Enterprise Growth Strategies Employed By Entrepreneurs In Kenya Today – Africa’s potential as a growth market for business is underestimated and misunderstood, and the potential for business to play a transformative role in addressing the continent’s biggest challenges.
Landry Signe Senior Fellow – Global Economy and Development, Professor and Executive Director of the Africa Growth Initiative – Thunderbird School of Global Management, Arizona State University Distinguished Fellow – Stanford University
Enterprise Growth Strategies Employed By Entrepreneurs In Kenya Today
Consider a question: How many companies in Africa generate $1 billion or more in annual revenue? We think most of the global executives and academics we speak to are under a hundred. Most would answer “zero”. Reality? There are more than 400 such companies and they are, on average, faster growing and more profitable than their global counterparts.
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Africa’s rapidly growing populations and markets present significant opportunities for businesses in the face of slowing global growth. At the same time, boosting business innovation and investment is essential to meet Africa’s insatiable demand for goods and services, fill gaps in its infrastructure, create jobs and reduce poverty. Here, we outline the range of African business opportunities in key sectors and suggest steps investors can take to translate that opportunity into profitable and sustainable businesses.
Five Bold Business Opportunities Africa’s current population of approximately 1.2 billion is expected to reach 1.7 billion by 2030.
Africa’s real GDP grew at an average annual rate of 5.4% over the period 2000-2010, driven in almost equal measure by labor force growth and productivity growth. After a slowdown caused by the shocks of the Arab Spring in 2011 and the collapse of oil prices in 2014, Africa’s growth has rebounded and its future prospects look promising. Two World Bank indicators underscore the continent’s promise. First, six of the world’s 10 fastest-growing economies in 2018 are in Africa, with Ghana topping the global rankings. Second, in the World Bank’s 2019 Doing Business Index, five of the 10 best-performing countries are in Africa, and a third of the reforms recorded globally are in sub-Saharan Africa.
Economic acceleration and an improving business environment are underpinned by five long-term trends, each of which unlocks transformative growth in key economic sectors.
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Africa’s current population of approximately 1.2 billion is expected to reach 1.7 billion by 2030. More than 80 percent of Africa’s population growth in the next few decades will occur in cities, making it the world’s most rapidly urbanizing region. At the same time, incomes are rising in many parts of the continent, creating new business opportunities in the consumer market.
In total, we expect annual African consumer and business spending to grow from $4 trillion in 2015 to $6.66 trillion by 2030. These trends are encouraging growth markets in many sectors that Africans lack, such as food, beverage, medicine, and financial needs. services, health care and education.
An African industrial revolution is underway as manufacturers ramp up production of everything from processed foods to cars.
We calculate that African industries have the potential to double production to about $1 trillion in a decade (Figure 5.1). Three-quarters of that growth is expected to come from manufacturing to replace imports and meet rising local demand. But there is also a major opportunity to boost manufacturing exports and make Africa the world’s next major manufacturing hub as industries move away from China to lower-cost regions. The ongoing revolution among smoke-free industries such as tourism,
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Agro-industry and some information and communication technology-based services serve as a sliding scale for development, as these industries share three key characteristics of traditional manufacturing: export, high productivity, and labor-intensiveness.
Poor infrastructure is a major obstacle to investment and growth in Africa. For example, nearly 600 million Africans do not have access to the electricity grid. Although Africa’s infrastructure still lags behind that of other developing regions, significant progress has been made: annual investment in Africa’s infrastructure has doubled to $80 billion a year since the turn of the century. This presents a great opportunity for investors and entrepreneurs with a vision to help solve Africa’s infrastructure challenges.
Africa has long been known for its abundant resources, both agricultural and mineral resources. However, to date, Africa has struggled to translate these resources into shared wealth and sustainable economic development. New innovations and investments promise to change this image and create exciting growth opportunities for business. For example, in the field of oil and gas, Africa is rich in unexplored and high potential areas and the continent has a huge demand for energy. We predict that Africa’s domestic gas market will grow by 9% annually until 2025, when the continent can use up to 70% of its own gas.
Sub-Saharan Africa saw the fastest new broadband connections in the world between 2008 and 2015, and mobile data traffic across Africa is expected to grow sevenfold between 2017 and 2022. Africa has more than 120 million active mobile money accounts, more than 50 % of the global total; It has bypassed many people compared to traditional banking products. This trend will allow companies to improve productivity, speed up transactions and access larger markets, and could add $300 billion to the continent’s GDP by 2025.
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Africa’s 54 countries are diverse in terms of population, levels of development, growth rates and stability. Nigeria has about 190 million people, and Ethiopia and Egypt each have more than 90 million people, while most African countries have populations of less than 20 million. Similarly, nine countries account for three-quarters of Africa’s GDP and three countries for almost half of the continent’s household consumption in 2030: Nigeria (20%), Egypt (17%) and South Africa (11%). But many smaller countries are growing rapidly and increasing their share of the mainland’s GDP and consumption. We expect East Africa and French-speaking Central and West Africa to significantly increase their share of Africa’s total consumption.
Africa’s annual investment in infrastructure has doubled to $80 billion a year since the turn of the century
To serve a significant market, companies need to build a consistent geographic portfolio with priority operating countries and cities. We have developed a tool called the McKinsey African Stability Index to help companies and investors balance their portfolios (Figure 5.2).
Three distinct groups of countries emerged from this analysis, each accounting for one-third of Africa’s GDP:
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Sustainable growers. These economies are relatively less dependent on resources for growth and are progressing with economic reforms and increasing their competitiveness.
Farmers who lose. Each of these countries has at least three types of vulnerability. Some, such as Angola and Nigeria, are highly dependent on resource exports. Other countries, such as the Democratic Republic of Congo, face security or governance problems. Finally, countries such as Mozambique are experiencing macroeconomic difficulties. For investors, vulnerable cultivars offer promising growth potential, but also risks that must be properly assessed and understood.
Slow cultivators. This group includes Libya and Tunisia, countries affected by the Arab Spring, and South Africa, Africa’s second largest economy. Investors should assess industry-wide growth opportunities or use their businesses as a foundation to expand into other areas of the region.
We encourage investors to think not only of its countries but also of African cities when building their African portfolios. By the end of the next decade, Africa will have about 90 cities with at least one million inhabitants (Figure 5.3). Rapid urbanization
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This is a good reason why companies are making cities central to their growth strategies in Africa. However, equally significant is the fact that per capita consumption in large African cities is almost double the average of the countries hosting these cities.
Although successful African companies vary widely in their geographic and sectoral focus, what they have in common is seeing the continent’s unmet needs as opportunities for entrepreneurship and the long-term commitment necessary to build businesses of significant scale. Indeed, Africa’s fastest-growing and most profitable companies typically see challenges as a stimulus for innovation.
Successful African innovators are also well aware of the obstacles to their businesses’ success and how to build long-term resilience into their business models. Consider the example of Nigeria-based Dangote Industries, which produces large quantities of goods and has made founder Aliko Dangote the richest man in Africa. Dangote has built a shock-proof manufacturing model through vertical supply chain integration, on-site power generation, strong government engagement and an in-house manufacturing academy.
For entrepreneurs willing to problem solve and innovate to meet Africa’s unmet needs, there are huge opportunities for growth.
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African innovators are often driven by a deep sense of purpose. They see Africa’s high levels of poverty and its gaps in infrastructure, education and health care not as obstacles to business, but as a responsibility to solve human problems. Strive Masiyiwa, president of pan-African company Econet Group, noted: “Africa is a continent with extraordinary challenges, and this is a loophole for governments to address them. If you see a problem, think about how you can solve part of it.
For entrepreneurs willing to problem solve and innovate to meet Africa’s unmet needs, there are huge opportunities for growth. An example