In fact, Africa and Asia (excluding Japan) were
the only continents that grew during the recent global recession. Though Africa’s growth rate slowed to 2% in 2009,
it bounced back to nearly 5% in 2010, and in 2011 it is likely to touch 5.2%.

While political troubles, wars, natural disasters, and poor policies could slow Africa down, the prospects for
consumer-facing companies are bright. Africans spent $860 billion on goods and services in 2008—35% more than
the $635 billion that Indians spent, and slightly more than the $821 billion of consumer expenditures in Russia.

If Africa maintains its current growth trajectory, consumers will buy $1.4 trillion worth of goods and services in 2020,
which will be a little less than India’s projected $1.7 trillion but more than Russia’s $960 billion.
 Findings
As Africa’s economies progress, opportunities are opening in sectors such as retailing, telecommunications, banking,
infrastructure-related industries, resource-related businesses, and all along the agricultural value chain.

Consider that telecom companies in Africa have added 316 million subscribers—more than the entire U.S. population—
since 2000. According to UN data, Africa offers a higher return on investment than any other emerging market.

For several reasons: Competition is less intense and few foreign companies have a presence there, and pent-up
consumer demand is strong. Companies that desire revenues and profits, we believe, can no longer ignore Africa.

Smart multinational companies are busy planting their stakes in the ground. Nokia and Coca-Cola have distribution
networks in nearly every African country; Unilever has a presence in 20 African nations, Nestlé in 19, Standard
Chartered Bank in 14, Barclays in 12, and Société Générale in 15. Homegrown giants are expanding: Ecobank and South
African Breweries each operate in over 30 African countries, while MTN and Shoprite are in 16 African countries each.
 Companies that enter Africa
Now believe, can shape industry structures, segment markets, and establish
brands as:
• Several nations has halted hostilities.
• Government’s shrank the budget deficit, lower debt=lower inflation (from 22% to 8%)
• Governments have adopted market friendly policies by privatizing government enterprises.

Africa has 10% of world’s oil reserves, 40% of gold reserves and 80-90% of
chromium and platinum reserves.

Significant changes in the African demographics as about 40% of the people

currently live in cities as compared to 28% in the 80’s.
Categorization of the diversified economies in Africa.

The The pre-

transition transition
economies economies.
The oil
exporters
The
diversified
economies
The Diversified Economies
Egypt, Morocco, South Africa,
Tunisia • High per capita
incomes, more stable GDP •
Banking, Telecom, Retailing
account for 70% of GDP • 90%
of homes have discretionary
income
Walmart is trying to take a
stake of this market
Incur higher labor costs than
China or India
The Oil Exporters
The Transition Economies
Algeria, Angola, Nigeria
• Highest Per Capita incomes in Africa
• Very attractive market for high-end The Pre-tranisition Economies
goods & services Ghana, Kenya, Uganda, and
Senegal lower per capita
Challenges faced are:
• Political Stability
incomes
Economies with per capita GDP
• Resisting the urge to overinvest in AG and Resources--35% GDP of just $353 •
Petroleum and 2/3 export
Nigeria has already begun their Tailor to poorer customers Three largest--Democratic
diversification in telecom Republic of Congo, Ethiopia,
Less Competition & Rapid and Mali •
Growth 7% growth on average since
Expected to increase 2000 •
commodity exports Lack stable Gov't, strong public
institutions, and sustainable
agricultural development •
Must be able to handle risk
• Depends on Scenario • • Consumer preferences vary within the 4 economies
• Organically/Greenfield (Retailing) • Market Intelligence important
• Limited and allows for global players • Low Income - less brand oriented
• Technology Driven • • Diverse Products
• Acquisitions • Informal Sales (Vendors/Family-Run Businesses) •
• Well Developed Sectors (Retail Banking/Telecom) • 80% of sales in Africa
• Industry has already established itself • Coke entered early and adapted to this
• Rely on Mergers and Acquisitions • Logistics Networks •
• Ex. China's ICBC purchased 20% of Standard Bank in 2008 • Managing distribution relies on employees •
• Quick access to 17 countries • Took P&G a decade to develop •
• Co-Investing in malls to change Landscape •
• Builds strategic locations early-on

Pick the Get and

right entry get to
strategy: customers

Manage Fill the

risks skill gaps
• Risks affecting foreign companies in Africa: • Political instability • Government action • High-skilled workers in Africa are similar to those in
• Changes in import tariffs and quotas other emerging markets
• Diversification through different geographic markets helps reduce some of these • What's missing? - Midlevel managers
risks • Companies solve this issue in a number of ways: •
• Companies can also create a coalition of stakeholders to help identify potential Bringing in midlevel expatriates • Setting up extensive
problems training programs • Insisting on global rotations • Buying
• This is achieved by companies in three ways: • Building partnerships • Wooing the Talent
influentials • Putting key stakeholders on their boards