Africa’s broadening horizons
As companies go through their strategic planning processes, African cities should be a priority
Sub-Saharan Africa’s potential for economic growth is no longer a secret.
Some estimates show Africa having as many middle class households as China by 2020.
The region is expected to set the pace for global growth over the next five years, with economic expansion averaging 6 per cent per year. China increased Africa investment by almost 60 per cent last year, while India pledged to expand trade volume to $90bn (£56bn) by 2015.
Much of this investment will be concentrated in fast-growing sub-Saharan African markets like Angola, Kenya and Nigeria. Multinational corporations are increasingly concentrating resources on these types of markets to make up for economic volatility in Europe and political uncertainty in the Middle East and North Africa.
In a survey conducted last year, 42 per cent of senior executives focused on Europe, the Middle East and Africa (Emea) revealed that they are planning to set up a direct presence in at least one sub-Saharan African country in 2012. More than one-fifth of polled executives said they plan to establish an African managing director role within two years to oversee regional operations.
Multinationals intend to capture average profit margins greater than 10 per cent and returns on capital 60-70 per cent greater than in high-growth markets like China, India and Indonesia.
If multinationals want to capitalise on all that Africa has to offer, then a fundamental shift must take place in the way that companies prioritise markets for resource allocation decisions. Africa is far too big and complex to look at as one market, or even as a portfolio of countries. Companies must look at the African opportunity as a portfolio of cities, targeting the urban areas that offer the best opportunities for their business.
Making the case
Because of poor infrastructure and limited potential for distribution, leading companies focus on the big cities where their customers are concentrated. Africa houses 52 cities with more than 1m inhabitants, which are expected to grow by an average of 32 per cent through 2020.
By 2025, Africa is projected to have 73 cities of 1.5m inhabitants, and a further 84 cities of up to 1m inhabitants. Cities like Dar es Salaam, Kinshasa, Lagos, Luanda and Nairobi will lead the way with rapidly expanding populations for decades. The continent is projected to be 50 per cent urbanised by 2030 and 60 per cent urbanised by 2050.
By prioritising key urban markets, companies will be able to focus sales resources more efficiently to capture growing opportunities for consumers.
Other companies will be able to respond to rapid urbanisation by partnering with governments to face the follow-on challenges of infrastructure and housing shortages.