Africa’s Economy is on the Rise

Seven of the world’s ten fastest growing economies are in Africa. North Africa expects a four to seven percent GDP growth by 2020, while Sub-Saharan Africa expects a six to seven percent growth. Experts project a population boom so large that by 2100, 40 percent of the world’s population will be African. The middle class is expected to triple from 150 million people in 2010 to 490 million in 2040. Africa’s workforce is projected to be 1 billion by 2040, the largest in the world.  Nigeria overtook South Africa as the continent’s biggest economy last year, but South Africa remains the region’s richest, while Morocco is positioning itself to be the business “gateway” for the continent.

While Africa has great potential for growth with increased urbanization and rising incomes, challenges still arise for this emerging nation.

Automobiles:

Africa currently has some of the lowest rates of car ownership – Kenya has just 9 cars for every 1,000 people, Nigeria has 13, Cote d’Ivoire 16, Zimbabwe 45, and South Africa 103.

However, recent investment by automakers shows confidence in the market.

• VOLKSWAGEN AG resumed assembling vehicles in Nigeria for the first time in 25 years in a bid to foster sales growth in Africa.
• Peugeot Citroen plans to build assembly plant in Morocco.

Clothing Manufacturing:

Africa is also now seen as the final frontier in global clothing manufacturing.  Low cost labor is one factor but more importantly, African countries can grow their own cotton, which shortens production time- you can go from field to factory all in one place. Ethiopia was recently identified as a top sourcing destination by apparel companies, according to McKinsey & Co.—the first time an African country was mentioned alongside dominant Asian players.  Several clothing giants are starting to source in Africa with more in the works. While it will be many years before Africa can challenge China and other Southeast Asian leaders in this industry, Africa’s prospects look promising.

Ports:

Maersk, owner of world’s largest container liner in Nigerian and Kenyan ports, also has a hand in Africa’s expansion.  Maersk expects a 10 percent growth East African region this year, supported by strong economic growth, increased political stability, a growing middle class and improved efficiency at major ports as Kenya and Tanzania have been increasing investment in their harbors.

Kenya’s economy is expected to grow by 6.9 percent this year and Tanzania’s 7.2 percent, according to the International Monetary Fund.

This growth does not come without its challenges. Growing economies and consumer demands drive the need for port expansion yet, African ports are finding themselves without the land necessary to make such expansion possible.  Increased urbanization has limited the land available around ports, which are now using dredged material and reclaiming land to expand container terminal capacity. This expensive solution highlights the need for Africa to maximize its port and landside capacity to be able to keep up with demand and help support growing trade.

Other challenges still hamper Africa’s potential. Many African countries lack transportation infrastructure to truly leverage these and other opportunities. Workforce is also a challenge. Education and training gaps exists as Africa’s growing economy is not readily adjusting and matching education to jobs and industry needs. Programs to identify these gaps are in development, but are still too few to match growth needs.

Lack of electricity is also a barrier to growth. Weak power grids and unreliable and inconsistent electricity is stunting industries at crucial times, with power outages often stopping production for hours. Nigeria, Africa’s biggest economy last year, is so challenged by its inability to produce enough power that the country mostly runs on private generators.

Power shortages present an opportunity for investment for many countries and private companies, but it may be many years before these investment will yield results.