McKinsey: Africa’s prospects strong despite headwinds

In 2010 McKinsey, the global consulting firm, published its Lions on the Move: The Progress and Potential of African Economies report, highlighting the changing fortunes of the continent’s economic and commercial prospects. The report was a runaway success, and contributed greatly to the emergence of the “Africa Rising” narrative.

Six years on, and with many of the continent’s economies struggling to weather the impact of the collapse in commodity prices, the second instalment strikes a more cautious note, but remains optimistic about the continent’s development.

Acknowledging the recent slowdown, Lions on the Move II: Realizing the Potential of Africa’s Economies opens on a cautionary note: “Has Africa’s growth run out of steam? This question is on the minds of many investors, business leaders, and policymakers,” concluding that “the picture today is more complex.”

Despite these complexities, and the anxiety it is fuelling about the continent’s prospects in the  short term, the report ultimately takes an optimistic perspective, arguing that “In the years ahead, Africa will benefit from strong fundamentals, including a young and growing population, the world’s fastest urbanization rate, and accelerating technological change.”

While real GDP across Africa increased an average of 3.3% between 2010 and 2015, a noticeable decrease from the 5.4% seen between 2000 and 2010, the report argues that this figure obscures a divergence between economies.

“Growth slowed sharply among oil exporters and North African countries affected by the 2011 Arab Spring democracy movements. The rest of Africa posted accelerating growth at an average annual rate of 4.4 percent.”

Highlighting the continent’s demographics, it argues that “the region has robust long-term economic fundamentals.”

Up to 60% of the continent’s population is estimated to be under 25 years old, a factor McKinsey believes will inevitably favour the region. It is now estimated that Africa’s labour force will be the largest in the world by 2050. While unemployment, particularly among the youth, remains a major concern for many governments, the report says that “so far, job creation is outpacing growth in the labor force.”

Perhaps the most widely recognised driver of growth and investment on the continent in recent years has been the emergence of a middle class. Consumer and business spend already totals $4 trillion today, a figure the report estimated will grow to $5.6 trillion by 2025. In addition, it estimates that Africa could almost double manufacturing output from $500bn today to $930bn in the same time period.

These opportunities will not realise themselves, it is quick to point out. “Corporate Africa needs to step up its performance to make the most of these opportunities,” the report argues, while “governments will have to play a stronger role in unleashing renewed dynamism.”

It identifies six priorities that could have a catalytic impact on growth and investment: mobilise more domestic resources, aggressively diversify economies, accelerate infrastructure development, deepen regional integration, create tomorrow’s talent, and ensure healthy urbanisation.