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Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
Understanding africa's growth & opportunities
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Understanding africa's growth & opportunities

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  • 1. Understanding Africa’s growth acceleration and business opportunities March 2011 CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited McKinsey Global Institute Discussion Document
  • 2. McKinsey & Company 1 JOH-ZZJ205-20100325-CS-P1 | Some facts that surprised us Consumption grew more in Africa than in India or Brazil over the last decade Africa has as many cities with 1 million people or more as Europe Africa today is more urbanised than India, and just below China African returns to FDI were the highest in the world by 2007 Productivity growth was widespread and jumped to 2.7% p.a. across the continent
  • 3. McKinsey & Company 2 JOH-ZZJ205-20100325-CS-P1 | Africa’s growth prospects
  • 4. McKinsey & Company 3 JOH-ZZJ205-20100325-CS-P1 |SOURCE: International Monetary Fund; Global Insight, McKinsey Global Institute Africa’s economic growth accelerated after 2000, making it the world’s third-fastest growing region African annual GDP, 2010 $ billion Compound annual growth rate, % 839694 461 2.4 1.9 4.2 2000 1,067 199019801970 Compound annual real GDP growth, 2000–10 %, 1.5 World 2.6 Latin America 3.1 Central and Eastern Europe 4.3 Developed economies Africa 4.7 Middle East 4.7 Emerging Asia 7.21 654 1 580 1 549 1 483 1 400 1 323 1 258 1 191 1 144 1 108 5.5 4.9 2010e090807 5.6 060504030201 3.6 3.3
  • 5. McKinsey & Company 4 JOH-ZZJ205-20100325-CS-P1 | Despite a steep fall in real GDP growth, Africa was one of only three regions to grow in 2009 SOURCE: Global Insight; McKinsey Global Institute analysis -3.3 -2.5 -2.2 -0.2 1.5 5.55.6 Developed markets Latin AmericaWorldMiddle EastAfricaEast Asia- Pacific1 South Asia1 2009 real GDP growth %, constant exchange rates 1 Only developing and emerging countries
  • 6. McKinsey & Company 5 JOH-ZZJ205-20100325-CS-P1 | Compound annual growth rate, % Sector share of change in real GDP, 2002–07 Percent, 100% = $235 billion1 Africa’s growth was widespread across sectors … SOURCE: Global Insight; Arab Monetary Fund; African Development Bank; McKinsey Global Institute 6 2 2 5 5 6 6 9 10 12 13 24 Other services2 Utilities Tourism Real estate, business service Construction Public administration Financial intermediation Manufacturing Transport, telecommunications Agriculture Wholesale and retail Resources 1 In 2005 dollars. Includes 15 countries that account for 80 percent of Africa’s GDP: Algeria, Angola, Cameroon, Egypt, Ethiopia, Kenya, Libya, Morocco, Nigeria, Senegal, South Africa, Sudan, Tanzania, Tunisia, Zimbabwe 2 Education, Health, Social Services, Household Services 7.1 6.8 5.5 7.8 4.6 9.0 3.9 7.5 5.9 8.7 7.3 6.9 Sectors with higher growth than resources
  • 7. McKinsey & Company 6 JOH-ZZJ205-20100325-CS-P1 | … and countries SOURCE: WDI Kenya 4.4 1.9 Tunisia 4.9 4.7 Sudan 7.5 5.8 Angola 13.1 0.8 Morocco 5.1 4.4 -0.1 Egypt 4.8 4.3 Algeria 4.1 1.7 Nigeria 6.1 2.8 South Africa 4.1 1.8 2.4 Libya 2000-081990s 5.3 0.7 Gabon 2.2 1.7 Uganda 7.5 6.8 Ghana 5.5 4.3 Eq Guinea 20.9 Senegal Tanzania 6.8 2.9 Cameroon 3.6 1.4 Cote d Ivoire 0.6 2.3 Ethiopia 8.2 2.8 4.1 3.1 Zambia 19.7 9.1 2.3 Namibia 4.8 4.2 Mauritius 4.3 5.3 Mali 5.6 4.0 Madag- ascar 3.7 B Faso Mozam- bique 8.1 5.5 Congo 3.9 1.4 DRC 4.9 -5.6 Botswana 4.0 6.2 5.5 5.3 Chad 1.7 Africa top 10 – 79% of GDP Africa 11-20 – 12% of GDP Africa 21-30 – 6% of GDP Accelerators Average annual real GDP growth, % 1 These economies represent 97% of Africa’s GDP
  • 8. McKinsey & Company 7 JOH-ZZJ205-20100325-CS-P1 | Africa’s growth acceleration has been driven by the commodity boom, greater stability, economic reforms, and healthy urbanisation ▪ Resources account for 32% of Africa’s growth since 2000, 24% through the direct effect on resources GDP, and 8% through multipliers on government spending ▪ Governments reduced inflation from 22% (1990s) to 8% (2000s) and foreign debt from 82% to 59%. ▪ Serious conflicts1 fell from 4.8 to 2.6 per annum ▪ Widespread business-friendly reforms, including in Nigeria (telecomm, banking); South Africa (tax); and Egypt (liberalisation) ▪ 11 ‘Reforming’ countries accelerated growth by 3% vs. 1% for ‘non-reformers’ ▪ African cities’ population grew by 90m since 2000 ▪ ‘Healthy’ urbanisation is associated with productivity growth across Africa, and accounts for 30-50% of the productivity growth in Tanzania, Kenya and Morocco The commodity boom 1 Macro and political stability 2 Economic reforms 3 ‘Healthy’ Urbanisation 4 1 Conflicts with more than 1,000 deaths per annum SOURCE: Team analysis
  • 9. McKinsey & Company 8 JOH-ZZJ205-20100325-CS-P1 | 1 Each business policy metric is measured along a variety of dimensions that are aggregated into an index for each metric. Improvements in each metric are measured as an increase in the index level 2 Reformers are defined as countries that improved along credit, labor and business regulations, and trade policy. The non-reformers have improved along only a subset of dimensions (14 countries) or none at all 3 Percentage points SOURCE: Fraser Institute; World Bank World Development Indicators; McKinsey Global Institute 1.1 3.2 Non- reformers Reformers 2.1 pp3 Acceleration in real GDP2, 2000-08 vs. 1990-2000 Unweighted country average, % 16 Many countries enacted microeconomic reforms, and this was correlated with more rapid growth Sample size 50 64 8284 Trade policyBusiness regulation Labor market regulation Credit regulation Sample size 37 11 11 30 14 Share of African countries improving business policy metrics1 %
  • 10. McKinsey & Company 9 JOH-ZZJ205-20100325-CS-P1 |SOURCE: United Nations; McKinsey Global Institute 70 60 55 27 21 18 100% = Urban Rural North America 349 82 Latin America 594 79 Europe 830 73 China 1 351 45 Africa 1 032 40 India 1 219 30 Cities with >1 million people 52 5210948 63 48 Africa is almost as urbanized as China and has as many cities of 1 million people as Europe Share of rural vs. urban population by region, 2010 %, million
  • 11. McKinsey & Company 10 JOH-ZZJ205-20100325-CS-P1 |SOURCE: McKinsey The global race for commodities Projected increases in world commodity demand, e.g., 2.3% p.a., for oil Africa is a cost-competitive location globally for sourcing many minerals Access to international capital Capital inflows into Africa are US$65 bn p.a., and now exceed remittances and aid Africa has the highest return to FDI of any region in the world Seismic demographic shifts By 2020, half of African households will have discretionary spending power – an additional 45 million such households At 1.2 bn, Africa will have the world’s largest workforce by 2040, an expansion of over 500 million compared to today African green Revolution Africa has 60% of world’s available arable land Many African countries below global benchmarks for yields 4 main structural trends support Africa’s long-term growth potential Established trends Possible trends
  • 12. McKinsey & Company 11 JOH-ZZJ205-20100325-CS-P1 | Private capital flows to Africa have risen sharply since 2003 SOURCE: World Bank World Development Indicators; McKinsey Global Institute Capital Flows Database -10 0 10 20 30 40 50 60 70 80 90 20080520009590851980 Capital inflows1 Remittances Gross aid inflows 1 Capital inflows are defined as net foreign direct investment (FDI), equity, debt, and other flows into Africa from foreign investors. African financial inflows $ billion
  • 13. McKinsey & Company 12 JOH-ZZJ205-20100325-CS-P1 | 0 2 4 6 8 10 12 14 16 18 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 The rate of return on foreign direct investment in Africa is higher than in other developing countries 1 The rate of return is calculated as direct investment income for the current year divided by the average of FDI stock of the previous year and the current year. The figures for 2007 rates of return are based on 39 countries in Africa, 33 in Latin America and the Caribbean, 11 in West Asia and 18 in Asia SOURCE: United Nations Conference on Trade and Development; McKinsey Global Institute Developing economies Asia Africa Latin America Middle East Rates of return1 on inward foreign direct investment Percent
  • 14. McKinsey & Company 13 JOH-ZZJ205-20100325-CS-P1 | Share of households in each income bracket %, millions of households By 2020, more than half of African households will have discretionary spending power Consuming middle class (10,000–20,000) Emerging consumers (5,000–10,000) Household income brackets $ PPP1 2005 Globals (>20,000) Basic consumer needs (2,000–5,000) Destitute (<2,000) SOURCE: Canback Global Income Distribution Database (C-GIDD); McKinsey Global Institute Households with income >$5,000 Million 59 85 128 Basic needs Discretionary income 1 Purchasing power parity adjusts for price differences in identical goods across countries to reflect differences in purchasing power in each country. 34 24 18 29 32 29 18 21 23 100% = 2020F 244 17 12 2008 196 14 8 2000 163 11 6
  • 15. McKinsey & Company 14 JOH-ZZJ205-20100325-CS-P1 | Opportunities and challenges across countries
  • 16. McKinsey & Company 15 JOH-ZZJ205-20100325-CS-P1 | Zambia Uganda Tunisia Tanzania Sudan South Africa Sierra Leone Senegal Rwanda Nigeria Namibia Mozambique Morocco Mauritius Mali 90 Libya KenyaGhana Gabon Ethiopia Equatorial Guinea Egypt Côte d’Ivoire Congo, Rep. DRC Chad Exports per capita, 2008, $ 10000 1000 100 10 Economic diversification Manufacturing and service sector share of GDP, 2008, % 8070605040 Madagascar 3020 100 Cameroon Botswana Angola Algeria Africa’s future growth prospects differ across four groups of countries SOURCE: Organisation for Economic Co-operation and Development; World Bank World Development Indicators; McKinsey Global Institute Diversified Oil exporters Transition Pre-transition Size of bubble proportional to GDP NOTE: We include countries whose 2008 GDP is approximately $10 billion or greater, or whose real GDP growth rate exceeds 7% over 2000–08. We exclude 22 countries that account for 3% of African GDP in 2008 $500–1,000 $1,000–2,000 $2,000–5,000 >$5,000 <$500 GDP per capita
  • 17. McKinsey & Company 16 JOH-ZZJ205-20100325-CS-P1 | Africa’s $2.6 trillion business opportunity
  • 18. McKinsey & Company 17 JOH-ZZJ205-20100325-CS-P1 | Four groups of industries could have combined revenue of $2.6 trillion by 2020 SOURCE: McKinsey Global Institute Estimated annual revenue, 2020 $ billion Compound annual growth rate, 2008–20 % Growth, 2008–20 $ billion 1 Took 2030 value of $880 billion and calculated straight line equivalent for 2020. 2 Represents investment. Assumes need remains as same share of GDP through 2020. 4% 2% 5% 9% 4%~980 520 110 220 130200 500 540 Total 2 620 Infrastructure Agriculture Resources Consumer- facing 1 380
  • 19. McKinsey & Company 18 JOH-ZZJ205-20100325-CS-P1 | While food will account for the largest share of consumer spending, non-food sectors will grow faster as incomes increase SOURCE: World Bank World Development Indicators; Euromonitor; McKinsey Global Institute Household spending 2008 Household spending growth, 2008–20 2008 $ billion 101 26 28 46 51 97 144 369 Telecom Banking Education Other Food and beverages Housing Health care Non-food consumer goods 60 21 30 35 32 62 101 175 Total 861 515 Compound annual growth rate, 2008–20 % 3.3 4.5 4.2 4.2 4.9 6.2 4.9 4.0 4.0
  • 20. McKinsey & Company 19 JOH-ZZJ205-20100325-CS-P1 | Demand for agricultural production will surge through 2030… SOURCE: Firm biomass model; FAOSTAT; UN population prospect; Unica, team analysis Billion tons ▪ 2030 Low case – increase of total demand driven only by population growth ▪ 2030 High case– per capita food consumption and caloric intake aligned to European level; high biofuel expansion Scenario assumptions 3.3 0.6 Waste Seed Processing Food Biofuel High case Feed 6.0 3.1 Low case 9.4 14.8 0.3 2.5 4.6 1.4 1.0 0.2 1.2 0.20.4 0.6 3.5 2.0 0.1 2003 7.0 0.3 2.8% p.a. 1.1% p.a. 2030 demand scenarios
  • 21. McKinsey & Company 20 JOH-ZZJ205-20100325-CS-P1 | Wheat No. 2 hard red winter wheat, USA FOB Gulf, June/May Rice Milled, 100%, grade B, FOB Bangkok, August/July Maize No. 2 yellow corn, US FOB Gulf, September/August … and long-term prices should increase over recent historical averages SOURCE: OECD; FAO 168 2008 267 Avg ’03–’07 2017 231 3,1% p.a. 2017 335 2008 391 Avg ’03–’07 263 2,4% p.a. 165 Avg ’03–’07 113 1852008 2017 3,9% p.a. 457 2008 2017 482 Avg ’03–’07 293 4,5% p.a. Avg ’03–’07 302 2008 216 2017 237 2,5% p.a. 2,073 2008 2,060 Avg ’03–’07 1,833 2017 1,2% p.a. Soy Sugar Beef Weighted average oilseed price, European port Raw world price, FOB Carribean port, bulk spot price Nebraska choice steers, 1,100-1,300 lb live weight USD per ton
  • 22. McKinsey & Company 21 JOH-ZZJ205-20100325-CS-P1 | Note: IIASA (International Institute for Applied Systems Analysis); joint project on Land Resources together with the FAO 1 Based on current yields and production for all countries, global average yields for maize and rice and best-in-class yields for cassava, sorghum and millet 2 For all crop types; the optimal crop mix will differ by location 3 Maximum climatically attainable yield SOURCE: FAOSTAT 2007 Africa could become a worldwide player in agriculture as the sector is far from reaching its potential Boosting yields, more land 1.3 Rice, paddy 3.9 1.6 Maize 4.5 1.2 10.9 Cassava 7.0 0.8 14.4 6.1 Wheat 2.7 Sweet potatoes 3.0 Yams 6.1 0.8 10.2 5.7 Millet Sorghum 1.3 0.9 Plantains World average SSA Yield potential across major crops in SSA Yield, Mt/ha 320 Housing and infra-structure 1,320 Not suitable for cultivation Total land 20 2,445 785 Closed forest or protected area 195 All types of potentially suitable land not under cultivation 590 Land currently under cultivation Land potentially suitable for cultivation2 135 Very suitable (80-100%) Suitable (60-80%) Moderately suitable (40-60%) Marginally suitable (20-40%) 590 225 140 90 Land availability and suitability in Sub-Saharan Africa Land by degree of suitability Million ha, % of maximum yield3 Land availability in Sub-Saharan Africa Million ha, 2008 ESTIMATES
  • 23. McKinsey & Company 22 JOH-ZZJ205-20100325-CS-P1 | Africa represents about 60 percent of the potentially available cropland in the world 80 970 2009 590 300 Sub-Saharan Africa Latin America Others 216 38 45 49 53 53 66 72 Others Tanzania Central African Republic Mozambique DRC Angola Sudan Zambia 75 31 39 155 Others Venezuela Argentina Brazil 1 Cropland defined as land producing output greater than 40% of maximum yield under rain-fed conditions, excluding forest areas. SOURCE: World Bank/Food and Agriculture Organization, Awakening Africa’s sleeping giant; McKinsey Global Institute Additional available cropland, 20091 Million hectares
  • 24. McKinsey & Company 23 JOH-ZZJ205-20100325-CS-P1 | Mechanization, tractors per 100 sq km1, 2007 Fertilizer use, kg/ha1, 2007 Poor government policies ▪ Low government spending on agriculture (5% vs. 14% Asia) ▪ Limited spending on research and extension ▪ Lack of strategy and coordination at a national level Land fragmentation and ownership issues ▪ Widespread of small farms of <5 ha on average (e.g., Uganda, Morocco) with subsistence farming ▪ Difficult access to larger land pieces for investors (e.g., administrative hurdles, availability) Low quality infrastructure ▪ Very low road density, 40 times lower than India in 1970 ▪ Lack of adequate overall finance systems ▪ Expensive access to agro inputs and to markets Inappropriate seeds and inputs ▪ 'Asian imported' varieties with low yields ▪ Slow development of adapted varieties due to slow dissemination ▪ Risk of vulnerable monocultures (e.g., diseases) 258 131 16 9 1.712 USABrazil 1.901 SSA 1 Arable land SOURCE: “Role of intermediate factor markets in Asia’s green revolution:Lessons for Africa?” Amer. J. Agr. Econ, 2003,85:3. http://www.globalchange.umich.edu/webprojects/w01_africagr.htm, FAOStat, UN Millennium Project; Evenson and Gollin 2003 4 Root causes explain low input use and resulting low yields …which result in large input gaps African agriculture is facing 4 main obstacles
  • 25. McKinsey & Company 24 JOH-ZZJ205-20100325-CS-P1 | The recent FDI wave in agriculture could be a potential catalyst for the African green revolution SOURCE: The Economist; The Guardian; IFPRI 100,000–1m ha committed >1m ha requested >1m ha committed Mali Libya secured 100,000 ha for rice RDC ▪ ZTE international (China) secured 2.8m ha for biofuel oil palm plantation ▪ 10m ha offered to South African farmers’ union Zambia China requested 2m ha for jatropha Mozambique Skebab (Sweden) and Sun Biofuel (U.K.) secured >100,000 ha for biofuels Madagascar Daewoo (South Korea) buying 1.3m ha for maize; deal now aborted Sudan ▪ 690,000 ha to South Korea for wheat ▪ 378,000 ha to UAE ▪ 25,000 ha to Jordan for livestock and crops ▪ 10,000 ha to Saudi Arabia Tanzania ▪ Saudi Arabia requested 500,000 ha ▪ CAMS Group and Sun biofuels (U.K.) secured 50,000 ha for sorghum, jatropha EXAMPLES Kenya Qatar to lease 99,000 ha for fruit & vegetable production – port construction in exchange Sudan Jarch capital (U.S.) signed deal for 800,000 ha
  • 26. McKinsey & Company 25 JOH-ZZJ205-20100325-CS-P1 | 700 275 +14% 20072000 Vibrant private sector-led kick- started by FDI Hands off support by the Government of Kenya ▪ Development of the sector kick-started by flagship FDI projects (e.g., Fresh del Monte for pineapple, Saupiquet for green peas) and Kenyan expatriates ▪ Know-how and business mindset now clearly anchored in the sector – Strong investment in high-tech for production – Close market monitoring and adaptation/anticipation of new market requirements and shift in consumer preference ▪ Integration along the value chain and strong linkages to importing countries (e.g., direct relationship with retailing import- export offices abroad) ▪ Tight cooperation amongst players via the Fresh Producers Association (e.g., branding/ marketing) ▪ Government role limited to facilitation and providing public goods – Facilitation of FDI installation and contract farming practices – Setup of quality infrastructure (port/airport) and education (e.g., Kenyatta University of Agriculture and Technology) – Enforcement of plant variety protection ▪ Private sector request for more of these interventions, esp. increase market access and funding some R&D effort Development of sophisticated horticulture export ▪ Now 2nd export to tourism export, USD m ▪ Highly sophisticated product: from bulk to high value Add ▪ Constant adaptation to market – Private R&D effort for new variety – Know-how developed KENYA CASE STUDYIn Kenya the development of the horticulture sector has been private-led
  • 27. McKinsey & Company 26 JOH-ZZJ205-20100325-CS-P1 | * 18 countries did not report SOURCE: “The 10 Percent that could change Africa”, CAADP Seven countries have reached the 10 percent target in five years* A parading shift in Africa's approach to agriculture ▪ Launch of the Comprehensive Africa Agriculture Development Program (CAADP) in 2002 – An African-led initiative established by the New Partnership for Africa's Development (NEPAD) and the African Union – Main goal is to focus on agriculture-based development ▪ Maputo declaration in 2003: African governments commitment to increase the share of public spending going to agriculture to at least 10% – Public investment falling from 6,4% in 1980 to 4,5% in 2002 – Annual development assistance devoted to agricultural investments falling from 26% in the late 1980s to 4% currently At least 10% From 5 to less than 10% Less than 5% ▪ Burkina Faso ▪ Cape Verde ▪ Chad ▪ Ethiopia ▪ Mali ▪ Malawi ▪ Niger ▪ Benin ▪ Equatorial Guinea ▪ Ghana ▪ Kenya ▪ Lesotho ▪ Madagascar ▪ Mozambique ▪ Senegal ▪ Sudan ▪ Gambia ▪ Tunisia ▪ Zimbabwe ▪ Algeria ▪ Botswana ▪ Burundi ▪ Cameroon ▪ Democratic Republic of Congo ▪ Egypt ▪ Gabon ▪ Liberia ▪ Mauritius ▪ Nigeria ▪ Rwanda ▪ Sierra Leone ▪ Tanzania ▪ Uganda ▪ Zambia Governments have put increased emphasis on agriculture Though many countries did not reach the goal, the numbers appear to be getting better slowly
  • 28. McKinsey & Company 27 JOH-ZZJ205-20100325-CS-P1 | Pesticide 7 Fertilizer 14 Horticulture 490 DownstreamMidstream Equipment 7 Seed 7 Upstream 239 Grain processing 58 Biofuels 23 Cereals 138 Vegetable/fruit processing 66 868 Other processing 60 35 Livestock processing 33 Livestock 112 Cash crops 129 Downstream agricultural processing offers a large business opportunity Africa agriculture revenue potential, 2030 USD billion SOURCE: McKinsey Global Institute 0–5 percent 5–15 percent 15–20 percent 20+ percent ESTIMATED OPERATING MARGIN
  • 29. McKinsey & Company 28 JOH-ZZJ205-20100325-CS-P1 | The full report can be downloaded at: McKinsey Global Institute www.mckinsey.com/mgi Thank you

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