Africa to Hit Sweet Spot in Global Demand by 2020

Africa
Africa is indeed making steady economic progress

AFRICANGLOBE – Increased worldwide demand for African goods, better macroeconomic management and improved infrastructure suggest the continent will be growing rapidly in 2020.

There are many competing visions of Africa in 2020. But what will it actually resemble? The pockmarked fields of Borneo, strip-mined of their nutrients by Asian agribusiness giants? The bounteous, fertile and job-rich cerrado zone of Brazil? The well-organised suburbs of Singapore? The sprawling slums of Bangalore?

The economic roller coaster of recent years clouds the crystal ball. The double-dip recession in the West is finally weighing on Asian dynamism. Larry Summers, former US treasury secretary, warns of a “lost decade” ahead for the eurozone.

World Bank chief Africa economist Shanta Devarajan has been running the numbers and is relatively sanguine. “Suppose the world was to go into a 10- year Japanese-style low-growth recession, what does that mean for Africa? It turns out this only has a modest effect on the forecast.”

Why? The world in 2020 will be more populous, more urban and will require more of everything: energy, water, food, minerals, clothes, goods and smart-phone applications. Africa, with its proven resource base and its potential to move into both agribusiness and low-end manufacturing, is at the sweet spot of global demand.

China, India, Brazil and other emerging economies still have headroom for growth and their own domestic markets to address. Klaus Rohland, country director for China at the World Bank, says: “China will move from 50% to 70% urbanisation by 2030 – that’s the population of Indonesia or the United States moving into the cities over the next 20 years.” India is expected to add more than 200 million people to its cities by 2025.

And emerging markets are starting to spend. The Boston Consulting Group estimates the next billion middle-class consumers will add $10trn to global GDP by 2020. As tastes diversify with rising living standards, global meat consumption rises.

The grain required to feed this livestock will stretch African agricultural capacity, and push land grabs into the spotlight.

New oil finds in the Gulf of Guinea, and gas along the east coast, mean sheer export volumes will compensate for some of the drop in price. Charles Robertson, chief economist at Renaissance Capital, expects Africa’s oil revenues to rise to $300bn by the end of the decade, which is more than three times what the continent needs to spend each year to close the infrastructure gap.

So there should be a floor under commodity prices, even if they may not be as high as 2007-2008.

Spreading the Wealth

More importantly, there is a growing group of African leaders seeking to use and retain resource revenue more effectively.

The deputy chair of the budget committee in Uganda’s parliament, Remigio Achia, believes that the old tricks used by corrupt politicians and businesses to spirit money out of the continent cannot continue. “Transfer pricing and mispricing – all these things are hard to understand and articulate to a wider population, but they are critical to the fight.”

It is not just the external picture that looks healthy. Powering Africa through 2020 will be the huge reserve of domestic demand that has built up over the past decade. The African Development Bank has said that the African middle class already rose to 313 million people in 2010. Consultants at McKinsey & Company claim that by 2030 Africa’s largest 18 cities will have a spending power of $1.3trn.

This belies the precarious conditions of these families. Our own survey of middle-class families showed them struggling to stay afloat. But there is a tangible increase in local spending, visible in the healthy bottom lines of retail, telecom and construction companies on the continent.

More than 50% of urban Africans say they have accessed the Internet in a single month, on par with reported usage in Brazil and China, according to McKinsey. Small wonder that BlackBerry makers Research in Motion set up a second application research lab in South Africa in November.

Africa’s Consumer Goods Rush

Other multinationals are sharpening their teeth. The scramble for Africa’s fast-moving consumer goods segment is now well documented, with companies like Nestlé, Kimberly-Clark and Yum! Brands all ramping up operations.

French cosmetics company L’Oréal is setting up factories in Kenya. India’s Godrej Consumer Products has entered the market in Nigeria and South Africa, with Marico, Dabur India and Emami hot on its heels.

African companies are stepping up to the challenge of meeting African demand rather than allowing the prize to go to foreign multinationals.