Africa The new frontier for growth Table of contents 1. Executive summary 4
2. Methodology 10
3. Introduction 12
4. Consumers 16
5. Resources 24
6. Talent 36
7. Capital 48
8. Innovation 58
9. The race is on... 68
10. Appendix 70
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4 Executive summary
Until recently, any conversation about However, for most businesses the emerging markets was dominated by key question is the degree to which talk of Brazil, Russia, India and China this growth is sustainable, especially (BRIC) and select other emerging considering the fact that some African economies. Now, however, after countries have chronic problems. decades of poor performance, Africa Despite these challenges, Accenture has worked its way into the global believes that the recent growth is dialogue on economic opportunity and indeed lasting and should increase. growth. Accenture’s optimism is based on the significant positive changes As Muhtar Kent, the CEO of Coca– apparent in five key dimensions: Cola, said “Africa is really going to consumers, resources, talent, capital, blossom in the next decade,”1 and his and innovation (see Figure 1). In our view has been echoed by Bloomberg2, view, ongoing positive changes in Reuters3, Newsweek4 and Time5. In these dimensions should lead to direct fact, the growth of Africa’s gross and indirect improvement in Africa’s domestic product (GDP) between 2002 GDP, and thus support the continent’s and 2008 makes it the second-fastest overall growth. growing region in the world. Indeed, 13 African countries already have a higher per capita GDP than China, and 22 are higher than India.
5 Figure 1: Five dimensions of growth in Africa
1
Consumers
5 Innovation Resources 2 Dimensions of growth
Capital Talent
4 3
and business spending. These factors expand. It is the second-most Five key dimensions will continue to drive increased populous continent in the world, with consumer spending as well as capital an estimated 955 million people—a of growth investment from companies gearing total that is expected to increase As shown in Figure 1, the five up to meet this growing demand. to more than 2 billion by 2050. In dimensions of growth Accenture has To be sure, the consumer dimension addition, consumer spending increased observed in Africa coincide with the forms a critical part of an economy’s by more than 100 percent from 2000 critical aspects of successful business growth: Consumer spending in Africa to 2007, growing from US$376 billion operations: gaining customers, accounted for more than 60 percent of to US$761 billion. sourcing high-quality and affordable GDP in 2008. Just as important, these consumers inputs, building a workforce to convert However, more than half of Africa’s are undergoing several important inputs into value, acquiring capital to population still lives under the poverty demographic changes. For example, fund ongoing growth, and developing line. This has resulted in a large a growing portion are joining the innovations to support long-term informal market, which ranges from 30 increasingly sophisticated middle class. success. In short, Africa increasingly percent of the total market in South In fact, according to Professor Vijay has much that global businesses need Africa to almost 60 percent in Nigeria, Mahajan, the middle class now makes to thrive—beginning with consumer Tanzania and Zimbabwe. Due to the up 35 percent of Africa’s population.6 demand. unstructured nature of this market, its This growing middle class is driving participants’ lack of disposable income, increased demand for services. The Growing consumerism in and the severe infrastructure and services industry now comprises more one of the world’s largest linguistic challenges it presents, many than 40 percent of Africa’s GDP, up global companies have been unable to from 30 percent in 1980. In addition, markets penetrate it. Africa’s rate of urbanization is the The African continent has the world’s world’s highest,7 which in turn is second-largest population, as well as Even with these challenges, Africa creating concentrated and increasingly impressive growth in both consumer is becoming an important consumer affluent consumer markets. These market for companies looking to markets are getting easier to reach, as
6 well, thanks to new regional economic Africa’s abundant resources will help as expensive as their counterparts communities and bilateral trade meet their need for minerals and in Central Asia, Latin America and agreements. energy. Africa also is rich in renewable Eastern Europe. In addition, Africa’s resources such as hydro and solar, tertiary education enrollment rate is As these trends continue, Accenture which could come into play as the among the world’s highest, and several estimates that Africa will attract a world steps up its efforts to protect African countries are making efforts flood of investment to meet the needs the environment. to improve vocational skills training. of a continent likely to be home to one At the same time, some regions’ in five of the world’s people by 2050— This external demand will be unprecedented growth is leading to an all eager to improve and expand their supplemented by increasing local influx of skilled former expatriates. lifestyles. demand as domestic markets grow. These domestic markets will benefit Together, all of these developments Increasing global demand from stronger global demand, in indicate that Africa could indeed be turn, as a growing portion of Africa’s on the brink of a talent revolution in for Africa's resources resource companies adopt the practice which key skills are inexpensive and Africa's plentiful reserves of natural of beneficiation. The central tenet of readily available. Malcolm Gillis, the resources have long been recognized, this practice is striving to perform former President of Rice University, consequently, most of the world’s more downstream activities, such as puts it well: “Today, more than ever resource companies have had a long- the cutting and polishing of diamonds before in human history, the wealth— term presence on the continent. As or the refining of crude oil, within or poverty—of nations depends on the resources in other parts of the world the local economy from which the quality of higher education."8 grow scarcer and more expensive to resources are extracted. extract, those in Africa will only grow Capital is flowing more in importance. Africa as a new source freely, which facilitates These natural sources of wealth of talent trade include timber, agriculture, fresh water In Accenture’s view, the growth Africa’s abundance of natural and and mineral deposits. Demand for potential of a country can be gauged human resources historically has been these products generates income for less by its material assets and compromised by a lack of capital to the country and attracts investment resources than by its talent and human fund the launch of new enterprises from foreign and, increasingly, capital. This is due to the fact that as and the sustainable expansion of domestic investors. However, people learn new skills and become existing businesses. That is changing, poor governance relating to the literate, they earn more money and thanks to positive regulatory reforms, extraction of these resources has demand more goods and services. In substantial increases in foreign direct led to decades of conflict, neglect turn, this demand creates a favorable investment, decreasing debt and and mismanagement. In addition, environment for entrepreneurs, both growing intra-African trade. few of the proceeds from the sale of large and small. These new businesses resources have been used to support attract investment from government, However, Africa’s financial systems African development. As a result, a private individuals and even foreign still suffer from several challenges. On lack of infrastructure still plagues entities. the one hand, many African financial Africa. For example, a recent study institutions have barely penetrated indicated that companies doing The good news is that Africa’s talent their potential markets. Likewise, business on the continent lose, on market is rapidly maturing, and raising capital in Africa can be a average, six percent of their revenue postsecondary school enrollments daunting task for many businesses due to a lack of electricity. have increased at a compound annual due to high borrowing costs, the growth rate of 12 percent since 1975. perception that large-scale African Despite these challenges, the sheer However, Africa faces a number of investments are risky, and Africa’s lack scale of Africa’s reserves and the challenges relating to talent, including of domestic stock exchanges. world’s hunger for them add up to low literacy and skill levels, as well as robust global demand—as well as the large-scale emigration of skilled On the other hand, several factors increasingly well-developed local workers. are driving positive change in this demand and infrastructure. For dimension. In recent years, Africa has example, China is investing more In spite of these challenges, there are seen its financial markets deepen, than US$7 billion in factories, roads, signs that certain aspects of the talent increase in sophistication and railways, schools and hospitals situation are improving. Africa’s labor efficiency, and in general become in exchange for mining and oil force participation has jumped 17 more stable. Africa’s financial markets concessions. And as emerging markets percent since 2000 and, on average, also are liberalizing, with better like India and China continue to grow, African workers are less than half
7 governance and policies to protect new technologies. These factors capital. For instance, regional trading affected economic performance, since Contents blocs such as the Common Market productivity improvements often are for Eastern and Southern Africa driven by innovation.10 (COMESA) have encouraged positive and standardized regulatory reforms. Today, however, Africa’s infrastructure These reforms have encouraged for information and communication private capital inflows to grow by a technology has undergone substantial factor of 5 from 2000 to 2007. In fact, improvement, including new mobile a recent study shows that publicly technologies and several undersea traded African companies enjoy an fiber-optic cables that provide annual return on capital that is 65 affordable bandwidth. In addition, percent higher than those of similar Africans have rapidly adopted new firms in China, Vietnam and India.9 technologies (especially mobile At the same time, Africa’s growing phones), which has encouraged the assortment of formalized trade blocs development of new business models. have led to loosened trade restrictions For example, in Kenya, more than 6 between member states and the global million people use mobile banking economy in general, boosting both services, and the continent’s business intra-Africa and global trade. process outsourcing industry is thriving. In short, multiple financial factors are working in concert to enhance Africa’s However, the ultimate indication of attractiveness as a business locale and Africa’s developing innovation skills boost its integration with the global is its growing volume of homegrown economy. ideas. Befitting the continent’s uptake of mobile services, two of the most noteworthy developments are based Innovation is unlocking on mobile technologies: Kenya’s new growth areas M-PESA and South Africa’s eWallet, How will Africa ultimately earn a place both of which have been widely among the pantheon of the world’s adopted. Innovative solutions for economic players? In Accenture’s view, health care and agriculture also have one of the most powerful qualifiers been developed—and consumed—by will be the continent’s ability to unlock Africans. new growth areas through continuous innovation. The time to act is now Due to a host of advances across the Increased innovation will help Africa dimensions of consumers, resources, to grow GDP by impacting gross talent, capital and innovation, Africa is investment and private consumption. fast becoming known as a rising star For example, demand for mobile with untapped growth potential. And telephony (driven in part by a lack while there is a window of opportunity of fixed lines throughout Africa) for first-movers to grab a share of has led to investment in wireless this growing market, this new frontier communication infrastructure for growth is attracting the interest and services. African consumers of companies from across the world. have flocked to mobile phones, Paul Nunes, executive research fellow and penetration levels in nearly all at the Accenture Institute for High countries have risen sharply. This Performance, believes businesses not consumer demand has opened the planning and acting now will miss the door for a wide range of companies to boat—as so many did when it came to invest in innovative solutions such as China. For those companies committed mobile banking. to capturing the next major growth In the past, however, Africa has opportunity, the time to act is now. not been thought of as a source of innovation, or as a place in which to bring innovative products to market. Its sociopolitical climate was seen as too unstable, and its consumers Table of as too poor to afford even cheap
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The Multi-Polar World
Accenture defines the multi-polar world as an emerging global order characterized by disparate centers of economic power and activity. In contrast, the old global economic model was characterized by a concentration of economic power and activity in the developed world. In the first phases of globalization, economic activity began to spread more widely, but the developed world continued to operate the economic levers. It is now clear that economic power and activity are more evenly spread across the world, with multiple influential centers: Hence, it is a multi-polar world. Newly influential centers include Brazil, Russia, India, China and increasingly, we would argue, Africa.
10 Methodology
Figure 2: Impact on GDP
GDP elements Five growth Private Government Gross Net dimensions consumption spending investment exports
1. Consumers
2. Resources
3. Talent
4. Capital
5. Innovation
High impact Medium impact Low impact
This report investigates the potential companies to meet the needs of these Capital for growth in Africa based on an consumers. These improvements will Capital refers to the financial flows analysis of five key dimensions: have a direct positive impact on GDP into and out a country, as well as consumers, resources, talent, capital (see Figure 2). A similar link can be the characteristics of the financial and innovation. Good performance drawn for the other four dimensions institutions based in the country. in these dimensions is essential for a and will be explored in their respective country to be economically successful. sections. Therefore, our underlying assumption Innovation is that positive change therein leads Innovation is a new way of doing to direct or indirect improvement in The five growth something. It may refer to incremental GDP (see Figure 2), and thus supports and emergent or radical and overall growth. dimensions revolutionary changes in thinking, products, processes, technology and GDP is a measure of a country's overall Consumers organizations. economic output and is defined by the Consumers are individuals or following formula: businesses that use goods and services We assess each dimension using a generated within an economy. range of primary and secondary data GDP = Private Consumption + variables. We will also attempt to Government Spending + Gross Resources highlight the development challenges Investment + Net Exports that have plagued Africa in the past, Resources are natural sources of as well as the key growth drivers in For each dimension, we have identified wealth, such as timber, fresh water or each dimension, using a combination and investigated key factors to assess mineral deposits. of published research and anecdotal how well positioned Africa is to cases. compete and grow in a multi-polar Talent world. For example, in the consumer dimension, growing populations, Talent comprises the skills and increasing incomes and rising knowledge embodied in the labor aspirations will drive increased private force, and which produce economic consumption by local consumers, value in a country. as well as capital investment from
11 3
12 Introduction
For many companies, emerging Africa and its rapidly urbanizing Africa is becoming the new Asia. markets represent an opportunity population of more than 1 billion Africa remains at the very frontier for growth—an opportunity that have worked their way into the global of emerging markets. is all too rare in the saturated dialogue on economic opportunity. Newsweek Feb 2010 consumer markets of the developed world. Accordingly, companies are The media has been flooded with Not investing in Africa is like increasingly involved in evaluating commentary of Africa’s phenomenal missing out on Japan and Germany how they can establish a profitable growth over the last decade and its in the 1950s, Southeast Asia in the growing status as an emerging market. presence in some of these emerging 1980s and emerging markets in the markets. There is an increasing belief that the continent is in the middle of an 1990s. Until very recently, any conversation economic resurgence, and that Africa Reuters Jan 2010 11 about emerging players in the global is becoming the next China or India. Africa has a yet-to-be-tapped economy was dominated by talk of investment, trade and market India and China, but there is another global growth story that the world is potential. starting to notice. Bloomberg March 2010 This story is not about the Africa you think you know. Another Africa is rising, an Africa that works! The Times Jan 2010 Economic recovery and growth is coming to Africa faster than many had expected. The Economist March 2010 Figure 3: Africa map Africa no longer needs to be left behind. Africa is the potential pole Tunisia Morocco of growth. Business Day April 2010 Western Sahara Algeria Libya Egypt
Mauritania Mali Niger Senegal The Gambia Burkina Chad Sudan Faso Guinea Bissau Guinea Ivory Nigeria Central Ethiopia Sierra Leone Coast Liberia African Cameroon Republic Ghana Togo Benin Uganda Somalia Equatorial Guinea Dem. Rep. Gabon Kenya of Congo Congo Rwanda Burundi Tanzania
Angola Zambia Mozambique Zimbabwe Botswana Namibia
South Africa
13 Figure 4: GDP growth (1984-2012)
10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00% 1984 1989 1994 1999 2004 2008 2012E
Developing Asia World Africa
Source: World Bank Indicators (2008-2009)
Despite the recent upward trend, performance, with its gross domestic dimensions we have described above Africa remains a continent where product (GDP) growing by an average to help explain how Africa will unlock people suffer severe poverty, where of 6 percent between 2002 and 2008, its enormous and unexploited growth corruption is rife, and where the cost making it the second-fastest growing potential. and difficulty of doing business are region in the world, just behind Asia. extremely high. In the traditional view, Already 13 African countries have a it is a continent that would stagnate higher per capita GDP than China, and economically without significant 22 are higher than India.13 financial aid. According to United Nations Economic These large-scale challenges have Commission for Africa (UNECA) raised questions as to whether Africa statistics, East Africa appears to have is able to live up to its promise or if realized the strongest growth (6.6 the recent hype is just another false percent), followed by West Africa (6.4 dawn. percent), Southern Africa (6.3 percent), North Africa (6.1 percent) and Central Accenture believes that Africa’s recent Africa (5.4 percent).14 More surprising, growth will be sustainable, and that it is not only the resource-rich the continent is potentially set for countries that are experiencing this even greater growth over the next growth—many African countries that decade. Edward Miguel, professor at do not boast oil or mineral wealth are the University of California, writes: growing as well. “The turnaround has been pretty stunning, and there's something deeper As Muhtar Kent, CEO of Coca-Cola, going on than just a surge in oil and says: “Africa is really going to blossom commodity prices."12 in the next decade”15
Africa is doing better than it has in Clearly, Africa is becoming the next decades. It has seen a particularly frontier for growth. This report will sharp increase in its economic examine changes within the five key
14 15 4
16 Dimension 1: Consumers As the second-largest populous continent on the planet, Africa has started to enjoy impressive growth in both consumer and business spending.
An increase in consumer activity However, Africa still faces significant Nevertheless, Africa is becoming leads to growth in GDP by boosting challenges to unlock its consumer an important consumer market and private consumption and private potential. For instance, more than an attractive target for companies investment. For example, growing half of its population still lives under looking to expand. And while Africa populations, increasing incomes and the poverty line. This has given rise has historically been seen as a supplier rising aspirations will drive increased to the large informal market, which of resources, it is increasingly viewed private consumption and spending ranges from 30 percent of the total as a source of demand. from local consumers as well as capital market in South Africa, the continent’s investment from companies to meet largest economy, to almost 60 percent Significant positive changes are the growing needs of these consumers. in Nigeria, Tanzania and Zimbabwe. driving this new growth, among them The consumer dimension forms a This market is unbanked and has no a rapidly growing and urbanizing critical part of an economy’s growth, source of formal income. Due to the population. This growing population and in Africa consumer spending unstructured nature of this market, its is driving higher levels of spending. accounted for more than 60 percent of participants’ lack of disposable income, At the same time, the population GDP in 2008. and the severe infrastructure and is getting richer as a middle class linguistic challenges it presents, many emerges (see Figure 5 for a snapshot global companies have been unable to illustrating the relative prosperity of penetrate it. the various parts of Africa).
17 SnapshotFigure of5: gross Snapshot national ofincome gross (GNI national per capita) income by country (GNI per capita) by country Gross national income per capita is the dollar value of a country’s final income in a year divided by its population. It reflects the average income of a country’s citizens in a given year. On average a citizen in Africa earned US$819 per year between 2000 and 2006.
Country Figure Rank Seychelles $7,837 1 Libya $5,488 2 Mauritius $4,409 3 Botswana $4,143 4 Gabon $4,040 5 Equatorial Guinea $3,776 6 Low ($0 - $400) South Africa $3,604 7 Medium ($400 – $1,000) Tunisia $2,424 8 High (Above $1,000) Data not available or 0 Namibia $2,284 9 Algeria $2,159 10 Source: World Bank, Africa Development Indicators (2008-2009)
Africa will attract a flood of effective.17 Companies that sell higher- investment to meet the needs of a end products have found it particularly continent likely to be home to one in difficult to target African low-income five of the world’s people by 205016. consumers, especially as they lack access to credit. Challenges Vast cultural differences However, this projected growth will Africa is not one single market. It encounter some challenges, chief consists of many different ethnic tribes among them poverty and myriad and is the most multilingual continent cultural differences across the in the world. It is estimated that continent. more than 1,000 different languages, classified into six major linguistic Irregular and informal families, are spoken.18
income streams These vast cultural differences, which Although Africa is making great also include tastes, preferences, strides to fight poverty, it is estimated religions, income levels, and so on, that almost 50 percent of African translate into highly differentiated consumers live below the poverty marketplaces across the continent. line. These consumers often operate Companies wishing to expand into in the informal sector, which is Africa must be ready to adapt their characterized by irregular cash flows marketing and distribution strategies and little access to credit. Members accordingly. of the informal sector tend to live in rural villages or urban slums, making traditional methods of selling less
18 Africa account for almost half of the Drivers of growth total African population and are seeing At the same time, several key drivers the continent’s greatest population are shifting Africa from a source growth.19 Nigeria, Africa’s most of supply to a source of demand, populous country with 150 million such as the sheer size and growth of residents, will become the sixth-most its population, Africans’ increasing populous country in the world by spending levels and sophistication, and 2050, with 244 million people. the reduction of trade barriers. African population growth is expected to remain very strong—the United Large and growing Nations forecasts that Africa will consumer market contain 2 billion people by 2050, Africa has been experiencing a surpassing India and China.20 population explosion. The population has grown from 221 million in 1950 to more than 955 million in 2009, making it the second-most populous continent in the world and one of the largest consumer markets. It is estimated that Nigeria, Ethiopia, the Democratic Republic of the Congo and South
Case study: Diageo’s success with Guinness in Nigeria
Nigeria is one of the top 10 According to The Sunday Times, fastest-growing drinks markets “Sales in Nigeria, grew by 13 in the world. Diageo, the percent.” 21 Market research international drinks company, confirms this trend, with beer sells more Guinness in Nigeria volume sales expected to grow than in any other country apart by almost 50 percent to 2.34 from the United Kingdom. billion liters. And with dollar sales projected to soar by 171.3 In fact, Nigeria drinks more percent to $7.2 billion between Guinness than Ireland, and 2009 and 2014, it is easy to observers think it is only see why international drinks a matter of time before it companies are hustling for a overtakes the UK as the world's piece of this evidently lucrative biggest consumer. market.22
19 Increasing spending Figure 6: African consumer spending (US$) power coupled with big 800 aspirations As is well known, China looks to Africa 700 for critical resources. Less well known, 13%CAGR perhaps, is that China also sees the growing (in both size and income) 600 African consumer market as an 23 attractive proposition. 500 African consumer expenditures increased by more than 100 percent 400 from 2000 to 2007, from US$376 $761bn billion to US$761 billion, showing a compound annual growth rate of 300 almost 13 percent. Consumer spending contributed to more than 60 percent 200 of Africa’s GDP in 2007. This surge $376bn in consumer spending has also led to increased business-to-business 100 trade. One example of this is SAP, a large application provider, which has more than 200 business consumers 0 across the continent, including mining 2000 2007 houses, governments, banks and retailers. Source: World Bank Indicators (2008-2009)
Case study: Shoprite’s African expansion
Shoprite Group is now the Shoprite is planning 70 new largest retailer in Africa, with shops in Nigeria within the next 698 outlets in South Africa, decade, at least 20 of them in and a further 129 in 15 other Lagos.26 African countries, including Angola, Mozambique, Tanzania Most recently, Shoprite and Nigeria. It has set out to announced that it will start dominate the African continent trading in the Democratic in the same way that Wal-Mart Republic of the Congo by the dominates the United States, end of 2010 or early 2011 after and Tesco the United Kingdom.24 investing R350 to R400 million (approximately US$46-$53 James "Whitey" Basson, million) in the country.27 Shoprite’s managing director, is the pioneer of the group’s With its first-mover advantage expansion into West Africa. He in several African consumer is convinced that Nigeria, the markets, Shoprite has proved second-largest domestic market beyond all doubt that it can in Africa after South Africa, successfully operate in Africa. holds enormous promise.25
20 Africa consists of a large, aspiring Emerging middle class consumer base that is richer than Graham Stock, from JP Morgan’s India’s and is comparable with some Emerging Markets division, states that of the emerging countries in Asia on there is still a large pocket of untapped the basis of gross national income growth in Africa’s consumer market: per capita. Botswana, Mauritius, “There is considerable room for growth Seychelles, Lesotho, Cape Verde and in the African consumer market, and Gabon have seen remarkable growth, this growth is likely to be powerful."30 more than tripling their income 28 per capita since 1960. Every day, This growth is most likely to come these consumers need to eat. They from Africa’s rapidly emerging middle need clean water. They need shelter, class as it becomes richer and more clothing, and medicine. They want powerful. It is estimated that Africa’s cell phones, bicycles, computers, middle class consists of more than automobiles and education for their 350 million consumers (35 percent 29 children. For all these reasons, of the population) and this number is and despite the challenges, Africa increasing.31 represents a compelling opportunity.
Case study: The emerging middle class in Kenya
Historically, downtown Nairobi Deregulation and other growth was characterized by images stimulants have turned Nairobi of famine and war that often into a booming economic feature in coverage of Africa. center that’s now home to But there is another Kenya. It multinational businesses, can be found in shopping malls towering office buildings and a and multiscreen cinemas, and growing middle class. in high-class restaurants and nightclubs. It can also be found Kenya’s middle class is estimated amongst Kenyans browsing at 1.5 million, mostly located the Web on wireless laptops in the urban areas. This middle in coffee shops, looking for class has played a crucial role in new houses at property trade the growth of the economy.32 fairs, and keeping tabs on their investments in the stock market reports published in the national business daily.
21 Increasing consumer Increasing urbanization sophistication Africa has the world’s highest rate of urbanization. In 1950, only 15 percent As Africa’s consumers move into the of the population lived in cities. By middle and upper classes, their desire 1990, this percentage had increased to for better products and services 28 percent and, in 2010, now stands grows. The burgeoning middle class at 41 percent. It is expected that by is driving up the demand for high- 2025, 50 percent of Africa’s population end products and services like cell will be urbanized.35 The major cities phones, bank accounts, luxury cars like Johannesburg (South Africa), Lagos and branded clothing. In fact, in (Nigeria), Nairobi (Kenya) and Dakar Africa's 10 largest economies, the (Senegal) are attracting the bulk of services industry now makes up more migrants. than 40 percent of GDP,33 a significant increase from 30 percent in 1980. Countries like Burundi, Rwanda, This development signifies a transition Malawi, Ethiopia and Burkina Faso are from a primarily agricultural economy still overwhelmingly rural, whereas to a more sophisticated services and in Djibouti and Gabon more than 80 manufacturing economy. percent of the country’s population lives in urban areas. Between 1995 Brand awareness in Africa is and 2005, some countries witnessed increasing considerably and all the big particularly fast urban growth. For international brands are well known example, Nigeria, the most populous and sought after. Companies like country in Sub-Saharan Africa, has Wrangler, Nu Metro, Nando’s, Shoprite, seen the proportion of people living in Game and many others have seen the urban areas grow from 44 percent to opportunity at the base of the pyramid 52 percent in 10 years.36 and have adapted their products and business models to reach Africa’s “We are in the midst of a retail aspiring consumers. In the process, revolution driven by rapid they are causing significant changes urbanization... We see over 150 million in both the local formal and informal people moving to urban Africa in the consumer markets. next 10 years," said Chu'di Ejekam, head of real estate for Actis in West Trade barriers are Africa.37 diminishing Due to this exponential growth in the In the past, trade restrictions have size of the consumer market and rapid fragmented African consumer markets. urbanization, Africa is set to attract The development of several bilateral a flood of investment as foreign trade agreements and eight different governments and companies scramble regional economic communities in to meet the needs of a continent Africa—for example, the Economic likely to be home to one in five of the Community for West African States world’s people by 2050.38 (ECOWAS) and the East African Community (EAC)—is allowing companies to transact easily across borders, unlocking access to a massive pool of consumers. For example, a business positioned in an East African market like Kenya will now have access to significantly more potential consumers in the EAC.34
22 23 5
24 Dimension 2: Resources Long recognized for its valuable resources, Africa has hosted most of the world’s resource companies. As the scarcity of global resources increases, those resources in Africa will only become more valuable.
Natural resources include such things There are, however, signs that the as timber, fresh water and mineral current competition for Africa’s deposits, whose economic value resources is changing all that. Africa’s contributes to a country’s GDP. They store of energy resources (see Figure are important to the global economy 7 for a snapshot of oil reserves by for two key reasons: Resources like country) and minerals gives its trading oil and gas are sources of energy partners a stake in its prosperity. and nonfuel minerals are essential Trading partners like China, the United components in a broad range of States and Europe are investing heavily consumer goods, military equipment, in infrastructure in exchange for infrastructure and agricultural mining concessions. African resources materials. The endowment of and companies are also beginning to move access to natural resources thus has up the value chain, thus generating a direct link to the level of a nation’s more income. In addition, renewable output and GDP. energy has increasing promise as a source of income for Africa. And as Africa’s rich resources have also been emerging markets like India and China the cause of some of its greatest continue to grow, Africa’s abundant challenges. They have all too often resources will help meet their need proved to be a source of conflict, for minerals and, most importantly, and poor systems of governance energy. have also encouraged decades of mismanagement and downright theft. In addition, until recently little of the income from Africa’s resources has gone to building infrastructure.
25 Figure 7: Snapshot of proven oil reserves (billion barrels) by country
In total, Africa has proven oil reserves of more than 125 billion barrels, representing more than 10 percent of the world’s reserves. Libya and Nigeria account for almost 65 percent of this total.
Country Figure Rank Libya 43.7 1 Nigeria 36.2 2 Angola 13.5 3 Algeria 12.2 4 Sudan 6.7 5 Egypt 4.3 6 Gabon 3.2 7 Republic of Congo 1.9 8 Low (0.1 – 1 bn barrels) Medium (1 – 10 bn barrels) Equatorial Guinea 1.7 9 High (Above 10 bn barrels) Chad 0.9 10 Data not available or 0
Source: BP Statistical Review of World Energy (2007-2008).
Against this backdrop, questionable Challenges and often unregulated investments Africa’s abundant resources—and in resources by overseas interests the business of extracting them— remains a concern. These overseas have been held back by two main interests have the capacity to challenges: poor governance and a lack undermine Africa’s long-standing of infrastructure. efforts to improve governance and transparency.39 In addition, traditional Poor governance development partners are concerned that the unfettered exploitation of Many of Africa’s leading natural Africa’s resources is unsustainable and resource economies have experienced constitutes an environmental threat. decades of conflict, neglect and African regulations are generally mismanagement. As a result, some poorly implemented and provide, of these resource-rich economies therefore, minimal protection.40 have consistently appeared at the bottom of Transparency International’s One example of where governance Corruption Perception Index, namely, policies have been unable to prevent Angola (147th out of 179 in 2007), environmental damage is in Central Congo-Brazzaville (153rd), and Africa. It contains the largest tropical Equatorial Guinea and the Democratic rainforest on the continent, a resource Republic of the Congo (tied for 168th). that has been severely deforested in the last few years.41
26 Table 1: Africa’s infrastructure deficit
Africa Other developing regions
Paved road density (kilometer per 100 square kilometers) 31 134
Total road density (kilometer per 100 square kilometers) 137 211
Main-line density (connections per 1,000 population) 10 78
Mobile density (connections per 1,000 population) 55 76
Internet density (connections per 1,000 population) 2 3
Generation capacity (megawatts per million population) 37 326
Electricity coverage (per percentage of population) 16 41
Improved water (per percentage of population) 60 72
Improved sanitation (per percentage of population) 34 51
Source: Vivien Foster and Cecilia Briceño-Garmendia, Africa’s Infrastructure: a time for transformation (World Bank, 2010)
Lack of infrastructure Furthermore, Africa’s limited infrastructure services tend to be Africa lags behind other developing much costlier than those in other regions on most standard indicators regions. For example, road freight of infrastructural development (see costs in Africa are two to four times Table 1). Its greatest infrastructure as high per kilometer as those in the challenges exist in the power and United States, and travel times along transportation sectors. Power- key export corridors are two to three generation capacity and household times as long as those in Asia.43 access to power in Africa are Low population densities in some approximately half the levels observed countries like Gabon or Botswana in South Asia, and about a third of translate into high per-capita costs the levels observed in East Asia. for road networks. Countries with high Unreliable power supply leads to losses population densities, like Rwanda, The in industrial production valued at 6 Gambia and Nigeria, tend to have more percent of company turnover. The cost developed road networks. of redressing Africa’s infrastructure deficit is estimated at $38 billion of investment per year, and a further $37 billion per year in operations and maintenance. Africa is currently financing almost half of this $75 billion annual investment through its own taxpayers.42
27 Increasing global demand The US Department of Energy has Drivers of growth already forecast that the United States While these challenges are formidable, for Africa’s resources will import more than 770 million several growth drivers also come Developed countries are large barrels of African oil annually by the into play. Africa boasts some of the consumers, but small producers, of year 2020.46 While the United States largest reserves of many important energy and commodity resources. is still the largest importer of oil from resources and commodities, such as It is estimated that the developed Africa, China has become an important oil, iron, copper, gold, platinum, wood nations (mainly from the Organization player as well, emerging as Africa’s and agricultural products (for example, for Economic Cooperation and second-largest trading partner. The coffee and sugar). With sunny Development) consume more than export of natural resources from deserts, windy plains and flowing 50 percent of the world’s oil and gas, Africa to China increased from $3 rivers, the continent is also extremely but produce only 25 percent.44 This billion in 2001 to about $22 billion in well endowed with the potential to has resulted in huge demands on 2006, according to the World Bank. produce large amounts of energy from developing countries, many of them India is also looking to Africa for renewable resources. Sustainable in Africa, where these resources are resources to fuel its vigorous growth: resources will only become more abundant. Trade between India and Africa has attractive as global action on climate increased from $4.7 billion to more change and sustainable development Africa possesses the world’s third- than $17 billion in 2007. proceeds. largest oil reserves. According to the 2009 BP Statistical Energy Survey, In the past, many countries preferred Africa had proven oil reserves of 125.6 to obtain some of these products from billion barrels at the end of 2008, or sources that were cheaper and more 10 percent of the world's reserves, politically stable. Now, however, the and, in 2008, the region produced an scale of global demand means that average of 10.285 thousand barrels Africa can no longer be ignored as a of crude oil per day. It is noteworthy source. that Africa boasts the fastest growth rate in identified oil reserves, which doubled in the past two decades.45
Table 2: Oil production (millions of tons)
1996 2006 2007 Percent 2007 Percent change world total 2006-2007
North America 660 646 643 17 -0.5
South America 313 346 333 9 -3.6
Europe 680 848 861 22 1.5
Middle East 1,001 1,222 1,202 31 -1.8
Africa 356 474 489 13 3.2
Asia 367 380 379 10 0.3
World Total 3,377 3,914 3,906 -0.2
Source: BP Statistical Review of World Energy (2007-2008)
28 Case study: African oil and China
While oil accounts for 80 in 2006 to more than 13 million percent of Africa’s total exports barrels per day by 2030. China to China, other important already receives 60 percent of African export commodities Sudan's oil exports. While the include iron ore and timber, United States today is still the followed by manganese, cobalt, top importer of African oil, China copper and chromium. is quickly closing the gap and has already sped past the United African exports to China have Kingdom and France to emerge experienced a particularly swift as Africa's second-largest advance, from less than $1 trading partner. China's industrial billion in 1992 to more than $54 growth has made that nation the billion in 2008. second-largest consumer of oil The International Energy Agency worldwide. There's no question now projects that China's net that China is winning more and oil imports from Africa will soar more of Africa’s oil as each 47 from 3.5 million barrels per day month passes.
Only four African countries are full Figure 8: Africa mineral reserves members of the Organization of Petroleum Exporting Countries (OPEC): 100% Algeria, Angola, Libya and Nigeria. Not coincidentally, they are the leading 90% oil producers in Africa48 and together with Egypt account for 85 percent 80% of the continent’s oil production. In addition, it is estimated that Africa 70% holds between 19 percent (1.3 million tons) and 27 percent (4.4 million tons) 60% of the world’s uranium reserves, which are critical to nuclear energy.49 50%
Africa is also abundant in nonfuel 40% mineral resources. Minerals are an essential component in the production 30% of a broad range of consumer goods, military equipment, infrastructure 20% and agricultural materials, and are 10% also used for various applications in transport, communication and energy. 0% It is estimated that Africa holds about Gold Cobalt Platinum 30 percent of the world’s minerals with more than 40 percent of the world’s gold, 60 percent of its cobalt, Africa Rest of world and 90 percent of its platinum.50 Source: IPIS (2009)
29 South Africa seems to be the crown The Guardian, “Until now, only North farming methods. It, in turn, benefits jewel, since it sits on one of the African countries such as Morocco from increased local consumption by world’s richest mineral beds. Among and Egypt have harnessed wind power a consumer base it has helped become other minerals, South Africa is the for commercial purposes on any real more prosperous. leading producer of platinum (80 scale on the continent. But projects percent of total production) and are beginning to bloom south of the manganese (75 percent of world Sahara as governments realize that reserves). It is also the world’s second- harnessing the vast wind potential can largest gold producer (it was overtaken efficiently meet a surging demand for by Australia in 2007). The Democratic electricity and end blackouts.”54 Kenya Republic of the Congo is the leading is now one of the continent's greenest cobalt producer (36 percent), countries, with nearly three-quarters possessing half of the world’s known of its power coming from hydroelectric reserves, and is also a significant and geothermal sources. A consortium diamond producer. The Democratic of Dutch and Kenyan investors has Republic of the Congo, South Africa started construction of Africa's largest and Botswana together account for wind farm project. Valued at $760 more than half of global diamond- million, the project aims to commission mining output and 60 percent of more than 350 wind turbines in the known deposits.51 desert near Lake Turkana in Northern Kenya. When completed in 2012, the In sum, Africa’s abundance of natural wind farm is expected to boost the resources strongly reinforces its power supply in Kenya by almost 30 strategic importance. percent. Increasing renewable The availability of finance to support these investments will continue to be sources a key driver for their development. As Africa is well endowed with a range a new assessment published by the of renewable resources, from wind United Nations Environment Program and sun to rivers. As global efforts (UNEP) shows, Africa has more than to combat climate change continue, 120 carbon market projects up and Africa could increasingly become part running or in the pipeline. However, of the solution. the assessment concludes, “in comparison to the rest of the world, For example, Africa has 95 percent of the Continent is still lagging behind, the world's best winter sunshine area, with the potential for clean and green receiving more than 6.5 kilowatt hour/ energy largely under-exploited.”55 m2.d52 (Germany receives less than 1.0 kilowatt hour/m2.d). Therefore, Frost & Sullivan energy analyst Sipha Africa could potentially generate 95 Ndawonde concurs: “Green energy percent of the world's solar thermal markets in Sub-Saharan Africa are and solar electrical energy.53 It will still in their infancy and require be imperative to be able to monetize significant public and private financing these renewable resources, both support and rapid technology from the standpoint of their carbon diffusion. However, changing value and their contribution to government perception in favor of local development. Africa has an green energy is adding impetus to unprecedented opportunity to choose market development. Increasingly, a cleaner development pathway that green energy projects are viewed as an would maximize the use of low-carbon effective tool to increase the levels of energy alternatives to meet the needs energy security in both off-grid and of future generations more efficiently grid-connected applications.”56 and affordably. Companies that deliver sustainability The continuing high costs of by creating value for their shareholders renewable-energy technologies and society will continue to find and the challenges they present, success in this environment. For from intermittency to distance example, in Africa, brewing giant SAB from demand, have hindered their Miller PLC is working to integrate growth, but global adoption is traditional crops into its products changing attitudes. As reported by and teach local farmers sustainable
30 Case study: Desertec
The Desertec Industrial Initiative The DII uses carefully positioned and be up and running by 2019. (DII) is designed to turn the mirrors in the Sahara desert to By 2050, they estimate the Sahara's nearly endless sunlight boil water and activate turbines. contribution could be between into carbon-free electricity. It According to the Desertec 20-25 percent,”59 says The was launched in Germany in July Foundation, the technology is Independent. 2009 by 12 European companies based on a concentrated solar (including Germany's Deutsche power plant. This works just Bank, Siemens, RWE and E.ON; like a coal steam power plant Spain's Abengoa Solar and except that instead of coal, the Algeria's Cevital).57 power plant operates solely on concentrated solar power. The The $550 billion initiative has energy produced is transmitted gained a great deal of momentum to Europe and Africa by a super and incorporates countries grid of high-voltage direct power from the MENA region (Middle cables. East North Africa). Five more companies from Morocco, Tunisia, “Energy experts have calculated Spain, France and Italy have now that Desertec could meet at least joined the original consortium.58 15 percent of Europe's needs,
31 Increasing local demand Africa will start to increasingly consume and utilize more of its own for resources resources as the continent continues As Africa develops and its industries on its growth path. mature, its own need for resources is growing. It is particularly hungry for Resources companies are energy resources such as oil and gas. moving up the value chain Africa consumed more than 138 An interesting development in recent million tons of oil during 2007. This years is the way in which Africa’s is up from 130 million tons in 2006 resources companies have moved up and represents almost 30 percent the value chain by developing a strong of its total oil production.60 Gas focus on manufacturing. Historically, consumption was no different: In resources were extracted and exported 2007, Africa consumed 83 billion in their raw state, but recent statistics cubic meters, up from 77 billion cubic indicate an increasing trend toward meters in 2006.61 refining resources. For example, some diamonds are now being cut One example of increasing local and polished in Africa, and various demand can be found in Nigeria. It products are manufactured. Many has the seventh-largest proven gas African countries are now exporting reserves in the world, but has primarily leather instead of just hides, textiles in been focused on the export market. place of cotton, or paper, plywood or This is set to change, with the recently furniture instead of logs. developed “Gas Master Plan.” This plan proposes a framework for Nigeria to maximize value from its gas resources by leveraging domestic demand.
Case study: China establishing a manufacturing presence in Africa
China is keen that its presence African Business reports that to move up the value chain. in Africa should be more than China is investing in Africa's That might leave a space for a resources grab, and sees manufacturing sector by Africa,” says the Mail & Guardian manufacturing as a missing relocating factory work such as Online.64 element in the continent's toy- and shoe-making to special development and growth. economic zones in Zambia, Nigeria, Mauritius and Ethiopia.63 “The Chinese government has shown ‘strong interest’ in Many modern Asian economies setting up factories in Africa, began by mass-producing helping the continent develop a consumer goods and now manufacturing base and boost its outsource this manufacturing economy. While most attention to other countries. For example, on China's investment in Africa Japan moved its manufacturing has focused on its large-scale to Southeast Asia while Hong pursuit of natural resources, Kong, Singapore, Taiwan and experts say a growing number of South Korea moved theirs to the country's entrepreneurs are China. “With China's push for experimenting with production", industrial restructuring at home, reports the Mail & Guardian Chinese companies have been Online.62 saying there's an urgent need
32 Increased investment in According to the World Bank, China is now the largest contributor to infrastructure infrastructure projects in Africa. It There is an undeniable link between estimates that China's funding for the development of Africa’s roads, railways and power projects infrastructure and investment by peaked at $7 billion in 2006, up global players in the extraction of from $1 billion in 2003. The bulk of Africa’s resources. those commitments were to Nigeria, Angola, Sudan and Ethiopia, all The rise of the Chinese and Indian of which are rich in oil or nonfuel economies has fueled global demand natural resources.65 Although this for petroleum and other commodities. infrastructure development is primarily Africa is richly endowed with these due to China’s interest in securing key resources, and this has resulted in the resources, the same infrastructure continent receiving unprecedented will unlock complementary industrial investment flows to improve its capacity. infrastructure. Investment targets include hydropower, roads, railways, hospitals and schools.
Case study: Chinese infrastructure investment— the “Angola Mode”
In order to satisfy its energy Using natural resources to pay demands, China is investing for infrastructure in this way heavily in the oil-rich country is now known in Africa as the of Angola. “Angola Mode.”66
Beijing secured a major stake in future oil production in 2004 with a $2 billion package of loans and aid. Chinese companies will build railroads, schools, roads, hospitals, bridges and offices; lay a fiber-optic network; and train Angolan telecommunications workers in exchange for mining concessions.
33 By 2005, Chinese companies had been contracted for 722 turnkey infrastructure projects across Africa. By mid-2006, total China Export Import Bank concessional and non- concessional loans for infrastructural development in Africa, excluding projects in the petroleum and mining sectors, reached $12.5 billion.
This financing is broken down into the following sectors: electricity (34 percent), transport (33 percent), information and communications technology (17 percent), water (2 percent) and general (14 percent) (see Figure 9).67
Recently, a lot of infrastructure investment has been directed at Kenya as China and Japan battle for access to East Africa’s growing market. Kenya, the gateway to landlocked neighbors such as Uganda, Rwanda, Burundi and Ethiopia, is reaping the benefits.
Figure 9: Chinese infrastructure investment in Africa (2007)
2%
17%
34%
14% Water
ICT
General
Transport
33% Electricity
Source: Isaac Idun-Arkhurst, "The Impact of the Chinese presence in Africa"
34 35 6
36 Dimension 3: Talent The market for talent in Africa is maturing quickly. Rapid growth in the rate of labor participation and tertiary enrollments are offsetting low literacy rates and the large- scale emigration of skilled workers.
In Accenture’s view, the growth advances, African workers are cheap potential of a country can be gauged compared to their counterparts in not only by its material assets and Central Asia, Latin America and resources but also its talent and Eastern Europe. An additional positive human capital. It is talent that acts as aspect is that the growth in certain a catalyst for economic growth and African countries is actually reversing development. GDP growth is thus in the brain drain. Africa could indeed be part fueled by positive changes in the on the brink of a talent revolution in creation of talent within a country. which key skills are inexpensive and readily available. However, many multinationals list talent as their greatest challenge when Malcolm Gillis, former president it comes to doing business in Africa.68 of Rice University, puts it well: Difficulties include low literacy levels, “Today, more than ever before in lack of specific or job-related skills, human history, the wealth—or and the large-scale emigration of poverty—of nations depends on the skilled workers. The good news is that quality of higher education. Those many aspects of the talent situation with a larger repertoire of skills in Africa are improving. For instance, and a greater capacity for learning the rate of labor force participation can look forward to lifetimes of has increased by 17 percent since unprecedented economic fulfillment. 200069 and Africans are enrolling in But in the coming decades the poorly tertiary institutions in great numbers. educated face little better than the Increased literacy levels are the dreary prospects of lives of quiet foundation of these changes (see desperation."70 Figure 10 for a snapshot of literacy levels across Africa). Despite these
37 Figure 10: Literacy levels as a percentage of total population Literacy Levels as a percentage of total population Literacy rates refer to the proportion of a nation’s inhabitants that are able to read and write. Literacy is a prerequisite for participating in skilled jobs and the economy in general.
Country Figure Rank Zimbabwe 90.7% 1 South Africa 86.4% 2 Equatorial Guinea 85.7% 3 Kenya 85.1% 4 Lesotho 84.8% 5 Namibia 84.0% 6 Republic of Congo 83.8% 7 Libya 82.6% 8 Low (<60%) Swaziland 81.6% 9 Medium (60% - 75%) Botswana 81.2% 10 High (>75%) No Data
Source: UNESCO Institute for Statistics
Challenges Figure 11: Adult literacy rates Africa has long trailed the developed % world in terms of economic growth, in 100 large part because it lacks the trained 90 talent required to drive such growth. In terms of talent, Africa faces three 80 major challenges: low literacy levels, 70 a lack of skills, and a long-term “brain drain.” 60 50 Historically low literacy 40 levels 30 Without basic literacy and education, people are not eligible for skilled 20 jobs and cannot provide value to 10 the global economy. Although large improvements are being made on this 0 front, Africa still has one of the world’s Africa North South Asia Europe lowest literacy rates. America America
1985-1994 1995-2004 2005-2008
Source: UNESCO Institute for Statistics
38 Lack of income-earning The African brain drain It was estimated by the United Nations Development Program that the brain The brain drain, or large-scale skills drain costs Africa roughly $4 billion emigration of skilled individuals out of Formal education constitutes only annually, as it must employ expatriate their country of origin, is a perennial a part of a person’s potential ability workers to perform tasks that its problem for developing countries. to earn an income. Vocational skills emigrants could have done.72 This From an African perspective, the are arguably the most important inevitably places a large strain on brain drain is particularly concerning: element in a person’s actual capability developing countries. Without its most educated people, to complete job-related tasks. Africa will find it hard to achieve the Unfortunately, Africans have been slow growth it seeks. to gain many of these skills. Many developing regions share this One of the major challenges Africa challenge. However, when one looks at faces is the availability of experienced the net emigration figures, it is clear managers. Managerial skills are critical that Africa, in particular Sub-Saharan for African business to function Africa, fares better than other regions. efficiently. Many companies that In fact, the number of Africans leaving expand into Africa hire expatriate Sub-Saharan Africa is notably less managers who are responsible for than the number of natives leaving training a local incumbent. As more Latin America, Asia and Eastern and more companies expand into Europe.71 Africa and train local people, the shortage of indigenous managerial skill will gradually ease.
Figure 12: Net emigration (per thousand people)
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0 2005 2006 2007 2008 2009 2010
Sub-Saharan Africa North Africa Eastern Europe Asia Latin America
Source: U.S. Census Bureau, International data base
39 Case study: Employers finding it easier to fill skilled positions in South Africa
Figure 13: Percentage of employers that had difficulty filling skilled positions The 2010 Talent Shortage Survey Results, published by Manpower % 45 Incorporated, suggest that there has been a major reprieve from 40 the talent shortage in South 35 Africa’s labor market. 30 In 2007, the same survey revealed 25 that 39 percent of the employers surveyed had difficulty filling 20 skilled positions. This figure 15 has dropped significantly to 16 percent in the 2010 survey 10 results. 5
0 2007 2008 2009 2010
Source: Supply/Demand, 2010 Talent Shortage Survey Results, Manpower Inc. (2010)
Key factors for Figure 14: Labor force participation (millions) growth 400 However, there is also evidence 350 to suggest that positive change is occurring at a rapid rate, including 300 increasing labor participation, growing education and literacy levels, maturing 250 skills, and, most interestingly, evidence of a “brain gain.” 200 Increasing labor force 150 participation at low cost 100 The cost of labor is a significant 50 factor for investors to consider. The average worker in Africa, costing 0 roughly US$135 per month, is less 2000 2006 than half as expensive as the same worker in regions such as Central Asia, Sub-Saharan Africa North Africa Eastern Europe, Latin America and the Source: African development indicators (2008-2009) Caribbean.73 As a result, Africa is now being viewed as a low-cost destination for manufacturing, customer service, and many other labor-intensive jobs.
40 Labor force participation has increased Figure 15: Compound annual growth in tertiary enrollments (1975-1995) by a significant 17 percent since 2000,74 and is attributable to a 14% number of factors, such as an increase in the number of women joining the 12% labor market. This positive trend is set to continue as urbanization speeds up, 10% industries mature and skilled resources return home.75 8% Of the employed African workforce, more than 36 percent76 are considered 6% to be youths (under age 25), which means that the African labor force is 4% highly sustainable. Indeed, while many developed regions of the world saw 2% their rates of labor participation shrink between 2008 and 2009, North Africa 0% and Sub-Saharan Africa experienced Sub-Saharan Middle East and High-Income Latin America an increase of 0.4 and 0.2 percentage Africa North Africa Countries and Pacific points respectively.77 In comparison, the European Union saw a retraction Source: IBRD, Authors' calculations of 0.4 percentage points. While recent developments in Tertiary enrollments in Africa more Growth in education and communication technology and IT have than tripled between 1991 and 2005, vastly improved the technical aspects one of the highest regional growth literacy levels of distance education, the economic rates in the world. Higher education “Education is the most powerful viability of such education is still an has never been as important to the weapon which you can use to change issue in many countries because of future of Africa as it is right now. the world.”—Nelson Mandela costly and extensive infrastructure While education cannot guarantee requirements.78 rapid economic development, Formal education in most African sustained progress is impossible nations is a priority for both donor As a result, educational institutions without it.80 Although Africa is organizations and governments. are playing a much broader role across building on a low base, its increase in Governments have realized that one the continent. As Vartan Gregory, tertiary enrollments paints a promising of the major keys to economic growth president of the Carnegie Corporation picture of the future. is an educated and skilled workforce. of New York, puts it: “With the Accordingly, they have introduced fastest-growing rates of university measures to increase the number of enrollment in the world and research schools and tertiary institutions, and demonstrating higher education's to improve access to them. positive impact on economic growth, poverty reduction, national health Likewise, the advent of distance- and governance, Africa's universities learning programs and institutions are making an increasingly critical has given many African people access contribution in helping to shape the to world-class education. Distance discussion about the continent's learning is increasingly important as future.”79 it can reach students in remote areas and address the higher education needs of adults.
Africa’s compound annual growth in tertiary students since 1975 is a significant 12 percent compared with Latin America’s 4 percent and the 3 percent of high-income countries over the same period. This means that there are almost nine times as many students currently enrolled in tertiary institutions as there were in 1975.
41 Case study: Kenyan nurses: e-learning
Every day in Africa, more than program management, staffing 3,000 children under age 5 die and administrative needs of from malaria—a devastating the program; PC infrastructure statistic that illustrates why for the training centers; and the continent urgently needs to orientation/training for the increase the number of frontline mentors who support the nurses health care workers. More than during training. 85 percent of Kenya’s nurses are enrolled nurses, unable to AMREF is on schedule to achieve obtain the advanced training its goal of certifying nearly needed for a registered nurse 20,000 registered nurses by diploma that would enable them 2011. Four modules consisting of to combat the spread of diseases 143 hours of training have been such as malaria, AIDS/HIV and developed and deployed. The help tuberculosis. Although there are desk and learning management nearly 20,000 enrolled nurses system have been rolled out. waiting to upgrade to registered More than 100 e-learning centers status, Kenya has the resources —many in the remotest areas of to train only 100 registered Kenya—have been established nurses a year using traditional to deliver the e-learning centers classroom methods. At that rate, training, and 27 nursing schools it would take literally hundreds of have also implemented the years to certify 20,000 enrolled program. nurses. To address this crisis, the “This program is not only going African Medical and Research to drastically improve the Foundation (AMREF) teamed health system in Kenya, it is with Accenture and the Kenya also going to be replicated by Nursing Council to develop a other countries—and the positive revolutionary e-learning program impact on Africa’s health system to enable Kenya to train and will be enormous," says Peter certify these 20,000 nurses in Ngatia, director of learning just five years. systems for AMREF. Under the five-year program, Accenture is donating $2.9 million to AMREF to develop and implement an innovative e-learning program to address Kenya’s critical nursing shortage. The donation consists of a $1.7 million contribution by the Accenture Foundations, along with $1.2 million of in-kind services that include 14,500 hours of donated time from Accenture Learning BPO Services professionals. The funding from the Accenture Foundations is providing for the
42 Increased skills processor, General Mills.83 The program is part of General Mills’ development corporate social responsibility efforts There is no doubt that technical and and is one of many examples of global vocational education and training are companies transferring skills to Africa. important for Africa’s development.81 As such, African countries are working Generally, investing in knowledge and toward improving the quality and skill skills is seen by many governments levels of their labor forces. A major as the cornerstone of developing incentive has been their increasing an employable and globally recognition that superior technical competitive workforce. A skilled and and vocational skills are crucial to knowledgeable workforce improves the enhancing competitiveness and investment climate because it creates contributing to social inclusion, decent an attractive economic environment.84 employment and poverty reduction.82
With the influx of former expatriates and foreign direct investment into Africa, its people are in a position to receive vocational training from some of the world’s most skilled individuals. For instance, TechnoServe, a United States-based, nongovernmental organization, recently called for small- and medium-sized food processing companies in Tanzania to submit applications for a technology and business skills transfer initiative with the world’s sixth-largest food
43 Case study: Vocational skills development
In the past, vocational programs and qualification systems have In addition to this, there are across Africa have suffered been restructured to match are also signs that vocational from a combination of under- skills development with the education is reemerging as financing, poor design and weak needs of the labor market. a priority in development links to labor markets. Deep And Rwanda has created a assistance. Several countries, spending cuts in the region workforce development agency to notably Germany and Japan, have during the 1980s and 1990s coordinate and facilitate private been giving precedence to the further compromised quality in sector involvement.85 sector when granting aid. vocational education. However, there are signs of a renewed In addition, Morocco has its own focus on vocational skills vocational education ministry development. and national office, which creates syllabuses adapted to Vocational education is trainees’ general education levels. undergoing major reform in Morocco's vocational schools many African countries, including have achieved good results, with Cameroon, Ethiopia and Rwanda, more than half of graduates to name just three. finding a job within nine months. The vocational system Four ministries in Cameroon is expanding as the government have developed a sector- seeks to foster the skills needed wide vocational training plan. by new sectors such as vehicle Ethiopia has ensured that new manufacturing, aeronautics and curricula have been drawn up agro-industry.86
44 Evidence of “brain gain” Even before they return home, migrants generate large amounts of “Just as waves of expats returned to money for their native economies. In China and India in the 1990s to start fact, the International Organization businesses that in turn attracted more for Migration estimates that, of the outside talent and capital, there are $444 billion paid in remittances by now signs that an entrepreneurial migrants, $338 billion was received African diaspora will help transform by developing nations.95 Interestingly, the continent,” reported Newsweek most African migrants move to other International.87 African countries, thereby keeping 96 Economists are analyzing the positive their skills within the continent. impacts of the skills flowback into Global economics dictate that an Africa in what can be seen as a unconventional approach to training reversal of the brain drain. For one migrants actually can make good thing, when people leave their country business sense. In essence, countries of origin, many later return home after that seek migrants to perform specific having learned valuable new skills.88 jobs can save money by delivering Likewise, large numbers of skilled training to those prospective workers return to their countries of employees within their home countries, origin after having received higher before they have actually migrated. A education.89 Such temporary migration case in point is the United Kingdom helps local business activities by health system, which faces severe enhancing skills and increasing the staff shortages and is attracting amount of money flowing back into nurses from developing countries. It the country from migrants.90 costs the UK far less to train nurses in The return of skilled workers to Zambia, for example, than it would to 97 Africa has also fueled higher levels train them in the UK. of entrepreneurship.91 Certain Several years of relative political African economies such as Ghana, stability and growth are the major Nigeria, Botswana and South Africa factors behind the return of skilled have recently experienced an professionals to Africa. The return of unprecedented brain gain. In 2009 those scattered in the African diaspora alone, Nigeria experienced the return will gather momentum as growth and of 10,000 skilled professionals.92 stability continue. According to research on staffing by Heidrick & Struggles and the Economist Intelligence Unit, South Africa ranks number 23 in the 2008 Global Talent Index for 2012, one position up from last year. This means that South Africa is the 23rd most popular destination for skilled workers. Egypt, the second-highest ranked African country, also moved up one position to number 24 (ahead of Brazil); whereas Nigeria slipped one position down to 28. The highest- ranking emerging countries remain China (6) and India (10).93
In South Africa, Research International analyzed the responses of 1,192 people, of whom 34 percent were South African citizens living abroad. A significant 81 percent of these respondents intended to return to South Africa, which most still considered their home. Furthermore, a considerable one in three people wanted to return to start their own business.94
45 Case study: Nigeria’s brain gain boom
After decades during which Skilled Nigerians and Africans 7,500 Nigerians have come back a brain drain robbed Africa from countries like Kenya, Ghana to work in growth industries such of many of its most talented and Angola began returning in as finance, telecommunications workers, decisions by thousands significant numbers some years and IT. Some estimates are of highly educated professionals before the global economic even higher: WazobiaJobs.com, to come home reflect a more recession. a recruitment portal for West optimistic vision of the future. Africa, estimates 10,000 skilled The global economic recession Nigeria’s telecommunications, Nigerians have returned in the has accelerated this brain gain banking and energy sectors past year.99 for Africa, with many skilled are growing at double- and professionals returning from sometimes even triple-digit developed economies. rates. This growth generates attractive opportunities for skilled Nigerians who left their homeland individuals.98 to seek riches abroad are increasingly returning as Africa's The African Diaspora Initiative, biggest oil producer rides an which works with the Nigerian energy bonanza that is opening government to encourage the up unprecedented opportunities. return of its people, estimated that in the past seven years,
46 47 7
48 Dimension 4: Capital Due to regulatory reforms, growing foreign direct investment, shrinking debt and burgeoning intra-African trade, Africa’s business climate is steadily improving.
Financial rules and systems can However, it cannot be ignored that, blocs such as the Common Market be a boon for developing regions in general, African financial systems for Eastern and Southern Africa such as Africa. For example, new are small, or that many financial (COMESA), have acted as catalysts regulatory frameworks create institutions have barely penetrated for making positive and standardized financial ecosystems that encourage their markets. Likewise, raising capital regulatory reforms. As a result, foreign the efficient allocation of capital in Africa can be a daunting task direct investment is increasing, often to areas in which it will be most for many businesses, owing to the linked to trade for Africa’s resources valuable, and that encourages foreign perception that large-scale African (see Figure 16 for a snapshot of direct investment. Furthermore, investments are risky. Access to foreign direct investment by country). the regulatory environment directly capital is also hampered by the lack of affects consumers’ propensity to save, domestic stock exchanges. An added factor that must be invest and incur debt in the form acknowledged is the positive impact of loans. In sum, it is the regulatory At the same time, in recent years of innovative financial solutions being framework that protects consumers Africa has seen its financial markets offered through mobile channels. and businesses alike, thereby deepen, increase in sophistication These solutions are opening up banking encouraging freely flowing capital and efficiency, and in general become services to more of the population, and, ultimately, an increase in private more stable.100 Furthermore, financial and thereby stimulating the formation consumption. Such changes in the way markets are liberalizing, with better of private capital. capital is managed can, in fact, lead to governance and policies to protect positive GDP growth. capital, while regional trading
Figure 16: Foreign direct investment by country (US$ millions) Foreign direct investment refers to the sum of all the foreign assets invested into domestic structures, equipment and organizations (it excludes investments made on stock exchanges).
Country Figure Rank Nigeria 20,279 1 Angola 15,548 2 Egypt 9,495 3 South Africa 9,009 4 Libya 4,111 5 Tunisia 2,761 6 Algeria 2,646 7 Congo 2,622 8 Low (<$200m) Sudan 2,601 9 Medium ($200m-$2,000m) High (>$2,000m) Morocco 2,388 10 No data
Source: African Statistical Yearbook
49 Increasing maturity of “With more reforms of business Challenges regulations in Africa than in any Even with these promising financial systems previous year, we are seeing many developments, the size, scope and In the past, Africa’s lack of regulated countries get inspiration from their maturity of African financial systems financial systems hindered its growth. neighbors about how to reform. present challenges. As Michael Klein, World Bank/ Increasingly, countries in the region IFC vice president for financial and are committing to reform agendas that African financial systems private sector development, observes, make it easier to do business,” writes “Economies need rules that are Sabine Hertveldt, coauthor of the are small in both absolute efficient, easy to use, and accessible to World Bank Doing Business report.107 and relative terms all who have to use them. Otherwise, Indeed, such reforms have led to real businesses get trapped in the improvements in the development of The wealth managed by medium-sized unregulated, informal economy, where African nations’ financial sectors as banks in continental Europe or the they have less access to finance and measured by standard indicators of United States outstrips the total GDP hire fewer workers, and where workers financial intermediary development.108 101 of some African nations. lack the protection of labor law.”102 While the pace of transformation African financial The scramble for Africa’s resources has varied and restrictions remain is changing things by forcing the in place in some countries, progress institutions have continent to integrate with the global in liberalizing financial markets has low levels of market economy. As a result, many countries been extensive throughout Sub- in Africa have had to build financial Saharan Africa.109 In fact, Sub- penetration institutions such as credit registries Saharan countries have made a In many African states, fewer than and create legal and regulatory significant 67 reforms.110 In general, one in five households has access frameworks that protect investors the liberalization of financial markets to formal banking services such as and competing companies alike.103 involves the dismantling of prohibitive savings accounts and credit. African This revision of regulatory frameworks controls by: banking institutions have therefore not is providing a much more attractive been able to benefit from economies business climate in many African • Granting central banks more of scale, and, subsequently, banking in nations. autonomy Africa is comparatively expensive. Senegal, Burkina Faso and Rwanda • Liberalizing interest rates High costs of raising are three countries that have made particularly large progress in reforming • Moving to more indirect monetary capital business regulation. Senegal has policies and away from direct government involvement and Decades of political instability and made it easier to start a business, regulations volatility in Africa mean that financial register property and trade across borders.104 Burkina Faso introduced institutions and policies have been • Restoring bank solvency through a new labor code and reforms that in a continuous state of flux. As a restructuring result, capital markets in Africa are make it easier to register property, still in their infancy. Because of this deal with construction permits and • Improving supervision of banks immaturity, raising capital in Africa is pay taxes.105 Rwanda, likewise, was often a costly and risky exercise. very active in making reforms, ranking Such dismantling of prohibitive as top reformer in the World Bank’s financial controls has been shown to Doing Business 2010 report—the have a positive effect on an economy. Key factors for first African country to ever top this list. As a result of these reforms, Increasing market growth Rwandan entrepreneurs now need Despite these challenges, there are only to complete two procedures and penetration several encouraging signs that the wait three days to start a business. Anecdotal evidence suggests that the continent offers increasingly good In addition, imports and exports are unbanked and low-income groups prospects for investors. These signs more efficient, transferring property in Africa represent a significant include more robust financial systems, takes less time, investors have more opportunity for banks. In the opinion high returns on invested capital, and, protection and a wider range of assets of Brian Richardson, cofounder of cell as a result, a rising tide of foreign can be used as collateral to access phone banking group Wizzit, “There is 106 investment. credit. R12 billion [approximately $1.6 billion] under the mattresses of low-income households.”
50 Financial service providers are starting High average returns on to reach these households. M-PESA, a mobile banking provider in Kenya, has investment shown how technological advances Despite the high costs and risk and innovative ways of offering low- associated with investing in Africa, cost financial products can increase the return on investment is generally the penetration of payment services good and outstrips what is achievable into African markets.111 In South in many other markets. In fact, an Africa, the four largest banks and the article in the Harvard Business Review post office have launched a low-cost recently noted that the average banking solution for low-income annual return on investment in Africa individuals. This joint venture, the is between 65 to 70 percent, which Mzansi account, was well received is higher than in most countries, and, in a mere 18 months, a staggering including China.116 3.3 million new accounts were opened.112 Likewise, subsidiaries of foreign banks in Sub-Saharan Africa show Improving governance and a higher return on assets and equity than subsidiaries of the same banks policies for the security of in other regions of the world.117 A capital study of close to 1,000 publicly traded companies in Africa between 2000 The formation of regional trade blocs and 2007 found that their annual has paved the way for strong economic return on capital was on average 65 policies and governance on a regional percent higher than that of similar level. These regional arrangements are firms in China, Vietnam and India. In designed to benefit member states addition, their median profit margin by increasing the market size as well of 11 percent was higher than that of as the predictability, stability and similar companies in Asia and Latin transparency of the region. America.118
Donald Kaberuka, the president The current rate of return in Africa of the African Development Bank, is more than 30 percent, compared commended the Southern African to the 10 percent and 15 percent Development Community (SADC), obtained in Europe and the United COMESA and the East African States respectively. This makes the Community (EAC) for providing a continent the fastest-growing region platform for economic integration in the developing world, according among regional economic communities to Caroli Omondi, acting chief in his address at the Development executive of the Africa Trade Insurance Bank’s annual conference in August Agency.119 2009.113 While it is important to note that Africa has also made significant investments in Africa do carry a progress in monetary stability and higher risk compared to other regions, in the private ownership of banks. Jens Schleuniger, manager of the In fact, today most African banking DWS Invest Africa LC Fund, believes systems are dominated by privately that markets are overstating Africa's owned domestic or foreign financial political risk. Consequently, he institutions.114 Furthermore, African suggests that investors should choose governments have taken a number of Africa over China in order to benefit steps toward improving their image from undervalued stocks.120 and offering increased incentives and institutional support to foreign firms investing in their countries. For instance, investment promotion agencies in African countries provide information and initial contacts as well as other support to such firms.115
51 Case study: Large African companies are growing faster than their peers elsewhere
Accenture recently studied global (11), Nigeria (9), Botswana (1), companies with 2009 market Gabon (1), Kenya (1), Mauritius capitalizations exceeding $1 (1) and Senegal (1). These billion. In looking at their growth companies also came from 50 performance over the last 10 industries in nine sectors. years, we found that African companies are growing faster Our analysis also revealed that than their peers in the rest of the large African companies grew world. at a compound annual growth rate of 10 percent over five For example, in 2004, there were years, as compared with the 53 companies in Africa with a 7.2 percent achieved by a list of market capitalization of greater large companies in the rest of than $1 billion. They came from the world. only four countries: South Africa (42), Morocco (6), Egypt (3) and While they still account for Nigeria (2). only 2 percent of this list, large African companies like MTN, In 2009, there were 99 such Standard Bank and Shoprite companies in Africa, an increase continue to dominate their of 84 percent, as compared industry sectors in Africa.121 with global growth of only 53 percent. The African companies came from nine countries: South Africa (63), Morocco (11), Egypt
52 Increasing foreign direct reserves found between 2001 and 2004 were along the west and central investment into Africa coasts of Africa.124 Indeed, a large Stronger confidence in Africa’s and increasing share of foreign direct financial systems is also reflected investment into Africa has been in the in the quintupling of private capital extractive industries, in particular, inflows from 2000 to 2007. These oil.125 flows partly reflect improved fundamentals in many African Africa is also fast becoming a major countries, such as macroeconomic location for Chinese construction stability and fiscal discipline,122 and and engineering projects. In 2006, a they partly reflect the global race for massive 31 percent of China’s offshore Africa’s resources. contracted projects were based in Africa.126 Outside of the resources Indeed, foreign direct investment sector, private Chinese companies into Africa has risen sharply. Over the have been investing heavily in textiles, past decades, China has become an services, agriculture, processing and influential player in Africa’s economy manufacturing.127 and development. As China’s economy has continued to grow, it has become clear that it increasingly needs to secure reliable sources of supply to support future development.123
When it comes to attracting foreign direct investment, many African countries have the major advantage of abundant natural resources. About 85 percent of the world’s new oil
Figure 17: FDI inflows into Africa (US$ per capita)
Source: African Statistics Yearbook (2009)
53 Case study: China’s foreign direct investment into Africa
China's bilateral trade with Chinese investment inflows Africa in 2008 amounted to into Sub-Saharan Africa have around $100 billion.128 Chinese largely been directed at large- companies who led the charge scale infrastructure projects. include Zonghui Mining Group, Nigeria has received the bulk which has invested $3.6 billion of Chinese investment in Sub- in copper mines in Zambia, Saharan African infrastructural Industrial and Commercial Bank development.130 These of China, which holds a 20 investments amounted to $7.24 percent stake worth $5.6 billion billion in 2009.131 In Liberia, in South Africa’s Standard Bank, China’s investments reached a and China National Petroleum total of $9.9 billion.132 Corporation, which is involved in oil exploration, production, and Despite the worldwide financial infrastructure in Chad and Niger crisis, in the first half of 2009 worth in excess of $5 billion.129 China grew its investments in Africa's non-financial sectors by a staggering 78.6 percent, reaching $875 million.133
China is seizing the opportunity Figure 18: BRIC exports to Africa (2007) (US$ billion) in Africa. In 2006, China provided more than $8 billion in loans to 40 Sub-Saharan Africa, primarily for infrastructure. In 2007, through 35 its China Development Bank and Export Import Bank, China pledged 30 to provide up to $20 billion for trade and infrastructure in the form of soft 25 loans over the next few years, and so 20 created the China-Africa Development Fund.134 Chinese/African ties go deeper 15 than simple direct investment. China is now seen as a major market financier, 10 investor, contractor, builder and donor.135 5
Between 2001 and 2006, Africa’s 0 exports to China rose by an average Brazil India China Russia 40 percent, with its imports rising by 30 percent. This growth far Source: African investment by BRIC countries, David Barlett (2009) outstripped the global growth rate of a mere 14 percent.136
54 As shown in Figure 18, China was the addition, credit lines are increasingly largest exporter to Africa compared to being offered by Indian institutions other BRIC nations, with an estimated to counterparts in Africa, such as the $35 billion in exports in 2007. recent $14.5 million line from Indian Although China has a massive African Exim Bank to Gabon for a housing footprint, one cannot ignore the project.138 investment being made by other Asian countries, including Singapore, India, Although extractive industries are Malaysia, the Republic of Korea and traditionally given the most focus, Taiwan. As the Asian manufacturing manufacturing and services also industry explodes and the global attract foreign investors.139 In fact, scramble for resources intensifies, China’s foreign direct investment in the capital flows into resource-laden manufacturing exceeded investment in Africa should increase too. resource extraction by a significant 68 percent (see Table 3). Developing Asia has, however, only recently become a significant source of foreign direct investment into Africa. Europe and the United States remain the largest investors, each contributing some 37 percent of Africa’s total foreign direct investment.137 India is also investing heavily in Africa. Bank of Baroda, for example, has a large presence on the continent, particularly in East Africa, and recently opened its first West African branch in Ghana. In
Table 3: China's investment and FDI flows by sector in Africa
Sector/Industry Number of projects Investment value (US$ millions)
Agriculture 22 $48
Resource extraction 44 $188
Manufacturing 230 $315
Services 200 $125
Other 3 $6
Total 499 $682
Source: Nordiska Afrikainstitutet, Uppsala (2009)
55 Figure 19: Africa’s outstanding debt as percentage of GDP
% 60
50
40
30
20
10
0 2000 2004 2005 2006 2007 2008
Source: African Statistical Yearbook (2009)
With the flow of foreign capital In 2008, COMESA extended its free into Africa continuing to grow, the trade zone to include the EAC and continent has been very successful SADC. It now comprises 19 member in decreasing its debt over the last states and more than 400 million decade, as shown in Figure 19. China people (see Figure 20).143 has played no small role in this, writing off the debt of 31 African nations to And as described above, capital flows the tune of $1.3 billion.140 and foreign direct investment into Africa have increased substantially in recent years, helping to integrate Growing intra-African Africa into the global economy. With trade this integration, African states have Africa has fostered a number of had to tackle their financial challenges formalized trade blocs that have head-on to encourage further global been the catalyst for loosening participation in their economies. This trade restrictions between member is demonstrated by the significant states and the global economy in number of regulatory reforms made in general. Economic integration into Africa recently. trade blocs increases the potential for growth because it supports the In sum, Africa’s financial systems have better allocation of capital between both broadened and deepened over 144 investment opportunities.141 Likewise, the past years, brought about by it encourages economies of scale by improvements in the macroeconomic putting into place common standards and regulatory environments, and and regulations. It also increases encouraged by the inflow of capital liquidity and allows for better risk resulting from the worldwide scramble management by ensuring a wider for resources. selection of financial instruments with different risk/return profiles.142
56 Figure 20: Intra-COMESA trade (billions USS$)
16
14
12
10
8
6
4
2
0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: COMESA COMSTAT database
57 8
58 Dimension 5: Innovation Innovation has come to Africa, bringing stronger growth and unlocking new areas for development.
Increased innovation leads to an by innovation, and by innovative increase in GDP by impacting gross technologies in particular.145 investment and private consumption. For example, as we will show, demand However, there are now signs that for mobile telephony (driven in part Africa is not only capable of receiving by a lack of fixed lines throughout and adapting innovations made Africa) has led to wider investment in elsewhere, but of creating its own. wireless communication infrastructure For example, the strong adoption and services. African consumers of mobile technologies is in turn have flocked to mobile phones, spawning a flood of new business and penetration levels in nearly all models and products that are countries have risen sharply. This being exported. While such mobile consumer demand has opened the technology has allowed Africa to door for a wide range of companies overcome its relative lack of fixed to invest in innovative solutions such information and communications as mobile banking, which are bringing technology (ICT) infrastructure, new accessible financial services to the undersea cables provide cheaper, unbanked, and thus driving an increase faster connections with the outside in Africa’s general economic activity. world. Another example of the power of innovation is the growing business In the past, Africa’s woes, including process outsourcing industry in geopolitical instability and general various African countries, which is poverty, made it an unsuitable wholly dependent on technology. incubator or recipient of innovation. Together, all of these factors present a Africa’s lack of talent also contributed tremendous opportunity for innovation to the problem. These factors, in and technology adoption to drive turn, affected Africa’s economic future growth in Africa. performance, since productivity improvements are often driven
59 WorldFigure Economic 21: Snapshot Forum – Networked of networked Readiness readiness Index by country Compiled by the World Economic Forum, the Networked Readiness Index measures the propensity for countries to exploit the opportunities offered by information and communications technology. It is a composite of three components: the environment for ICT, the readiness of the community to use ICT, and, finally, the usage of ICT. Globally, Denmark has the highest score (5.85), while the global average is 3.95. Country Score (out of 7) Rank Mauritius 4.07 1 South Africa 4.07 2 Egypt 3.76 3 Botswana 3.72 4 Senegal 3.67 5 Low (2.44 – 2.99) Morocco 3.59 6 Medium (3 – 3.26) Nigeria 3.45 7 High (above 3.28) Namibia 3.44 8 Data not available Kenya 3.35 9 Source: World Economic Forum, The global information technology report 2008 – 2009 (2008-2009) Libya 3.28 10
Challenges Educating skilled talent Creating a culture of In order to reap the benefits of the The challenges to innovation in Africa innovation innovative technologies being installed include the difficulty of maintaining Even though there has been an in Africa, the right talent is required. and upgrading infrastructure increase in the tools and resources Ghana is anticipating the landing of investments, a relative shortage available to African companies, the West Africa Cable System in 2011, of skilled talent, and the lack of a such as accessible information and which will dramatically increase its widespread culture of innovation. communication, unique challenges still bandwidth and is expected to be a remain. The development of mobile boon to the local business process banking in Africa is a model for the Maintaining new outsourcing industry. Unfortunately, way in which a new technology can be infrastructure is not the only barrier investments used to address an old problem—in this to the development of Ghana's ICT case, how to make affordable banking Any new investment in infrastructure industry—the skilled labor force in services available. It is important should be accompanied by a the country is very small compared for this culture of innovation to be commitment to maintain and upgrade to countries making big headway in fostered and supported. that investment to support continuing the industry.146 As such, alignment of growth. Such required maintenance policies across different dimensions, takes the form of capital, processes, from education to infrastructure, is equipment and people. For example, paramount to ensuring the maximum if there is an investment in new solar benefits from any investments in power technology, local or affordable innovation. skilled maintenance labor as well as equipment should be ensured, as the cost of importing labor and materials from the developed world will reduce the long-term viability of the investments.
60 Figure 22: Market penetration: users per 100 people
35
30
25
20
15
10
5
0 1998 2000 2002 2004 2006 2008
Mobile cellular subscriptions Fixed telephone lines
Source: ITU World Telecommunication / ICT database
of landlines. A look at Figure 22 Indeed, the many challenges Key factors for illustrates how mobile technology has unique to Africa—huge distances, leapfrogged fixed-line communication widely dispersed populations, and growth and given millions of people access to little existing telecommunications The role of ICT in driving innovation an efficient means of communication. infrastructure—have conspired to is well recognized. Accenture High create an environment in which Performance Business research has Such infrastructure development wireless will flourish.149 clearly demonstrated this link at the in support of increasing consumer corporate level,147 and it seems to hold demand is vital to ensuring that the Another big shift in infrastructure is true at the national level as well.148 benefits of innovation can spread occurring with the installation of new This linkage is supported by the African throughout African economies. undersea fiber-optic cables. While the experience: While Africa lags behind Indeed, as wireless networks mature, wireless infrastructure is connecting in terms of fixed-line telephony, new so do the services consumers can people within most countries, there is technologies and business models are use. For example, relatively cheap a lack of connection between Africa circumventing market inefficiencies smart phones are now available in and the rest of the world. However, the and institutional bottlenecks. The many African countries—increasing new undersea cables that will connect number of such applications in Africa the number of people accessing the Africa to the globe are creating a new is rising exponentially, with e-banking Internet via mobile phones. set of opportunities. setting the pace and other services such as e-health, e-education, and The benefits of such advances are e-government following closely. sometimes seen in unlikely places. Studies show that South African farmers with mobile access to market Improving infrastructure prices realize 30 percent higher for ICT profits than those who do not have this access. These kinds of market Africa has experienced a dramatic efficiencies are then reflected in improvement in its technology cheaper consumer prices, completing infrastructure. One example is the the beneficial economic cycle. way in which wireless communication has overcome the low penetration
61 Case study: Real broadband comes to Africa
Figure 23: African Undersea Cables By the end of 2011, Africa will This will enable countries that (2011) have access to broadband hitherto have relied on expensive capacity estimated at 10 terabits/ data communication to join second, compared with the the broadband revolution. As 80 gigabits/second that was was said at the recent landing available at the end of 2008. of EASSy in Tanzania: "Today we are witnessing an historic This growth in bandwidth will be event because through this delivered by the following cables: technology Tanzania is now Seacom (1.28 terabits/second), open to the world for business GLO-1 (640 gigabits/second), as better communications will TEAMS (120 gigabits/second), facilitate more trade with other 150 EASSy (1 terabit/second) , countries.”151 MainOne (1.92 terabits/second) and WACS (3.8 terabits/second). Together, these new cables will Source: Steve Song http://manypossibilities.net increase the bandwidth between Africa and the rest of the world by more than 120 times in little over three years. The cables will also greatly reduce the cost of telecommunication.
62 Figure 24: Mobile subscribers in Africa (millions)
600
500
400
300
200
100
0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Africa Mobile Factbook 2008, Africa and Middle East Telecom
Lastly, infrastructure improvements make the necessary investments or have been facilitated by a shift in their governments did not support government policy toward these these initiatives. initiatives. For example, Rwanda offers concessions for setting up There is evidence that this is beginning ICT businesses in the country, while to change. For example, the number Kenya has abolished sales tax on of Internet users in Africa has grown computers and new mobile phones. strongly in the last decade. In 2000, Kenya also allows businesses to write Africa had only around 5 million off bandwidth purchases in the hope Internet users. By 2009, the number of dominating the regional Internet of Internet users had grown to 67 market—a move that may prompt other million, which represents 6.8 percent countries to take similar action.152 of the total population.153 This number is projected to rise, with the number These improvements in the information of broadband connections projected and communications technology to increase from 2.7 million in 2007 to infrastructure are making it both 12.7 million by 2012.154 possible and affordable for Africans to embrace new technologies, and use Another area that has seen significant them to transform both business and growth is mobile phones. In 2003, social life. Africa had 50 million mobile phone users. By 2008, the number had grown to nearly 350 million, reflecting a Technology adoption compound annual growth rate of 48 The revolution of the information percent.155 In 2009, another 75 million economy that occurred during the phones were added, bringing the total 1990s had comparatively little impact number to 425 million. This equated to in Africa. As the world’s technology a mobile phone for four out of every and communication links continued 10 Africans, and by 2012, that ratio to proliferate, African countries and will be six out of 10.156 companies either could not afford to
63 Table 4: Annual average growth rate in mobile subscribers, 2001 – 2006
% Africa 50.9
Asia 27.2
World 23.1
Americas 20.1
Europe 17.4
Oceania 11.9 Source: Africa Mobile Factbook 2008, Africa and Middle East Telecom
Africa’s phenomenal growth rate in in 2007.159 For example, Bharti As a result, the East African BPO mobile subscribers far exceeds growth Telecom Ltd., India’s largest mobile market is expected to grow from in all other global regions. In fact, carrier, recently bought the African $485 million to $1.9 billion—or between 2001 and 2006, the number operations of Kuwait-based Zain annual growth of 25 percent—over of mobile subscribers in Africa grew Telecoms for $9 billion. With deals the next five years.163 In Kenya, BPO at nearly double the rate seen in Asia of such size, the growth and revenue is one of the six pillars of economic (see Table 4). opportunities in Africa are significant. growth in the country’s 2030 vision. According to Bharti's chairman, Sunil The Ugandan government is actively This growth is important as there is Mittal, "We are excited at the growth encouraging outsourcing through tax a proven link between mobile phone opportunities in Africa, the continent incentives, cyber laws, infrastructure penetration and GDP growth. A of hope and opportunity.”160 investment and IT education—all recent study found that with every with the aim of creating 20,000 10 percent increase in mobile phone Africa’s growing network outsourcing jobs.164 It is forecasted penetration, a country's GDP increased infrastructure and a population that is that Rwanda's BPO industry will grow by 0.6 percent.157 While there is not becoming used to technology is also by 89.4 percent to $274 million by a direct causal link, there is a very spawning a viable business process 2020, up from $29 million in 2009.165 strong correlation between mobile outsourcing (BPO) industry. With large penetration and GDP growth. Thus, populations fluent in English, French In other parts of Africa, BPO has also Africa’s continued high growth rate and Portuguese, Africa has much experienced growth. Ghana wants to in the adoption of mobile phones is to offer. This language advantage, create 40,000 jobs by 2015, with a likely to indicate continued economic combined with the low cost of African longer-term goal of earning $1 billion growth. labor, makes some African countries a year from the industry. Ghana also attractive for large outsourcing plans to build technology parks across The increase in mobile phone businesses. the country.166 In the South African penetration is also leading to an province of Gauteng, the BPO sector increase in the revenues of providers. This growth in outsourcing is partly is expected to be worth more than $1 The mobile communications markets of driven by future demand, since it is billion in 2010 and to grow by between Kenya, Tanzania, Uganda and Rwanda predicted that by 2030 there will be a 9 percent and 14 percent per year to earned combined revenues of $2.62 global shortage of 200,000 to 500,000 2014. The total South African BPO billion in 2008 and are expected to BPO workers.161 This shortfall presents market is currently estimated at $1.6 earn $8.99 billion in 2015.158 immense business opportunities for billion. African countries that can supply Africa’s massive take-up of mobile the required skilled labor. Some phones is also generating investment. countries have already recognized Africa's telecom sector will have this: Kenya, Uganda, Tanzania and secured private investments of more Rwanda have each developed national than $70 billion by 2012, surpassing BPO strategies and have begun to the $55 billion promised by investors implement them.162 at a United Nations-backed meeting
64 Case study: BPO in Kenya
Kenya has emerged as a key Already Kenyan call centers growth area for BPO. The size of operate at a lower cost than the Kenyan BPO market doubled those in India or the Philippines between 2005 and 2007 and and, with the landing of several now includes several call undersea fiber-optic cables, centers, back-office providers infrastructure costs will likely and software development drop even further.169 companies. The Kenyan call center market is projected to grow 20 percent every year up to 2013 to be worth nearly $20 million167, and the overall BPO sector has the potential to generate Ksh45 billion (approximately $600 million) and 20,000 direct jobs by 2014.168
R&D of innovative and financial services is the key to money can then be withdrawn from a economic growth both in advanced Safaricom agent in cash. products economies and in the developing Even though Africa is achieving world.172 As such, Africa’s lack of There are now more than 6 million economic growth, the business access to capital and financial services users of the service in Kenya alone. environment is still challenging and is a key barrier to development. Since its introduction in 2007, 38 presents its own particularities. percent of Kenyan households include Importantly, though, Africans are African businesspeople have risen to at least one M-PESA user. By contrast, coming up with innovative business this challenge by pioneering the use of only 22 percent of adults have bank solutions to their challenges. mobile telephones to provide low-cost accounts. M-PESA has the potential financial services. These developments to enhance growth by allowing routine Mobile banking is a good example. are creating new markets and driving transactions to be processed more The proportion of Africa’s population growth. The Bill and Melinda Gates quickly and reliably. When capital is that is unbanked is estimated to be Foundation observes, “Mobile banking allowed to move around Kenya this 75 percent.170 For the unbanked, it is services have various benefits to efficiently, it facilitates economic impossible to gain interest on savings, the population, including increased activity that might not otherwise often more expensive to get access productivity and capital flows, occur. It also serves as an example to capital (if it can be accessed at all) helping to manage cash flow as well of collaboration between companies, and, most importantly, very difficult as enhancing management of erratic nongovernmental organizations and to move small amounts of money incomes.”173 governments: a model that could between people and regions. Hard redefine the rules of how business cash is thus widely used, but that The use of a branchless mobile banking works in Africa. presents its own problems. In the service was pioneered in Kenya words of a Standard Bank executive: by Safaricom Ltd., a subsidiary of Innovative solutions are also being “Cash as we know it is clunky, easy to Vodafone Group PLC, with its M-PESA found to address problems in health steal, not always available, dangerous offering. M-PESA was developed in care. Accenture Development and expensive to move, and difficult partnership with the United Kingdom- Partnerships (ADP), Accenture’s not- and time-consuming to exchange."171 based Department for International for-profit division, was involved in a Development between 2003 and 2007. program in Kenya called Phones for As demonstrated by the economist It allows customers to send money to Health (P4H). Hernando de Soto, access to capital each other using text messages. The
65 Case study: Mobile banking
While the mobile banking to Rwandian officials, in the near phenomenon has its roots in future customers will be able Kenya, which now has more than to use their phones to purchase 6 million mobile banking users, it credits for electricity usage, has been exported across—and pay for taxi fares, purchase beyond—the continent. groceries and, potentially, buy airline tickets.176 In South Africa, There are now similar services usage of First National Bank's in Tanzania, Uganda (where 70 eWallet mobile banking solution percent of the population is has increased 239 percent in the under- or unbanked)174, Rwanda, six months since its launch. The South Africa, Sierra Leone and largest growth has occurred in Somalia. The technology has also cities, where users are sending been exported to Afghanistan money to family in rural areas.177 and will soon launch in India. Also, more services are Additionally, companies such as continually being added, thus Nokia are building a network providing further value. For of money agents that will example, a new micro insurance enable subscribers to conduct plan uses M-PESA to offer transactions using any network in Kenyan farmers protection 175 the world. against bad weather.178 In Rwanda, a mobile money transfer solution can also be used to buy airtime. According
66 P4H is a unique public-private weather stations and an insurance where we work, 70 percent of the partnership consisting of mobile phone company. This mobile banking product population are subsistence farmers.... operators, handset manufacturers, allows farmers to insure themselves if we can improve their yield 10 or 20 consulting and technology companies, against bad weather by paying an percent with better seed...they can ministries of health, global health extra 5 percent when purchasing even sell some of their crop and begin organizations and international seeds, fertilizers and pesticides at to climb out of this poverty trap."181 partners. It aims to develop and local agricultural supply shops. If the deploy appropriate, sustainable harvest fails owing to bad weather, Global business models have also information technology solutions and the farmer is reimbursed and can plant undergone innovations to improve leverage mobile phone technology again.179 benefits to local communities and to strengthen health systems in the businesses. According to a study developing world. In a similar vein, the government of conducted by the World Business Cameroon, through the Institute of Council for Sustainable Development, P4H has developed an integrated set Agricultural Research for Development, this drive can be attributed to a of standard information solutions has put high-yield seedlings at the number of factors, such as the to support the scale-up of disease disposal of farmers nationwide, with need for companies to break out surveillance and other health the aim of boosting agricultural of mature market sectors, the programs, leveraging the growing productivity. Such innovations and improvement in conditions in many mobile phone infrastructure, which, inventions, a government official said, developing countries, changed public unlike IT infrastructure, is accessible are in line with the government's expectations of corporations, and and affordable for the majority of resolve to maximize its resources the fact that aid and investment are citizens. and in so doing curb food crises and beginning to reinforce one another. insecurity.180 According to the study, an innovative Another important area for innovation operating model should focus on core is agriculture, and in Africa there is Increasing the yield that farmers competencies, encourage partnerships an increased focus on local solutions can achieve will have a big impact. across sectors including government to food scarcity. One such approach According to Dr. Jonathan Lynch, a and nongovernmental agencies, and is the use of mobile phones to link scientist working in Mozambique, this localize value creation.182 Kenyan farmers with solar-powered could be critical: "In Mozambique,
Case study: Solar-powered Internet kiosks
Internet kiosks that provide The kiosk is designed to promote access to online services are entrepreneurship and electronic being implemented in Kenya, service delivery within rural Nigeria, Rwanda and Zambia. and urban settings, and in The kiosks are mobile, cost- turn, help facilitate the growth effective and can be recycled. of e-commerce, e-education, They operate on a satellite e-health, and e-government.183 connection and solar power. In this way, they enable ordinary people to obtain and share information crucial for education, agriculture and food security, health and the environment, and communications and e-government.
67 9
68 The race is on... Historically, Africa has been a vulnerable marketplace owing to the classic third-world challenges of war, famine and disease. This picture is starting to change as significant improvement in all five key dimensions indicates that Africa is a rising star with significant growth potential.
Although the future is uncertain, it Africa represents a business is expected that emerging markets opportunity for companies in search like Africa are changing the balance of new markets to power their pursuit of economic power and present a of high performance. Businesses tremendous growth opportunity. can generate profits and create Although the continent still faces the potential for long-term growth significant challenges and the cost by tapping into Africa’s large and of doing business remains prohibitive increasing consumer market, vast in many cases, there is no doubt wealth in natural resources, expanding that Africa is currently experiencing labor pool, increasing capital flows, positive changes in the dimensions of and its new readiness to innovate. consumers, resources, talent, capital However, our analysis also suggests and innovation. These changes are that any strategy for business success generating considerable growth in Africa must be finely tuned to an already, and Accenture believes that understanding of the characteristics this growth should strengthen. and growth dynamics of each specific African market. Africa’s potential for growth is particularly relevant now as global Africa today has many clear similarities business begins to come out of with China and India in the 1990s. recession. Identifying and securing There is a window of opportunity for sources of new growth are top first movers to grab a share of this priorities for companies at present, and growing market, but how long the much of this new growth will come window will remain open is unknown. from emerging markets. Companies Businesses not planning and acting that establish their positions in places now will miss the boat—as so many did like Africa during this period of rapid when it came to China and India. growth will find themselves at an advantage while competitors struggle to gain a foothold.
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70 Appendix Acknowledgements Glossary Wayne Borchardt acknowledges Please note: the contribution of Pieter Becker, Throughout this document, $ refers to David Porter and François Spies US dollars unless otherwise specified. for compilation of this report. At Accenture Research, Philipp Merkofer Some common abbreviations and his team furnished background BPO research and helped build a database Business process outsourcing of information and case studies. BRIC Special thanks are owed to our Brazil, Russia, India and China colleagues Matthew Robinson, Henry Egan, Clemence Grasset, Michelle van COMESA Zyl, Tlangelani Mageza, Louise Temkin Common Market for Eastern and and Daniel Huedig, who provided Southern Africa valuable advice and input. EAC If you would like more information, East African Community please contact: ECOWAS Wayne Borchardt Economic Community for West African Senior Executive, Accenture States [email protected] GDP +27 21 408 1312 Gross domestic product Accenture, its logo, and High GNI Performance Delivered are trademarks Gross national income of Accenture. This document is produced by consultants at Accenture ICT as general guidance. It is not intended Information and communication to provide specific advice on your technology circumstances. If you require advice or further details on any matters referred R&D to, please contact your Accenture Research and development representative. SADC Southern African Development Community
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75 Copyright © 2010 Accenture About this study About Accenture All rights reserved. This study was prepared from Accenture is a global management Accenture, its logo, and sources and data which Accenture consulting, technology services and High Performance Delivered believes to be reliable but it makes no outsourcing company, with more than are trademarks of Accenture. representation or warranty, express 190,000 people serving clients in or implied, as to their accuracy more than 120 countries. Combining or completeness. Any figures and unparalleled experience, comprehensive statistics used in this study were up capabilities across all industries and to date at time of writing and are business functions, and extensive subject to change without notice. The research on the world’s most successful views and opinions expressed in this companies, Accenture collaborates publication are those of Accenture only with clients to help them become and do not necessarily reflect those high-performance businesses and of any of the companies researched governments. The company generated or surveyed or any other third party net revenues of US$21.58 billion for referenced in the report. Such opinions the fiscal year ended Aug. 31, 2009. Its should not be construed as providing home page is www.accenture.com. professional advice, recommendations or endorsements, or relied upon Accenture has had a presence in South as such. Neither Accenture nor its Africa and Nigeria for more than 30 employees accept responsibility for any years. Accenture has a wealth of on- loss or damage arising from reliance the-ground experience, from having on the information contained in this worked in 38 African countries and publication. enjoying an established presence in nine countries across North, West, East and Southern Africa.
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