Africa’s economic growth is creating substantial new business opportunities that are attracting global companies. Due to the continuing robust growth, investors including private equity firms, pension funds and frontier funds are increasingly seeking for deals in private businesses on the continent.
According to Emerging Markets Private Equity Association (EMPEA), the private equity industry looks bullish. There are huge challenges in infrastructure development and investment climates, but many businesses are reporting improved conditions as countries embark on reforms to improve the business climate.
To support businesses looking to take advantage of the potential in Africa, global consulting firm Frost & Sullivan, has completed an analysis entitled “Mega Trends in Africa: A bright vision for the growing continent”. The extensive study highlights the macro-economic forces that will shape the continent’s future for the next ten to thirty years.
The mega trends
Connecting the unconnected
Frost & Sullivan projects that, by 2020, mobile penetration in Africa will have more than doubled from the numbers recorded in 2009. Broadband penetration will increase nearly seven-fold over the same period. ‘This spurt in connectivity will generate $200-billion in opportunities for networked sectors by 2020. ICT will also become a major employer of skilled manpower,’ says the ICT industry analyst, Vitalis Ozianyi.
By 2025, Africa will have 350 million middle-class consumers, and the second highest number of city dwellers of any global region. This urbanisation will occur mostly in West Africa, but will offer opportunities to business throughout the continent. ‘Urbanisation in Africa will require the development of innovative products to meet the specific needs of the urban poor and wants of an emerging consumer class,’ says the healthcare industry analyst, Ryan Lobban.
‘These will include low cost housing options and basic infrastructure needs such as transport, power and healthcare. Space will likely become a currency as demand increases in concentrated areas,’ says Lobban.
Other knock-on effects of urbanisation will include greater demand for private sector industries such as banking and telecommunications, as well as growing levels of education. Africa’s new middle class will become champions of the private sector, the study contends, driving a more competitive economic environment that will be attractive to foreign investment.
Another key driver of growth will be increased regional integration across Africa. Not only does Frost & Sullivan foresee the creation of a grand free trade zone incorporating most, if not all, of the countries on the continent, but also a rise in electricity trade through power pools that will ensure supply security.
‘The development of a grand free trade zone and the strengthening of the regional power pools are expected to significantly increase the size of the consumer market for large scale infrastructure investments,’ says the energy and power industry analyst, Ross Bruton.
‘Infrastructure investment is expected to be developed primarily within key regional economies that have the potential to export products to surrounding countries cheaply,’ says Bruton.
Innovation to zero
The study identifies poverty, hunger and a lack of sustainable development as Africa’s three biggest challenges. However, breaking this destructive cycle is not only possible, but will create significant opportunities. Agriculture, manufacturing and beneficiation industries will be the three key sectors that will turn the continent into a truly attractive investment destination. Drivers for the development of the agriculture sector will include an increase in the use of fertilisers, genetically modified seeds and drought resistant crops. Increased beneficiation will take place in mining, oil and gas, agriculture and manufacturing. However, the sector to watch will be manufacturing due to the availability of abundant raw materials and improved infrastructure, education and research and development.
Frost & Sullivan states that renewable energy development is primarily being driven through the electrification of remote communities and that the demand for increased access to electricity will decentralise power project development and promote multiple generation technologies. The study forecasts that investment in renewable power in Africa will reach $57.72-billion by 2020, from the $3.6-billion spent last year. These investments will include the incorporation of smart technologies that will be necessary to support an increasingly decentralised grid. Major renewable energy projects will occur in Ethiopia, Tanzania, Nigeria, and Egypt.
Other mega trends
The study also covered other mega trends: “new business models”, “the responsible revolution” and “future infrastructure”.
The findings of this analysis will be presented at Frost & Sullivan’s inaugural GIL 2011: Africa – The Global Community of Growth, Innovation and Leadership. The firm’s analysts and delegates will examine the study and discuss innovative ways of taking advantage of the opportunities these mega trends present.