IN THE WESTERN WORLD, we often do not have an accurate picture of Africa as a growing marketplace. We frequently imagine a continent of villages and stories of corruption and violence dominate our perspective.
Authors Acha Leke, Mutsa Chironga and Georges Desvaux of McKinsey and Company, take a different view in Africa’s Business Revolution. They say business leaders tend to “underestimate Africa’s size and potential as a market, and overestimate the challenges of doing business there.”
There are one-hundred companies with annual revenues of a billion dollars or more. In the next 20 years, 80 percent of its population growth will occur in cities. And technology? “This young continent, with a median age of around twenty, is an eager adopter and innovator in all things digital and mobile.” Africa is the next growth market.
The authors believe that companies and investors in every part of the world should take a look at Africa and its place in their long-term growth strategy because Africa is a 1.2-billion-person market in the midst of a historic economic acceleration, it has a huge unfulfilled demand, making it ripe for entrepreneurship and innovation at scale. They compare Africa to China 25 years ago. Would it have made sense for your company to get into China then? Now is the time.
They present five trends that are not without their challenges which they explore in detail:
- A fast-growing, rapidly urbanizing population with rising spending power—but with average incomes still low by Western standards and high levels of economic inequality
- A trillion-dollar opportunity to industrialize Africa, both to meet rising domestic demand and to create a bridgehead in global export markets—provided manufacturers can overcome a myriad of barriers ranging from power outages to trade barriers to productivity challenges
- A big push by governments and the private sector to close Africa’s infrastructure gaps, including those in electricity, transport, and water—although it will be a huge challenge to resolve the massive backlog
- Continued resource abundance in agriculture, mining, and oil and gas, with the prospect of rising innovation and investment in these sectors unlocking new food production, energy, and wealth for Africa—but, just like manufacturers, companies in these sectors must overcome steep barriers to realize that potential
- Rapid adoption of mobile and digital technologies that could leapfrog Africa past many obstacles to growth—provided companies can marshal the investment funding and technical talent needed to overcome historic underdevelopment and achieve scale
Determining a strategy is the real trick. To win in Africa, your strategy needs to factor four key considerations:
Map an Africa Strategy: Africa is huge. It will be important to pinpoint those areas where you can create an ecosystem to thrive in. Part of that ecosystem should include local partners who understand the lay of the land. “You will have to dispense with generalizations, and truly understand the differences in countries’ wealth, growth, and risk profiles.”
Create Innovative Business Models: “To profitable serve African customers in meaningful numbers companies need to build high efficiency and low cost into their business models.” High volumes—low margins—cost-effective—technology driven.
Building Resilience for the Long Term: A long-term view will be necessary to ride out short-term volatility. It will be essential too, to diversify by building a balanced portfolio across countries or sectors. They also recommend integrating up and down your value chain to ensure reliable access to inputs (including what would usually be outsourced). Build relationships with relevant governments to be sure your voice is heard.
Unleash Africa’s Talent: Invest in people. Skill shortages are a major concern for a number of reasons but primarily Africa’s underperformance in education. Subway has found that most applicants “don’t know what it means to have a full-time job and don’t understand the standards we demand here.” Turnover is high. Training for entry-level and frontline employees is essential. Develop programs to grow talent from within and make gender diversity a priority.
Africa’s successful business leaders are driven by a deeper purpose. “They look at Africa’s high levels of poverty; its gaps in infrastructure, education, and health care; and its governance problems, and they don’t just see barriers to business, but human issues they feel responsible for solving.” But then that’s what real leaders do. They have empathy, and they take responsibility. “To be successful, you need to be more than a businessman—you need to be a responsible citizen.”
Importantly, the solutions companies find to succeed in Africa, could also be hugely beneficial in terms of efficient products, services, and business models for the rest of the world.
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Posted by Michael McKinney at 11:50 PM
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