Take a guess: how many companies in Africa earn annual revenues of $1 billion or more? Many would answer 50. Many would even guess ‘zero’. The correct answer is 400. And there is lots of room for more. That is the message of the new book Africa’s Business Revolution: How to Succeed in the World’s Next Big Growth Market. Africa’s vast unmet needs and unfulfilled demand offer opportunities for entrepreneurs and innovators.
Acha Leke, chairman of McKinsey’s Africa offices, is the co-writer of the recently published book. The authors present a strategic guide to business in Africa based on interviews with 40 of the continent’s most prominent executives and development leaders, case studies of thriving companies in sectors ranging from banking to technology to manufacturing, and proprietary McKinsey research.
Africa: worth the effort
Leke: “We don’t pretend that Africa is an easy place to do business. The continent has its geographic complexity, infrastructure gaps, and relative economic and political volatility. We explain why it’s worth the effort.” Leke and his co-authors did a lot more than that. The book is an explanation mark in itself, telling enterprises to stop overlooking the growth opportunities of the continent.
There is a lot of that in the book. Africa is a 1.2 billion-person market, with both population and total consumer spending growing rapidly. Africa will soon be the fastest-urbanizing region in the world. Leke: “The continent already has as many cities with more than one million inhabitants as North America does, and more than 80 percent of its population growth over the next two decades will occur in cities. The income per capita of Africa’s cities is more than double the continental average, making them attractive markets for many businesses.”
Get in early
In the book, the authors quote Tidjane Thiam, the Ivorian-born CEO of Credit Suisse: “You’ve got the demographic boom combined with GDP growth rates of 6, 7, or 8 percent.” Companies that get in early and shape the right strategy can sustain double-digit profit growth over decades, he said. “There is an element of breaking ground, but the long-term rewards will be very high.”
Leke: “When we surveyed over a thousand global and African executives, the majority concur with this forecast. They predicted that most African households will join the consumer class in the next 20 years. They also expect that rising investment in both digital technologies and natural resources—the new and old economies—will boost development. Nearly 90 percent of African-based companies, and 58 percent of those based in other regions, expect their revenues in Africa to grow over the next five years, and most plan to expand their African footprint to additional countries.”
SMEs have a critical role
As said, there is room for more business and more companies. Currently, nearly half of Africa’s big firms are based in South Africa. On average, Africa’s big companies are smaller than those in other emerging economies. The authors insist that smaller and medium-size enterprises (SMEs) have a critical role to play in accelerating economic development, serving the unmet needs of African markets, and especially creating jobs. SMEs are currently responsible for 77 percent of all jobs in Africa and as much as half of GDP in some countries.
“Small and midsize companies will be crucial to speeding up economic development, serving unmet needs, and creating jobs. There’s space for start-ups to build scale, whether in manufacturing, retail, or myriad other sectors”, Leke adds. Startups can find room to grow and build scale in retail, technology, manufacturing, agriculture, mining and other sectors.
How to become successful
In the book, Acha Leke and his co-authors offer advice about how to become successful in Africa, other than by deciding where and how to compete. Advice # 1: adopt a smart approach to geographic expansion, focused on high-growth cities, countries, and regions. Advice # 2: innovate your business model to increase your differentiation from competitors, harness technology, and drive down price points.
There is more: be prepared to deal with what Leke calls “Africa’s inevitable shocks”. Make sure you have operational solutions in place that help manage risks and boost your company’s resilience to these shocks. Make sure you adopt “fresh approaches to unleash Africa’s talent, including nurturing vocational and managerial skills at scale and fostering a new kind of business leader for the African century ahead. Last but not least, have “a plan for doing good while doing well.”
‘Africa’s Business Revolution: How to Succeed in the World’s Next Big Growth Market’ (Harvard Business Review Press, November 2018). By Acha Leke, chairman of McKinsey’s Africa offices; Mutsa Chironga, an executive at Nedbank; Georges Desvaux, senior partner in McKinsey’s Hong Kong office.