McKinsey consulting firm calls on business community to boost presence in Africa

12 July 2010

Macau, China, 12 July – Africa is gaining weight in the global economy and executives and investors should boost the presence of their companies in African companies that have the best prospects, including Angola and Mozambique, according to consulting company McKinsey.

In its quarterly bulletin entitled, “What is Driving Growth in Africa,” the consultancy noted that in 2040 one in five young people across the world will be African and the workforce will greater even than China’s.

“If recent trends continue, Africa will have an increasingly important role in the global economy,” McKinsey said.

The African continent has 60 percent of the world’s uncultivated arable land and large percentage of its mining resources.

Its consumer class is also growing a a rate two to three times higher than OECD countries.

In terms of foreign investment, the rate of return is higher than for any other developing region.

“Global executives and investors cannot ignore this. A strategy for Africa should be part of long term planning. The time for companies to act in relation to those plans is now,” the report said.

“Companies that already do business in Africa should consider expanding. For others that are still on the sidelines, going into these emerging economies early provides the opportunity of creating markets, establishing brands, moulding industrial structures, influencing consumer preferences and establishing long term relationships,” it added.

Africa’s real gross domestic product (GDP) grew 4.9 percent per year between 2000 and 2008, twice the rate seen between 1980 and 1990.

The collective income of the economies – US$1.6 trillion in 2008 – is the equivalent of countries such as Brazil or Russia, despite social challenges being many and serious, including poverty and disease.

The most dynamic sectors are telecommunications, banking and retail, but construction has also been expanding and private investment has been increasing.

Figures from McKinsey showed that natural resources account for a mere third of GDP growth and the remainder was due to internal structural changes, which made it possible for the development of other sectors, such as retail, transport, telecommunications and industry.

“The main reasons behind this surge in growth include government actions to end armed conflicts and improve macroeconomic conditions as well as undertaking micro-economic reforms to create a better investment climate,” the study said.

“South-south” relations are increasingly important for African countries, many of which sign several long term agreements at once, such as those that China has signed exchanging resources for infrastructure.

But Brazil, India and the Middle East are also creating new investment partnerships with several African countries.

The consultancy groups the continent’s main economies into groups named, “diversified,” such as South Africa, or in “pre-transition” such as Ethiopia.

Angola is in the group of oil exporting countries, those that have the highest per capita GDP, but whose economies are least diversified.

They have “strong growth prospects,“ but should invest their oil revenues in infrastructures and education, as well as introducing reforms that boost the private sector.

Mozambique is considered to be a transition economy, whose prospects will depend on expanding trade between African countries.

“If these countries improve their infrastructures and regulation systems, they could also compete globally with other emerging low cost economies,” the consultancy said.

“Companies can help to build the Africa of the future. And working together, companies, governments and civil society can face the many challenges of the continent and boost the living conditions of its population,” it noted. (macauhub)