Africa by Numbers 2013–14 Assessing Risk and Opportunity in Africa

Africa by numbers 2013–14 Assessing risk and opportunity in Africa 1 | Africa by numbers 2013–14 Africa’s rise is real Over the past three years, EY’s Africa Africa’s economic output attractiveness reports have highlighted the (GDP, US$b) continent’s steady rise. Our research, which includes investor surveys and analysis 899.9 of greenfi eld foreign direct investment 798.7 (FDI) and broader socioeconomic trends, 741.2 has helped to provide some quantitative 692.6 618.7 substance to the growing perception that African markets offer an exciting growth 527.7 449.8 and investment opportunity. 1844.6 1607.6 While skeptics still abound, and there 1415.7 287.1 1295.8 1334.2 are people who still seek to debate the 251.7 949.5 point, the evidence of the continent’s clear 877.2 560.9 progress over the past decade is irrefutable. 344.1 The reality is that a diverse range of African 2000 2004 2007 2009 2011 2012 2013 2015 2017 countries have now experienced consistent and robust growth for over a decade – Sub–Saharan Africa North Africa certainly the longest period of sustained Source: IMF World Economic Outlook Database; EY analysis. growth since most countries attained independence in the early 1960s. In the Multiple *CAGR *CAGR period since 2002, the size of the overall since 2002 2002–12 2007–12 African economy has more than trebled Sub-Saharan Africa x3.8 14.2% 8.7% (and grown at twice the population growth rate) – over this period, the size of the sub- North Africa x3 11.6% 9.0% Saharan African (SSA) economy has grown Africa x3.5 13.3% 8.8% *Compound Annual Growth Rate well over three-and-a-half times. What makes this economic performance At the same time, many of the companies continue to struggle, Africa clearly offers all the more remarkable is that half of that have pursued a longer-term African an exciting opportunity for investment and that decade has been marked by a deeply growth strategy are generating excellent growth, and an alternative to the ultra- troubled global economy. Although many returns from their investments. In fact, competitive Asian and other rapid-growth African economies have been negatively empirical analysis reveals that ROI from markets. It is little surprise, therefore, that impacted by the situation in key trading investments in Africa have consistently investor interest in Africa has been on the partner countries in Europe and North been among the highest (if not the highest) increase. Our 2013 Africa attractiveness America, most have remained remarkably in the world since the 1990s.1 report shows that FDI projects into SSA resilient. A diverse group, including the grew at a compound rate of 22.3% between For companies seeking to grow and likes of Angola, Ghana, Ethiopia, Tanzania, 2007 and 2012. investors seeking higher returns, the Mozambique, Nigeria and Zambia, are African growth story should therefore stand among the fastest growing in the world, out. While most developed economies with growth of 7%+ over a sustained period. 1 See, for example, “Foreign Direct Investment in Africa: Performance and Potential,” UNCTAD, 1999; Boston Consulting Group, “The African Challengers: Global competitors emerge from the overlooked continent”; Warnholz, “Is Investment in Africa low despite high profi ts?” Working Paper, Centre for Study of African Economics, 2008; Collier and Warnholz, “Now’s the Time to Invest in Africa,” Harvard Business Review, Feb 2009; “Lions on the move: The progress and potential of African economies,” McKinsey Global Institute, June 2010. Africa by numbers 2013–14 | 2 But the continent is an inherently challenging place to do business Despite our optimism, and the signifi cant However, for most companies, very operating across borders in Africa means progress made across many parts of few of these individual markets are having to come to terms with very different the continent, Africa remains a complex likely to provide the kind of scale, in (and often fragmented) sets of rules, and challenging environment for doing the shorter term at least, that makes regulations and stakeholders. business. For any organization with growth them commercially attractive in and of Making well-informed choices about which ambitions, there is still a need to proceed themselves. As a result, any kind of growth markets to enter, when and via which mode with care and due diligence. While we strategy in Africa almost invariably has to is therefore crucial. At the same time would argue that many African markets take account of multiple markets. And, as though, market selection is also framed by are not fundamentally different to markets one looks to sort through opportunities the challenge of effectively “connecting in other rapid-growth regions, there are and risks across these markets, it quickly the dots” across multiple operations and some key differences. Foremost among becomes clear that opportunities and risks territories; not only ensuring that the these is the sheer scale of the continent differ widely from country to country and African “portfolio” (whatever shape or form and the diversity of its many countries. region to region. To further complicate that may take) is big enough to matter, but Although many of us still sometimes lump analysis, language and cultural dynamics also that multiple in-country and cross- “Africa” together in our commentary and are as diverse as anywhere else in the world, border risks are effectively managed, comparisons as if it is was a single market, with French, Arabic, English, Portuguese, operating effi ciencies are gained and, it does, of course, comprise 54 sovereign German, Spanish, Dutch and Italian ultimately, the whole is greater than the states – representing more than a quarter of infl uences mixed with numerous indigenous sum of the parts. all independent countries in the world. languages and cultures. At the same time, Starting with the numbers Whether entering into or expanding across Africa, we believe it is critical to develop a structured analytical framework for prioritizing markets into which to expand and for assessing different strategic options. Too often, we have found that thinking on Africa generally and on specifi c markets is based on ill-informed opinion – either unduly pessimistic or overly optimistic – and completely divorced from current realities. We therefore stress the importance of having fact-based conversations about Africa, informed from a basis of rational Growing Beyond Borders™ analysis rather than anecdotes and conjecture. In identifying and prioritizing markets for investment, there should be a thorough process In our 2012 Africa by numbers publication, of fact-based due diligence, including sector-specifi c tax, legal and regulatory factors (which we introduced a framework to support a are often material enabling or constraining factors in the African context). A key challenge in process of strategic conversation among such a process is the apparent scarcity of information. However, once one starts digging a bit, key stakeholders and decision-makers there is actually a large quantity of Africa-related data available. The challenge more often is on growth options in Africa. Drawing on that data is fragmented across various sources, and so can be diffi cult to collate and present a balanced set of risk and opportunity in a coherent and meaningful way. We therefore developed Growing Beyond Borders™, a indicators from our proprietary Growing map-based interactive software tool, with a twofold capability to help our clients address this Beyond Borders™ tool – an interactive map- challenge. First, it provides an information portal, aggregating a range of indicators, indices based data portal – we developed a market and other data from various sources together for easy access. Second, we have found that assessment matrix that provides a simple the visual presentation of the information via the map-based interface is intuitive for most but effective framework to rationally assess people, and provides a commonly understood reference point for strategic discussion on the pros and cons of different African investment decisions. markets. 3 | Africa by numbers 2013–14 On the horizontal (x) axis, we plot where It is important not to view this as a different priorities, and as priorities change each country ranks on a composite risk defi nitive assessment on any of these over time, so will the answers. index, while, on the vertical (y) axis, the markets. As much as we believe it is A matrix such as this is therefore inherently ranking on an opportunity index is plotted. critically important to begin from a fl exible. Positions will change depending A third dimension (indicated by the size rational basis of fact, we also recommend on the indicators included (which will be of the bubble) can be included to add not simply reducing market analysis to a determined by key drivers of risk and some richness to the conversation. To closed model in which various indicators opportunity in a particular organization), as illustrate, we have provided an example of are simply combined in terms of their well as relative weightings given to those what a matrix may look like for a company weighted importance. Such models can indicators. The categorization of markets looking for consumer-related opportunities, provide a useful starting point, but can give will also depend on where you set your overweighting those indicators that we feel the misleading impression that there are “thresholds” on the risk and opportunity are more indicative of attractive consumer

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