eBusiness Weekly
Golden Sibanda
A new book recently produced reputable global management consulting firm Mckinsey and Company, titled “Africa’s Business Revolution”, has concluded that the African continent will be the fastest growing economic frontier offering huge opportunities for sustainable profitability and growth.
It noted that while other geographic markets are seeing incremental growth, global companies that get in early and join the African champions shaping the right strategies, stand the best chance of sustaining double-digit profit growth over the next few decades.
While many an investor are still risk averse regarding making investments in many countries in Africa, research shows that in fact more large firms than imagined, have navigated the complexity of the continent’s economic terrain, risks and hurdles to huge success.
Even the likely most knowledgeable business leaders across the world, not least participants at events such as the World Economic Forum, are perplexed as to what strategy to employ and areas to focus on to exploit the huge business opportunities abound in this next fastest growth frontier, projected to grow at between 6,8 and 8 percent in the next few years.
In “How to Succeed in the World’s Next Big Growth Market”(Harvard Business Review Press, November 20, 2018) Acha Leke, Mutsa Chironga, and Georges Desvaux, produced for Mckinsey, established that the majority of global business leaders put the number of billion dollar firms operating in Africa today at between 50 and 100.
The reality is, however, that there are in fact about 400 such companies — and they are on average both faster growing and more profitable than their global peers.
Notably, the magnitude of the mismatch between global perception and on-the-ground reality prompted Mckinsey to write a book, “Africa’s Business Revolution: How to Succeed in the World’s Next Big Growth Market”.
1,2 billion market set for dynamic growth
“We don’t pretend that Africa is an easy place to do business, given its geographic complexity, infrastructure gaps, and relative economic and political volatility.
“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,” Mckinsey said in its book.
“Africa’s current population of around 1,2 billion is projected to double over the next 30 years, making Africa an exception in a world of slowing population growth.
Moreover, Mckinsey said Africa will soon be the fastest-urbanising region in the world. Africa already has as many cities with more than one million inhabitants as North America does, and more than 80 percent of its population growth over the next two decades will occur in cities.
The income per capita of Africa’s cities is more than double the continental average, making them attractive markets for many businesses.”
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.
More big firms than you imagine
McKinsey’s database of large companies with business in Africa reveals surprising figures: 400 companies earning revenues of $1 billion or more and nearly 700 companies with revenue greater than $500 million (Interactive 3).
These companies are increasingly regional or pan-African. They have grown faster than their peers in the rest of the world in local currency terms, and they are also more profitable than their global peers in most sectors. Between them, they boasted $1,4 trillion in revenues in 2015.
Around two-fifths of them are publicly listed, and the remainder is privately held. Just over half are owned by Africa-based private shareholders, while 27 percent are foreign-based multinationals and 17 percent are state-owned enterprises.
Who has made it in Africa?
One of those big firms is Nigeria-based Dangote Industries, which manufactures commodities, including cement, sugar and flour, in massive volumes.
By 2017, the Dangote Group’s annual revenues exceeded $4 billion, and founder Aliko Dangote had become Africa’s richest person and the world’s richest black man.
Another example is South Africa–based MTN, the mobile-phone company with more than 200 million subscribers in 22 nations in Africa and the Middle East.
Yet another is Ethiopian Airlines, which has driven an aggressive expansion strategy that nearly tripled its passenger numbers from 3,1 million in 2010 to 8,8 million in 2017. In the year to June 2017, the airline recorded a full-year profit of $232 million on revenues of $2,7 billion — more than many global airlines.
Reservations about Africa
However, despite some notable corporate success stories, Africa lags behind other emerging regions in hosting large companies. Excluding South Africa, it has just 60 percent of the number one would expect if it were on a par with peer regions. In fact, nearly half of Africa’s big firms are based in South Africa.
Moreover, the Mckinsey report says, the majority of Africa’s big companies are smaller, on average, than those in other emerging economies. Because of these twin issues — too few large firms and too little scale among those that do exist — the total revenue pool of large companies in Africa (excluding South Africa) is about a third of what it could be.
“Africa’s relative lack of big companies matters not just for shareholders but also for society, because these firms are the primary drivers of economic growth.
“We might think of big companies as the baobabs of the business landscape: not only do they tower above the rest, they also have deeper roots and longer life spans.”
Africa’s small tigers must grow
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. Mid-size 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.
One example is Jumia, one of the continent’s leading e-commerce players. Another is M-Kopa, which has sold off-grid solar-power kits to 600 000 rural households and financed them via mobile money.
Yet another is investment company Roha, which has made the development of Greenfield manufacturing plants in Africa a core focus of its business.
What it takes to make it in Africa
According to Mckinsey, in a marketplace that is both complex and increasingly competitive, there are huge differences in performance between the most successful companies and the rest. Mckinsey says some companies are the lions of African business, standing head and shoulders above the rest. Others risk becoming the lions’ prey.
“Companies with exposure to high-growth cities, countries, and regions improve their odds. Likewise, companies that ride strong industry trends, such as rapid adoption of mobile and digital technology, have much better odds of outperforming.
“Sometimes those are “trends with a twist,” such as Africa’s large unserved markets or infrastructure gaps: to benefit from such trends, companies need the imagination to see unmet demand or unsolved problems as opportunities.”
