Sub-Saharan Africa: Competition Is Heating Up

Via Emerging Markets Insights, a look at competition and opportunity in sub-Saharan Africa:

SSA Economic 20 year projectionSub-Saharan Africa (SSA) is the second-fastest growing region in the world, growing at an average of 5.6% per year. Our recent Regional Overview for Sub-Saharan Africa shows that the size of the SSA economy will double in size in less than 20 years. Given that many countries are updating the figures used to calculate GDP, the region’s economy will likely double in size ahead of current forecasts. When Ghana rebased its GDP in 2010, the size of its economy grew 60% on paper overnight. Nigeria is expected to follow suit at the end of the year, and as a result, will overtake South Africa as the largest economy on the continent. Another 25 African countries are expected to rebase their GDP in the next three years.

But it is not only GDP growth that makes the SSA opportunity one of the most attractive globally. It is much more the emergence of new growth drivers that are contributing to stronger, more sustainable growth. No longer are commodities, FDI inflows, and political reforms the main factors behind economic development. Going forward, a large and growing consumer base that is trading up, greater integration into the global economy, and increased government spending will complement existing growth drivers, leading to even stronger SSA performance:

Driver #1: A Vast Consumer Base with High Collective Spending Power: Africa’s population (including North Africa) will double to two billion by 2040, creating a large, aggregate consumer base that will trade up as wealth increases. At the same time, private consumption in SSA is expected to grow 10% YOY in 2014 to US$ 936 billion from US$858 billion in 2013. We expect this figure to be even larger once the region’s economies rebase their GDP.

Driver #2: Inclusion into the Global and Regional Economy: Africa is increasingly integrated into the global economy, particularly with other emerging markets. The BRICS (including South Africa) share of greenfield investment across all of Africa increased to almost 25% in 2012 from 19% in 2003. Manufacturing and services investments accounted for 75% of the dollars invested by the BRICS, contrary to the assumption that investment relationships are dominated by natural resources. Increased FDI into Africa, expected to reach US$ 50 billion in 2013, means competition is growing while first mover advantages are drying up.

Driver #3: Fiscal Reforms Increase Government Spending: Fiscal reform, in the SSA context, means increased spending across key sectors, different than in Western markets where it means budget cuts. Most governments increased capital expenditure in their 2013/2014 budgets to meet financing targets for infrastructure projects, education, healthcare and to create jobs, While this creates opportunities for companies selling to the government, it also means that the cost of doing business will increase. In order to keep budget deficits low, governments are financing public expenditure through subsidy reductions and increased tax collection.

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