RENEW Strategies

Why Invest in Africa? Delving into McKinsey's Report

alt text
Joshua Weissburg
| June 24, 2010

Good news for those considering the merits of investment in Africa: The McKinsey Global Institute has put together a detailed report (together with a series of McKinsey Quarterly articles Laura pointed to in our last post) that breaks out the most important economic trends across the continent - and debunks some of the misconceptions about what is driving growth there (i.e. that it only reflects a commodities boom).

The report's top-line points, quoted below, are a great place to start (investors looking for market-beating ROI should take heed of #4) - but it is the underlying detail that I found particularly helpful. Did you know, for instance, that fruit and vegetable processing in Africa is set to double many times over in coming years? These are the kinds of specific opportunities that RENEW identifies and makes accessible to U.S.-based investors.

I've included McKinsey's own overview below:

Africa's collective GDP, at $1.6 trillion in 2008, is now roughly equal to Brazil's or Russia's. While Africa's increased economic momentum is widely recognized, less known are its sources and likely staying power. Among the key findings:

  1. 1. Africa's growth acceleration was widespread, with 27 of its 30 largest economies expanding more rapidly after 2000. All sectors contributed, including resources, finance, retail, agriculture, transportation and telecommunications. Natural resources directly accounted for just 24 percent of the continent's GDP growth from 2000 through 2008. Key to Africa's growth surge were improved political and macroeconomic stability and microeconomic reforms.
  2. 2. Future economic growth will be supported by Africa's increasing ties to the global economy. Rising demand for commodities is driving buyers around the world to pay dearly for Africa's natural riches and to forge new types of partnerships with producers. And Africa is gaining greater access to international capital; total foreign capital flows into Africa rose from $15 billion in 2000 to a peak of $87 billion in 2007.
  3. 3. Africa's economic growth is creating substantial new business opportunities that are often overlooked by global companies RMGI projects that at least four groups of industries-consumer-facing industries, agriculture, resources, and infrastructure-together could generate as much as $2.6 trillion in revenue annually by 2020, or $1 trillion more than today.
  4. 4. Today the rate of return on foreign investment in Africa is higher than in any other developing region. Early entry into African economies provides opportunities to create markets, establish brands, shape industry structure, influence customer preferences, and establish long-term relationships. Business can help build the Africa of the future.
  5. 5.The rise of the African urban consumer also will fuel long-term growth. Today, 40 percent of Africans live in urban areas, a portion close to China's and continuing to expand. The number of households with discretionary income is projected to rise by 50 percent over the next 10 years, reaching 128 million. By 2030, the continents' top 18 cities could have a combined spending power of $1.3 trillion.