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The contlnent Is home to many QB the worLolS biggest opportunlties. i h e trick is deciding where and how to seize thern, by Mutsa Chironga, Acha Leke, Susan Lund, and Arend van Warnelen
year ago, when South Africa hosted the World Cup of football, a Tswaniailphrase, Ke Nako ("It's Time"), reverberated across the world like the cacophony of a million vuvuzelas, anilouncing that Africa's moment had come. Economists, consultants, and executives al1 suggested that the African economy, which had languished during the last two decades of the 20th ceiltury, was finally stirring. Nevertheless, nlost companies have been slow to enter Africa. Many assumed that the flutter of attention was the reflection of a global boom in commodity prices, and therefore of relevance primarily to oil and mining companies. The recent political turmoil in such countries as Algeria, Egypt, Libya, Morocco, andTunisiaand thecivilwar in Ivory Coast have dramatically reminded executives of the enormous uncertainty that businesses must cope with in Africa. With prodemocracy movements breaking out in some of Africa's fastest-growing economies, multinational companies face a double bind: Some of the most promising countries present the highest risks. That's not all. In Africa the infrastructure is still poor; talent is scarce; and poverty, famine, and disease afflict many nations. Most Western executives, unsure of the size ofAfrica's consumer markets, prefer to invest in Asia's dragon and tiger economies rather than in Africa's economic lions. "1s it truly Africa's time?" they wonder. So often were we asked the question that last year McKinsey & Company decided to analyze Africa's economies and conduct a microlevel study of its consumer markets. Our goal was to identify Africa's sources of growth, determine if it would continue over
May 2o?1 Harvard Business Review 117

and size opportunities in key sectors. In our example.14. which sent inflation rates disasters. telecommunications. reduced trade barthat Iildians spent. because both interna1 and externa1 Egypt struck free-trade agreements with their main export partners. a year. Consider that part of the African story. For severalreasons: Competition isless and manufacturing. can no longer from 2000 through 2008.8 ayear in the 1990s to 2. Over the past mand is strong. which will be a little less than India's trends are propelling its growth. Three factors are responsible. infrastructure-related industries. economies became healthier as govrecession. resource-related businesses. Africa offers a higher return on industries. which on average grew 4. Africa-those in which deaths exceed 1. One.6% decade. countries that export commodities presence there. reaching more than of scale. severa1 governments adopted facing companies are bright. on average-twice the pace of its ignore Africa. population-since 2000.(24%)of GDP growth from 2000 through 40% of its gold ore. the economy had riers.4 trillion worth of goods and cervices iil strong. Companies that enter Africa now. Oil prices These and other steps helped local compasia's $960 billion. African govern118 Harvard B~isiness Review May 2013 . tumbling from 22% to 8%. and Société Genérale 4.nonexporters. 59%and reduced budget deficits from4.) The findings surprised us. Though Africa's growth rate Ecobankand South African Brewenes each ernments shrank budget deficits. Africa's real GDP grew by 4. Morocco and $1. and pent-up consumer de. transportation. than mies at www.7 trillion but more than Rusincreases in commodity prices. and poor policies could slow segment markets. Uni. halted deadly hostilities.inteilse and few foreign companies have a In fact. Africa and Nestlé in 19. nearly 5% in 2010. investment than any other emerging mar. the prospects for consumerThree. privatized more than 116 entergrowth trajectory. and other natural resources. for in Russia. 316 million subscribers-more than the en. achieve greater economies portunities are opening in sectors such less than $20 a barrel.growth. combined foreign debt from 82% of GDP to While political troubles. African countries have cut their touch 5. als. Africa down.S.creating the political stability necessary for roughly equal to Brazil's or Russia's. op. natural gas. Africa's long-term prospects are prises between 1999 and 2006. If Africa maintains its current when oil prices fell. Other deposits of chromium and platinum group to UN data. see Lions on the Move: ket. contributed the rest.8%. By 2009. and prices for minering. and 80% to 90% of its tire U.6 trillion was Nokia and Coca-Cola have distribution net. and al1 along also soared. To exploit them. To be sure. at 5. Africa's collective GDP of $1. After all.7% enues and profits. telecommunications.$145 a barrel in 2008. Africans The GraaWh Ahead spent $860 billion on goods and services Busy executives may wonder whether the market-friendly policies. it bounced back to operate in over 30 African countries. The Progress and Potential ofAfrican Econo. such as Angola and cut across nations and sectors. Standard Chartered Bank in people a year-declined from an average of Asia (excluding Japan) were the only con. such as wholesale and retail metals. the agricultura1value chain.6% of GDP to i. Africa is benefitting from the tablished courts to settle business disputes. it began to slow. Yet that trend explains only minerals. busy planting their stakes in the ground. and strengthened the $821billion of consumer expenditures picked up during the 1970s oil boom. The works in nearly every African country.000 economic regions today. tinents that grew during the recent global in 15. consumers will buy opinion. according to our calculations.grew just a tad faster. The number of serious conflicts in continent is among the fastest-expanding lever has a presence in 20 African nations. Mozambique. (For the full analysis. As Africa's economies progress. wars.4% ayear.THE GLOBE Africanc spent $860 bil on cervices-35% more than Indians cpent. when they were nies invest more. According 2008. natural we believe. and in 2011 it is likely to MTN and Shoprite are in 16 African coun. telecom companies in Africa have added directly accounted for just about a quarter including 10% of the world's oil reserves.6 in the 2000s. and establish brands. Nigeria. and Rwanda es2020. trimmed slowed to 2% in 2009. but regulatory and legal systems. Africa will continue to profit from the as retailing. cut corporate taxes. The surge Smart multinalional companies are eral African countries. projected $1. Natural resources The continent has an abundance of riches. and become more competitive. and other raw materials have rising global demand for oil. while foreign debt.Since 2000. tries each. can shape industry structures. we believe. D time. and brought down inflation. bank. and slightly more than flash in the pan. Companies that desire rev. They privatized in 2008-35% more than the $635 billion African economy's recent growth is just a state-owned enterprises.mckinsey.trade. food. grains.com/mgi. Barclays in 12.have shot up since 1999. Homegrown giants are expanding: Two. sevgrowth in the 1980s and 1990s.2%. In fact.

90% of houseCOMPOUND ANNUAL REAL GDP holds there have some discretionary inCategorizing the Opportunities GROWTW. capital goods imports acthan India's.- Readyingfor TakeoR - Africa's growth accelerated rapidly after 2 0 0 0 and continued even during the global recession. and retailing. In 1980. outin these countries over the past decade. and Tunisia-have well-developed manufacturing and serhouseholds earned $io. and miusually resulting in a doubling of per capita grating to the metropolitan centers.4 billion deal to pick up each with its own policies and attitudes toward multinational companies. appliances. They have relatively high addition.4% The population is young.") This frametence farmers. Another 27 million Morocco. telecom. which has stores in 13 its own languages.000. as well as a 51% stake in one of South Africa's largest retailers. have aclion. other African countries. That boosts per Long-term growth will get a boost from capita income. Exports are the means by which emerging economies earn hard currency 28% of Africans lived iil cities. decade. ments are forging new types of partnerdiversification and level of exports. In vice industries.19805. That makes them ideal places for Corporations must start developing their strategies by recognizing that Africa isn't consumer-facing businesses to anchor their operations. Workers in cities earn higher count for roughly half of investment. these economies have higher which countries to enter and tailor their enlabor costs than China or India and struggle try strategies to specificsectors. branded products. the continent has been the counted for more than 70% of GDP growth fastest-growing consumer markets of this world's third-fastest growing region. improve education to create a skilled and diversified rislts. Africa's them to buy houses. Successful companies use filters to decide However.OOO-thelevel growth than most of the other economies. African countries Many people picture Africans as subsisfa11into fourbroad clusters. ufacturing and services as a share of GDP 2. It's home to 50-plus nations. which should make Africa one of the Since 2000. lion African households had incomes above $20. Services. while the share of manufac4. (See the exhibit "Four Types of Economies.ooo to $20. to buy products and cervices beyond the necessities of food and shelter. and share share of GDP. and build infrastructure. DEVELOPE workforce. As ANNUAL GDB GRQWTH RATE economies develop. agriculture and natural ships in which buyers from countries such US$ BILLIONS as China and India provide up-front payresources account for a smaller and smaller meilts. such By 2020 the total number of households in al1 three segments will reach 128 milas banking. to the fore in North Africa. MCKINSEY GLOBAL INSTITUTE nized them according to their economic May 2011 Harvard Business Review -119 . growing.000 a year-a level that enabled The diversified economies. Economicts usually group countries by COUNTRIE The oil exporters. In most do-a proportion close to China's and larger African countries. cars. today 40% to pay for imports of capital goods. which leads to a virtuous which together provide a snapshot of how cycle of growth and job creation. with a 15% increase in manAfrica's demographic and social trends. at which families start spending more despite the political risks that have come than half their income on nonfood items. Africa's oil and gas income level or geography. Massmart. reone economy. 16 milwhich markets to enter and how. and traditions. but there's a sizable middle work can guide executives as they assess class on the continent.2% management skills and technology. developed markets are. and four most advanced economies-Egypt. Walmart. cently struck a $2. invest in infrastructure. pands demand. They focus to compete even in low-value manufacturtheir efforts on key markets. est consumer markets. makpay than those in rural areas and can afford ing exports a critica1enabler of growth. but we orgaSOURCES INTERNATIONAL MONETARY FUND. These countries are also Africa's largpacing Eastern Europe and Latin America. for example. NOTE GROVVTH RATES FOR THE 1970S. turing and services grows. That exClassified by these two pararneters.000 to $IO. exporters have the continent's highest per GLOBAL INSIGHT. income. currency. They need to expand exthink broadly benefit from greater scale ports. 2000-2010 come. 41 million households reported per capita incomes and more stable GDP incomes of $5. AND 1990s ARE COMPOUND ANNUAL RATES. By 2008. South Africa. but those that WORL ing industries.

strong public instihave accounted for 37%. In Ghana and Uganda. Organic growth is also possible in industries where disruptive technologies create new products and cervices. But some of maintaining political stability. and nonfood consumer goods by instance. Angola. retail banking is are likely to increase their commodity exexpected to grow by 6. make t h e m vulnerable if commodity Ethiopia. as well as foreign banks like Standard Chartered and Barclays. M-Pesa. its own? Should it build a presence by acquiring small local players? Should it take a stake in a Pan-African player? The answer will depend on the industry. to continue. some have grown their footprints by buying up local banks. Uganda. tax revenues.have already spent decades establishing operations in many countries. we have found four other elements tries increasingly export manufactured critica1 to success in Africa. Multinational companies must increased from practically zero in 2000 track these economies. telecom. In relatively well developed sectors such as retail banking and telecom. early entrants will find less competitracted the world's petroleum majors and tion here.work. it's probably too late to deploy only an organic strategy using traditional business models. high-endgoods and services.Still.5 million customers in just two years' time. with annual per capita challenges as many resource-rich nations: GDP of just $353 on average. once etration of banking. Pick the right entrystrategy. but al1of thern lack the basics.industries in which it would like to have versified economies. and banking assets can handle the risks should enter them. The number of tutions. telecommunication services by 5. but that offers attrac. 7% ayear since 2000. plans accordingly. Consumer preferences vary enormously across Africa. It demands innovaThough their agriculture and resource sec. for instance. opening 71 stores in other Afi-icannations. Because of their income levels. Africa's Four Keys t o SUCCBQS transition economies-such as Ghana. these coun. The three largtemptation to overinvest.THE GLOBE capita incomes but are the least diversified Companies targeting these markets economies. Organic growth strategies are possible in sectors such as retailing. Several transition economies In Angola. but $20 Harvard Business Review May 2011 . services as stable governments. and Mali-have grown. such as Ecobank and Standard Bank. so companies must invest in market intelligence. grew fivefold. Three of the largest-Algeria. and that allows global players to move in. and it has since been launched in Tanzania and South Africa as well. such country's GDP growth since 2000. for a year. resisting the them are expanding rapidly. African banks. and sustainable agricultura1develtelecommunications subscribers there opment. but only those that to 63 million by 2008. Winning in Africa requires executives to Kenya. the Spanish retailer. In our GDP and two-thirds of exports. which could tur2020.4%a year. That's what China's ICBC did. Formal retailing is limited in most African countries. Another is to buy a stake in a big African company. One option is to knit together a Pan-African operation by acq~iiring regional players. the winners are often companies that tors together account for as much as 35% of tackle complex challenges creatively. and Nigeria-have already at.tion. must tailor products to poorer customers. M-Pesa captured 6. Tke transition economies. Nigeria has already begun the growth has been erratic in the past. and the rapid growth is expected have rapidly growing consumer markets. While These pretransition economies differ resources have accounted for 35% of the greatly.8% a year through ports in the corning years. recent oil discoveries will boost 4. Launched in Kenya in 2007. The pena. New entrants will increasingly have to use M&Aas an entry strategy. has opened 12 stores across North Africa in the past five years.2% bocharge growth. More recently. and Senegal-have lower understand the business environment in per capita incomes than the countries in each country they enter and to tailor their the first two groups but are growing rapidly. making it easier for them to the oil exporters are attractive markets for diversify their economies. transition to a diversified economy. on averprices decline. Get-and get to-clastomers. The pretransition economies. which enables customers to deposit and withdraw money from a network of agents. and creating a diversified age. purchasing 20% of Standard Bank in 2008. Shoprite had just one store outside its home country of South Africa in 1995 but has since become the continent's largest food retailer. The alliance gave ICBC immediate access to the 17 African countries in which Standard Bank operates and enabled it to finance the activities of Chinese companies al1 over Africa. However. 2. Zara. it must choose an approach. and modern a company has identified the countries and retailing is much lower than it is in the di. Consider Safaricom's mobile-phone-based money-transfer service. goods to other African countries. their economy. which would est-the Democratic Republic of the Congo. These Africa's oil exporters face the same economies are poor.a presence. Brand-conscious consumers will cave up to buy premium items.

3. P&G appointed exclusive distributors for seven geographic areas and hired employees to support each one. One multinational company has reinforced its middle management iil Nigeria with expatriate managers from other emergingmarkets. who have the skills and experience needed to deal with the Nigerian environment. Reaching customers is arguably as tough as understanding their needs. Each year 200. which ensures strategic locations for its stores as well as anchor tenants for its malls.800 at al1 levels in Africa need training. too.000-plus towers in Ni. What's missing is a cadre of midlevel managers-a shortage that reflects the weaknesses in Africa's secondary and tertiary education systems. Fill the ckiils gap. But al1find they need more people to manage distributors in Africa than they do elsewhere.000 A YEAR 59 85 NOTE ANNUAL INCOME FIGURES IN US$ PPP 2005. The besteducated attend top universities. . suchas India. In Nigeria. Insisting on global rotations. PERCENTAGE OF HOUSEHOLDS IN EACH lNCOME BRACKET 2000 2008 196 2020 163 244 148 MlLLlONS OF HOUSEHOLDS MlLLlONS OF HOUSEHOLDS WlTH INCOME >$5. MTN to increase the number of engineers and has acquired 31 million subscribers and scientists graduating every year and funds built a $4. others over half a dozen. often overseas. to ensure that it has continuous ter markets. Coke has Setting up extensive training progranis. there's also little difference between Africans and workers from other developing economies. Developinginnovative.company in Angola has created a program tors into each of its 5. One study found that factory workers in Kenya are as productive as those in China and India.000. Successful organizations create clear expectations about talent development. Shoprite is taking a similar tack as it expands across the continent. For can leverage them to obtain permits to enexample.5 billion business in the country. companies solutions from service providers. its profit margins its first class. Africa's infrastructure is poor. Africa's largest cellular to land and other resources. Particularly in the early years. It comprises 2. than through stores and malls. SOURCE CANRACK GLOBAL INCOME DISTRIBUTION DATABASE. has built genera. A major oil services operator. Some foreign companies have a single national distributor. and educating consumers-is essential. such as vendors and family-run businesses. Such programs may also help them win unpaved roads.By 2020. By providing better service. It uses a fleet of trucks to feed them cialists. which it doesn't do in any other country. P&Gspent io years building its Nigerian network. Some small businesses that use bicycles and invest in the local education system to demanual pushcarts to deliver products over velop people with the skills they require. more t h a n half of Africa's 244 rnillion houseliolds will have annual inconies of more than $5. Companies must find innovative ways to work with them. and monitor progress. Usiilg imaginative strategies-selling products in small quantities. hire purchase. offering credit. cuggesting t h a t they will enjoy diccretionary spending power. MTN. For example. multinational companies use severa1strategies: Bringiiig in midlevel expatriates. drawup targets. Nokia focuses on phone models priced from $20 to $50 and adjusts profit targets to reflect the lower prices instead of adopting a global benchmark. a law program in oil and gas that produced Despite the added costs. but the overall production costs iil Kenya are higher because of poor regulation and infrastructure-problems that are likely to go away. Companies can overcome these challenges only by being flexible. Multinationals can hasten the expansion of formal retailing channels by co- investing in mall development or selling through multibrand stores. infrastructure gaps demand creative support from governments. of 28 graduates. High-skilled corporations rotate senior executives workers in Africa are similar to those in and emerging leaders recruited in Africa May 2012 Harvard Business Review other emerging economies.000 students from sub-Saharan Africa study abroad. foreign companies import managers to start operations and groom local talent. Other in Nigeria are routinely above 50%. One successful European retailer has become a mall developer in Africa. At the other end of the spectrum.to train 14-to 16-year-oldsas upstream spegeria. and more sales occur through informal channels. or gain access electrical power. and layaway plans. get tax credits. It also works with a local university diesel. low-priced consumer products and services is often critical. In many African countries informal retail channels account for more than 80% of retail sales. created a network of micro distribution centers to reach informal retailers in both Multinationalsusually find that employees rural and urban areas. To fill the gaps as their operations grow. You must be patient-building a logistics network in Africa talces time. in 2008. MCKINSEY GLOBAL INSTITUTE most people have low incomes and lack access to credit.

does doing business in Africa. Smart com. A case in point is the financia1 cervices firm Old Mutual. but it will be worthwhile.ral population is moving to the cities.4 billion in 2000 to cracies and foster relationships with official $46. They fall into four main categories: oil exporters. which maintains a constant fiow of talent between its offices in Africa and those overseas. and capture market share before everyone who's indifferent but can be turned into a wakes up to the buzz around the Bright HBR Reprint R1105J supporter. China embodies some political risk. Mobile Telecommunications Company.ORG a X ! A MANUFACTURINGAND SERVICE SECTORS'SHARE OF GDP. The other is adverse actions by governments. Mutsa Chironga is a consultant in Putting key stakeholders on their Johannesburg. Diversifying across geographic markets mitigates these risks. and starting litical landscape and learn of changes long to enjoy discretionary spending. transition economies.YNE GLOBE biBR. compa722 Harvard Business Review May 2013 nies can create coalitions of stakeholders It gives the locals a stake in the company's that help them detect potential problems success. A large rudo this in three ways: Building partnerships. six years ago. MCKINSEY GLOBAL INSTITUTE through positions abroad so that they can bring home an array of skills to share. as their widely varying levels of exports and economic diversification reveal.4 billion in 2009. WORLD BANK WORLD DEVELOPMENT INDICATORS. DC. 2008 ("/o) Africa's 50-plus nations are at different stages of development. say. Buying talent. such as reneging on contracts or passing legislation that hampers operations-which some resource companies have experiencedin West Africa. Manage risks. they adopt. Entry strategies that rely on M&A have one key advantage: the talent that comes with acquisitions. Such partners can is growing. Just as investing in and unofficial powers. who among the top tunity to forge strong local partnerships 50 influencers are their strong supporters. Demand before they hit the news. Continent. Inviting key public and private in Lagos. so too Wooing the influentials. Abrupt changes in import tariffs and quotas can also affect operations. 4. They take the Above all.ing jobs with higher incomes. then Africa's leading mobile player. Companies can i~ nnMv ways Africa holds the same potentia1 that China did 20 years ago. first movers will have the opportime to figure out.has soared: from $9. for example. landpeople and politicians usually know the po. . Acha Leke is a senior partner boards. based in Washington. and foreign direct investineilt help foreign companies navigate bureau. GDP PER CAPFA SlZE OF BUBBLE PROPORTIONAL TO GDP <$5oo COURCES ORGANISATION FOR ECONOMIC CO-OPERAnON ANO DEVELOPMENT. early so that they can head them off or draw up contingency plans. Political instability is one of the two biggest risks foreign companies face on the continent. B They actively cultivate the first two groups. and pretransition economies. Companies panies identify key influencers. and mayors. and Arend van Wamelen is a partner in Johannesburg at McKinsey & Company. such as must think carefully about the approaches congressional representatives. diversified economies. inherited a slew of senior and midlevel executives when it bought Celtel. Susan sector stakeholders to join a country board Lund is a research director of the McKinsey Global aligns their incentives with the company's. Local business. regulators. In addition. Institute. in each country. as the world is witnessing in North Afnca. and who'll never support them.

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