Reimagining economic growth in Africa

Technical appendix

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Authors
Mayowa Kuyoro
Acha Leke
Olivia White
Jonathan Woetzel
Kartik Jayaram
Kendyll Hicks

Editor
Stephanie Strom

June 2023
 This technical appendix provides a detailed explanation of the data
sources and methodologies used in making the estimates and
analyses in this report, as well as explanations of their sensitivities
and constraints.

Country clusters
For our analysis of country clusters, we relied on data from the World Bank that lists 54 countries
in Africa. Our analysis examined the period from 2000 to 2019, and we excluded five countries—
Djibouti, Eritrea, Sao Tome and Principe, Somalia, and South Sudan—due to a lack of data for
them over that period or parts of that period.
We analyzed real GDP growth for the remaining 49 countries over the period and identified the
following categories:
— Thirteen “consistent growers”: These economies achieved growth exceeding 4.2 percent a
year on average from 2000 to 2010 and from 2010 to 2019. They were home to 36 percent of
Africa’s population and contributed 19 percent of its gross GDP in 2019.
— Eight “recent accelerators”: These economies outpaced the continent’s overall growth from
2010 to 2019, although they experienced slower-than-average growth from 2000 to 2010.
They were home to 10 percent of Africa’s population and contributed 8 percent of its gross
GDP in 2019.
— Thirteen “recent slowdowns”: These economies had slower growth than the continent’s
average from 2010 to 2019, after a period of faster-than-average growth from 2000 to 2010.
They were home to 40 percent of Africa’s population and contributed 45 percent of its gross
GDP in 2019.
— Fifteen “slow growers”: These economies grew more slowly than Africa’s average from 2000
to 2019. They were home to 15 percent of the African population and contributed 29 percent
of its gross GDP in 2019.
For several economic indicators, such as trade volume and value, reliable data for some
countries was not available over the period we reviewed. Where this occurred, we used the
longest available time series of reliable data and stated the time frame in the report. We used
a simple average of indicators across countries to avoid overriding the growth experienced by
smaller economies.

Productivity and sectors

MGI Africa Productivity Model (country- and sector-level productivity analyses for Africa)
Throughout the report, we analyzed the economic performance of 44 African countries using
their nominal GDP, real GDP, employment, and productivity from 2000 to 2019. This enabled
us to establish the four clusters described in the previous section—consistent growers, recent
accelerators, recent slowdowns, and slow growers—and examine progress over time for each
country, sector, and country-sector intersection.1

1
Six of the 49 countries in the four clusters—Comoros, Eswatini, Liberia, Libya, Seychelles, and Zimbabwe—are not included
in our analyses of productivity due to a lack of data. Djibouti is included in the productivity analyses but is not among the
countries in the four clusters.

2 McKinsey Global Institute | Reimagining economic growth in Africa: Turning diversity into opportunity
The MGI Africa Productivity Model (2022) served as the source for these analyses. This
asset consolidates data from multiple sources to produce comparative estimates on
productivity, as measured by gross value added (GVA) divided by employment, by sector for
44 African countries.
For country-level values, we used real and nominal GVA in local currency units taken from the
World Bank’s World Development Indicators database. We used modeled estimates of the total
employment for each country from the International Labour Organization (ILO).
To determine the distribution of GVA by economic activity, we combined two sources.
First, we used Groningen Growth and Development Centre (GGDC) figures for the 21 African
countries for which there is data. This source ensures consistency across the 21 countries for
both GVA and employment from 2000 to 2019.
To expand the database to cover more African countries, we relied on two additional data
sets for GVA and employment. For GVA, we compiled a comparable data set using the African
statistical yearbook data for GVA, as well as real GVA by sector for an additional 30 African
countries dating to 2000. We reclassified it to align to GGDC’s sectoral split and ensure internal
consistency across the time series, given that the data was extracted from the 2019, 2011, and
2005 versions of the African statistical yearbook. Whenever possible, missing values for 2000 to
2010 were estimated using linear shares when data was available. For employment, we used ILO
modeled estimates for the sectoral breakdown of employment for each country. This data was
also reclassified to align with GGDC’s categories. Sector GVA and sector employment data was
recalculated into shares and then multiplied by the topline numbers from the World Bank for GVA
and from the ILO for employment. All data in local currency units was converted using average
annual exchange rates from IHS Markit.
Country- and sector-level productivity analyses for the rest of the world
For world comparisons, most commonly China, India, and other emerging markets, the MGI
Productivity Analytics Database was used. This is a bespoke data set combining globally
comparable industry GVA by sector from IHS Markit with the best-in-class data set on
international employment by industry from the ILO to produce a single comparable source for
productivity-by-sector statistics for more than 30 sectors in 70 countries representing more
than 90 percent of global GDP.
Sector value-added projections to 2030
For the services, manufacturing, and agricultural sectors, we modeled 2030 value added across
scenarios using peer benchmarks. Services and agricultural value added were estimated by
multiplying projected sectoral employment in 2030 by potential 2030 productivity levels. Total
employment in 2030 was projected by scaling current employment in line with United Nations
population projections, assuming a constant employment rate. We assumed that distribution of
employment across sectors would trend according to the average year-over-year percentage-
point change from 2000 to 2019. For example, the share of employment in agriculture declined
by 0.5 percent annually on average from 2000 to 2019, and we extrapolated that trend to
estimate the share of employment in agriculture in 2030.
We used the productivity growth rates of China and India, respectively, as benchmarks for
services and agricultural productivity growth. China’s 2010–19 services productivity growth rate
of 5.1 percent was applied to Africa’s current services productivity, $7,203 per worker. India’s
1980–90 agricultural productivity growth rate of 2.8 percent was applied to Africa’s current
agricultural productivity, $1,572 per worker.

McKinsey Global Institute | Reimagining economic growth in Africa: Turning diversity into opportunity 3
 Manufacturing value added was estimated using a different approach. We segmented
manufacturing output in two categories: output for domestic consumption and output
for exports.
Output for domestic consumption was scaled by assuming Africa could match India’s
domestically produced share of goods consumed (82 percent in India, compared with 71 percent
in Africa). This 82 percent was multiplied by IHS Markit’s 2030 estimates for apparent
consumption to understand the first category of manufacturing output. Exports were estimated
assuming that Africa can achieve its “fair share” of global exports. Africa’s manufacturing
value added accounts for 2 percent of the global total, so we assumed African exports in 2030
will account for 2 percent of total global exports. Total country manufacturing imports were
aggregated globally and scaled by IHS Markit apparent consumption growth rates for countries
to understand total global exports. Total global exports were then multiplied by 2 percent to
understand Africa’s potential exports in 2030.
The output estimates for both categories—domestic consumption and exports—were then
combined, and a 2019–30 compound annual growth rate was calculated based on 2019 output
and estimated total output in 2030. Lastly, this CAGR was applied to 2019 manufacturing
value added, assuming that the value-added growth rate would be analogous to that of
manufacturing output.

Cities
City population projections to 2040
Population projections for 28 of the African cities (excluding Lubumbashi, Mbuji-Mayi, and
Mogadishu) in Exhibit 11 in the report were sourced from Oxford Economics. Their methodology is
as follows:
For African countries, the main source of population projection is the 2022 Revision of
world population prospects, a United Nations publication. Its national-level projections were
used for population, population by age, births, deaths, and migration. Oxford Economics
macroeconomists tweaked the migration assumptions, given that migration is heavily dependent
on global economic conditions, so in some cases projections differed from the UN’s projections
to account for this.
The basis of population forecasting at a city level was a natural change and net migration model.
Birth rate and death rate were projected in a city relative to national rates, using census or
historical estimates of population by age as a starting point. Then we modeled performance
of a city to the wider country. In this way, the natural change dynamics of the current resident
population were captured, while accounting for future inward and outward migration to and from
a city.
For Lubumbashi, Mbuji-Mayi, and Mogadishu, 2040 population estimates were calculated by
extrapolating the UN 2022 Revision of World Population Prospects’ 2035 projection to 2040 (by
applying each city’s 2030–35 growth rate).

Companies
MGI African Companies Database
For the 2016 report Lions on the move II: Realizing the potential of Africa’s economies, MGI built
a comprehensive database of large companies operating in Africa that we believe was the first
of its kind. For this report, we updated that database and included major offices of multinational
companies and companies that have formed since.

4 McKinsey Global Institute | Reimagining economic growth in Africa: Turning diversity into opportunity
The update was conducted by identifying net new companies active on the continent,
searching for information on their revenues, profitability, age, regional footprint, sector of
operations, and so on, and searching for historical data where available. The main source for
the information was an external data provider, Asoko Insight. We verified and complemented it
using a number of different sources, including web searches for company financial statements,
press releases, journal articles, and other databases, including the MGI CompanyScope tool,
Capital IQ, D&B Hoovers, Bloomberg, the Fortune 500 list, Jeune Afrique’s Top 500 African
Companies annual report, KPMG, the Nairobi Securities Exchange, The Africa Report, African
Business magazine, ONESOURCE, and interviews with colleagues and experts across the
continent. We narrowed the list down to companies with revenues of $1 billion or more and
focused on verifying data for this smaller set of 345 companies. We compiled the following
information: the companies operating within Africa; the region where they are located, such
as Northern Africa or Southern Africa; the sector they operate in; their most recent revenues
(for 2021 or the most recent year available, converted to US dollars); whether they are public,
private, or state-owned enterprises; and whether they are homegrown or foreign. We also
examined whether these companies are subsidiaries in the country where they operate or a
parent company; identified the country of origin in the case of foreign corporations; found
historical revenue data from 2015 to 2021 in both local currency and US dollars, as well as
earnings before interest and taxation; earnings before interest, taxation, depreciation and
amortization; net profit margin; and net operating profit less adjusted taxes as a percentage
of revenue.
We attempted to find more than one source on company revenue when available to verify our
data. Data sources for revenue included annual reports and statements, Bloomberg, Capital
IQ, MGI CompanyScope, company websites, the McKinsey Corporate Performance Analytics
tool, press releases, EVS, D&B Hoovers, Ethiopialist, Jeune Afrique, Kerix, KPMG, the Nairobi
Securities Exchange, ONESOURCE, Orbis, and Reuters, among others. In a few cases, we made
our own estimates of company revenues based on, for instance, oil price data (when volumes
produced were known but revenue figures were not published); public information about installed
capacity; and other publicly available information. However, estimates of revenue growth were
analyzed only for those companies for which exact revenues were known.
Typically, we determined the country where a company operated based on headquarters (if the
company was headquartered in Africa) or the country where its income was earned. However,
in cases where a company was not headquartered in Africa and had operations across multiple
African countries, the company was not mapped to any one country. If a company had clear
subsidiaries in specific countries, those subsidiaries were listed as separate companies in those
countries. We split revenue to ensure that summing the total revenue of all 345 companies did
not lead to double counting.
We allocated all companies to a sector, typically the sector in which the company earned the
largest share of its income. When companies operated across multiple sectors, which was the
case for large conglomerates, companies were labeled “conglomerate.”
Company revenue projection to 2030
The potential for companies to deliver $550 billion in additional revenue by 2030
was assessed across seven sectors: oil and gas, retail, telecommunications, banking,
manufacturing, consumer packaged goods, and insurance. In each sector, current country-
level revenue was scaled up by assuming each country achieved top quartile in the region in a
benchmark metric that differed across sectors. For example, telecommunications revenues in
each country were scaled up by assuming that each country achieved top quartile-in-region
voice and data penetration, as well as telecom enterprise revenue share of country GDP.

McKinsey Global Institute | Reimagining economic growth in Africa: Turning diversity into opportunity 5
 Benchmark metrics across other industries were reserves-to-production for oil and gas; retail
spending as a share of household income; consumer packaged goods spending as a share
of household income; banking penetration (retail and small and medium-size enterprises);
corporate transactions as a percentage of revenues for banking; and gross written premiums
as a percentage of GDP.
Mining and manufacturing were estimated differently. Mining revenue potential was assessed
by McKinsey MineSpans and was modeled based on global demand for commodities, taking
into consideration increased use by industry sectors, for example, car production, and changes
in the intensities of consumption. For manufacturing, country revenues were scaled directly
to 2030 by applying top quartile-in-region value-added CAGRs. Finally, all sectors were scaled
to 2030 (except for manufacturing, which was already sized in 2030 terms) to account for
overall economic growth by (1) the share each sector’s updated revenue potential represented
as part of overall African GDP in 2021, and (2) assuming that share is equal to each sector’s
share of GDP in 2030, using Oxford Economics GDP projection as an estimate of Africa’s GDP
in 2030.

6 McKinsey Global Institute | Reimagining economic growth in Africa: Turning diversity into opportunity