After decades of being seen as a high-risk, low-reward place to do business, Western companies are waking up to Africa’s economic potential. Explore selected PwC insights on the opportunities and challenges companies face as they invest in the Sub-Saharan Africa region.
Savvy CEOs already recognise the economic clout Kinshasa, Johannesburg and Lagos have in Sub-Saharan Africa (SSA). That’s why most large Western corporations are already active in at least one of Africa’s largest cities. But what about Luanda or Dar es Salaam? Both these cities will likely have more inhabitants than London by 2030 – just two of 10 SSA metropolitan centres that are projected to triple their size in that period.
Luanda or Dar es Salaam will likely have more inhabitants than London by 2030
Simply put, Africa is rising at an unprecedented rate, driven by a young population, rapid urbanisation, a burgeoning middle class and technology that’s fostering innovation across SSA’s entire business landscape.
By 2040, Africa’s projected to have the biggest labour force in the world and could have faster economic growth than any other region, according to PwC’s Global Economy Watch. Taken together, SSA’s 10 largest cities (after the top three noted above) are on course to add around 34 million people to their population and triple their combined GDP, rising by around $140 billion. That’s roughly equivalent to the annual output of Hungary.
By 2040 Africa is projected to have the biggest labour force in the world.
As seen in China and Latin America in recent years, the combination of economic growth married with rapid urbanisation helps fuel middle class growth. And SSA is no exception. Our 2014 Africa Business Agenda shows that strong growth in the past two decades has helped to reduce poverty and increase the size of Africa’s middle class. By 2060, Africa’s middle class is expected to reach 1.1 billion, representing 42% of the population.
The growing middle class will create many opportunities, particularly for companies in sectors such as recreation, services and healthcare, where wealthier consumers spend their money. At the same time, the combination of larger cities, millions more workers and a middle class that’s heightened expectations about its standard of living will create unprecedented challenges for Africa’s physical infrastructure and the way society and governments are run.
Of central concern to Africa’s leaders, along with the CEOs looking to invest in the region, are three key issues: the often low quality of ‘hard’ infrastructure like roads and railways (our Africa Gearing Up report says the trans-continental highway network looks “better on paper than on the ground”); the inadequate ‘soft’ infrastructure like schools and universities; and the growing pains that stem from the inability of political, legal and regulatory institutions to deal with bigger and more complicated economies, notably in areas like regional security and corruption.
Interestingly, over the last decade, no nation has played a bigger role in Africa’s development than China. While, at first, China’s investment was driven by a need to secure energy sources and raw material, today its foreign direct investment (FDI) touches everything - from telecommunications to transport to power plants and even food processing and shoe making. As more Western companies look to take the plunge and invest in Africa, our Gridlines publication helps separate the fact from the fiction in the hugely important China-Africa relationship.
For further insight into the African economy and the challenges ahead, take a look at our latest CEO Insights blog post which asks, Can Africa fulfil its growth potential?