Table of Contents
- Introduction: Africa is the horizon
- Africa: Huge size exacerbates challenges of diversity
- Lower the gaze, reach the horizon
- Not just a commodity play: Profile of survey respondents
- Africa revenue contribution
- Revenue contribution by company size
- By region: 2013 vs. 2014
- By region: 2015
- Economic and political reforms: Progress (almost) everywhere
- Growth expectations realistic, overall
- Steady, on-track investment…
- …But not-insignificant operational challenges
- Business in Africa remains risky
- Firm profitability: On balance, tips towards the positive
- Profit performance by year and by region
- Investment by region: Largely focused east, west and south
- Top markets by revenue: Nigeria, South Africa and a rising Kenya
- Priority markets by respondent location: 2014 vs. 2020
- Local needs: Aligning business models and offerings
- Scant board and management representation from Africa
- Most functional teams are based in region
- Employee turnover on the rise in most dynamic economies
- Reporting units: Africa stands alone
- R&D in Africa still not significant
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Introduction: Africa is the horizon
For the past twenty years, the centre of the global economy has been shifting from the developed to the developing world.
Today, growth rates in developing economies are many times higher than in developed economies. Africa, in general, and Sub-Saharan Africa, in particular, are two notable cases in point.
In 2015, Sub-Saharan Africa’s GDP is expected to grow at 4.5%, making it the fastest-growing economic zone in the world, outpacing Asia’s regional average of 4.3% annual growth. Obviously, in terms of overall market size, Sub-Saharan Africa is still quite a bit smaller than Asia, but, when considering the longer term, continued steady growth in Africa will result in an economic bloc with global impact over the next two decades. In the next five years alone, Sub-Saharan Africa’s percentage share of the global GDP is expected to increase from 1.4% to 4%.
Commodities play an important role in many African economies. As such, the recent softening of prices for oil, iron ore, coal and other commodities has impacted the fiscal health of a number of countries. The government of Angola, for example, depends on oil revenue for two-thirds of its funding.
Africa: Huge size exacerbates challenges of diversity
Africa is a geographically large and diverse continent. It is so large, in fact, that it would be possible to fit India, China, Japan and the UK into the landmass occupied by Sub-Saharan Africa alone, leaving room to spare.
Given its size, companies operating in Africa must understand regional and local dynamics—and, in particular, how those dynamics impact on operating conditions. Legal and regulatory frameworks are different across countries; infrastructure varies and can hamper strategic and operational planning, and there are cultural and language differences across and within countries. This diversity is echoed in the various levels of economic development in the different countries. The region’s two largest economies — Nigeria and South Africa — together compose over 63% of Sub-Saharan Africa’s total GDP, yet their prospects vary considerably. The Nigerian economy is expected to grow over 5% this year, while the South African economy is forecast to grow by 1.6%. These growth rate differences reflect, in part, the current state of infrastructure in each country, as well as the breadth, depth and stage of development of the formal economy in each country.
Recommended: Nigeria Strategy – H1 2015: ARM (Report)
Lower the gaze, reach the horizon
Macro-economic data are valuable to corporate leaders in identifying target markets, better understanding pricing issues and forecasting demand. However a “grass-roots” understanding of a market or region is also critical. There are numerous instances in Africa of a product or service that soared in one country, but barely achieved lift-off in another. For example, M-Pesa, a mobile money platform, is doing phenomenally well in Kenya, but not in South Africa, despite the fact that mobile-phone penetration is higher in South Africa than in Kenya, and there is some commonality of context (for example, in financial exclusion rates) between the two countries. The divergent fortunes of M-Pesa in the two countries underscores the importance of an informed, on-the-ground market perspective where official statistics may be inadequate or unavailable.
It is against this broad backdrop of regional diversity that The Economist Corporate Network launched its inaugural African Business Outlook Survey. The objectives of the survey were to:
1) Collect data and insights about recent performance of companies operating in Africa
2) Analyse the issues that impact growth and profitability of those operations, both overall and in
Not just a commodity play: Profile of survey respondents
In total, 206 executives participated in the 2015 African Business Outlook Survey. Most of the executives were based in the four biggest Sub-Saharan economies—Nigeria, South Africa, Angola and Kenya. The remaining responses came from others based across Southern, East, Central, West and North Africa.