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Macmillan Childrens Publishing Group

The Next Africa

An Emerging Continent Becomes a Global Powerhouse

Jake Bright and Aubrey Hruby

Thomas Dunne Books



Africa's Growth: Booming Commerce Becomes a Continent's Catalyst

In January 2014, 27-year-old Nigerian Obi Uche attended a two-day General Electric (GE) project management training in Lagos. Uche had recently been hired by Weltek Limited, a local engineering company selected to fabricate power-generation equipment for GE's new manufacturing facility in Calabar in southeastern Nigeria. Once up and running, the Calabar plant will produce critical components-turbines, wellheads, compressors-for GE's core infrastructure in Nigeria. The training was the first of several for Uche, preparing him to liaise as a business development officer between Weltek and the U.S. conglomerate. "Working with GE is a big deal. The professional expertise I am gaining is a boost of confidence to my career," said Uche, who finished his MBA in 2013 and now supervises a small team.

The skills exchanged between GE and Weltek have not been limited to midlevel employees. In August 2014, GE hosted Uche's manager, Chuck Umeh, and Weltek CEO Pedro Egbe at a three-day workshop in Italy. There they fine-tuned Calabar design plans and production standards with GE technicians.

Weltek CEO Pedro Egbe expects "the Calabar collaboration will raise our standards and allow us to bid for more business and hire more workers." He anticipates the deal will create $5 million a year in revenue and double the company's staff of 50. "We are interviewing candidates across Nigeria-fabricators, engineers, welders. Obi will supervise a number of them, who will also go through GE training," confirmed Chuck Umeh. A father of three, Umeh's been with Weltek since 1991 and has a photo of himself and GE CEO Jeff Immelt hanging in his office. They met at a dinner in Abuja in 2014 to sign the memorandum of understanding between the two companies. "It's exciting. Nigeria has 170 million people who need the things GE makes, like turbines, locomotives, and medical technology," said Umeh.

In a country with double-digit joblessness, daily power outages, an average life expectancy of 52, and whose citizens coined the hashtag #MyRoadIsWorseThanYours to share photos of the country's worst highways, GE's capabilities have been welcomed. The company's Nigeria CEO Lazarus Angbazo expects "the Calabar initiative will create 2,300 jobs," supplying the equipment and expertise "to upgrade Nigeria's power, roads, and healthcare system." It's part of a broader aim "to make Nigeria a center for GE technology and expertise; an export center for talent and skills, and a model for GE's commitment to Africa," said Angbazo. "GE goes where the growth is," he added, noting the company operates in 25 Sub-Saharan African (SSA) countries, with plans to expand to more.

The benefits of GE's Nigeria manufacturing hub will extend to the direct parties and broader Africa. For GE, the billion-dollar Calabar investment establishes a production facility to support its business expansion in Nigeria and across the continent. For the young professional Obi Uche, Weltek, and Nigeria, the project creates skills transfer, upward mobility, and vital jobs. From Nigeria to greater Africa, GE-Calabar will bring electricity, improved health, and new bridges, roads, and trains to millions.

Before the company's recent moves in Africa, many pieces of a larger economic puzzle were aligning. There were several links in a chain of events that brought such job-creating partnerships to a country like Nigeria. One is found four years earlier in the vision expressed by GE's CEO, Jeffrey Immelt.

Revenue in Africa, Recovery in Rest of the World

While opening the April 2011 Council on Foreign Relations Corporate Conference in New York, Immelt surprised many with a comment that was definitely off the beaten path for the typical CEO-speak of the preceding years. "We see Africa as one of GE's top growth regions moving into the coming decades," he told then-CNBC anchor Maria Bartiromo before a packed auditorium of business and policy leaders. What was particularly salient about Immelt's statement was that the session's theme had nothing to do with Africa. Neither did the question that prompted his remarks. Previously, blue-chip corporate leaders at Jeff Immelt's level had rarely made references to Africa-if at all.1

At the time we had already begun sourcing info supporting our premonition that the continent was about to come online strongly in global business. Sitting in the audience that evening, I (Jake), remember thinking, "Wow, one of the most powerful CEOs in the world just named Africa a top strategic priority," and I quickly shared the news with Aubrey.

Immelt's statement would become often referenced in escalating buzz about Africa in business circles starting in the early 2010s. Contributing to the buzz were ripples of data emerging from the continent on Africa's economic growth. These numbers, which first influenced murmurs in think tanks and esoteric policy circles, would eventually reach corporate boardrooms, investment seminars, and CEOs such as Jeff Immelt-creating a roar of opportunity around Africa's rapidly expanding economies.

To better understand the weight of the growth stats that began to emanate from Africa, it helps to have some context. First, there's the centrality of economic growth to business, juxtaposed to the general dissociation of Africa to global commerce that existed at the time, as illustrated in Figure 1.1. Then there's the broader milieu of the early 2010s, a low-growth world still reeling and deleveraging from the Great Recession.

When it comes to global business gauges, strong economic growth is where every country wants the needle. Summarized by gross domestic product (GDP), growth is the central measure of whether the core parts that make up an economy (consumption, investment, government spending, and global trade) expanded or contracted over a set period.2 GDP growth serves as a dial for investors, CEOs, and stock markets around the world. It reflects and influences massive movements of commercial activity-things like executive decisions on which countries to expand into and investor determinations on which stocks or bonds to buy, hold, or sell. GDP growth is also closely correlated to the capacity of local and national governments, as it determines how much tax revenue is available based on corporate and personal income. Low growth equals lower tax revenues and less revenue to play with. Higher growth puts more money in public coffers that governments can spend on services and infrastructure-which also spreads more demand around in an economy. Because of this impact, GDP forecasts and results are among the most anticipated economic information released-the stuff that makes international business media interrupt news to cover updated growth estimates by bodies such as the U.S. Federal Reserve or the Chinese central bank.

While GDP forecasts are firmly tied to global business, neither had been strongly associated with Africa the 15 to 20 years prior to 2010. Much of the post-Cold War wave that became the globalization of business, technology, and finance passed by large parts of Africa. In many commercial respects (global trade, securities markets, or digital commerce), the continent was more disconnected than any other.3 And these facts, added to roughly 40 years of consistently negative media coverage, certainly translated unfavorably to commercial agendas and perceptions toward Africa.

For those tracts of Washington focused on international business, Africa was largely a backwater during the early years that I (Aubrey) spent around the U.S. capital working to drum up commercial interest in the region.4 In many ways, given the Whitaker Group's rare focus on African markets, being a big fish in a small pond was beneficial. Yet in other ways, working as an African business specialist in the 2000s' Beltway occasionally felt akin to being D.C.'s lonely Maytag repairman, my phone ringing much less than those of market advisers focused on Asia, Eastern Europe, or Latin America.

When I told people that I worked to help companies do business in Africa, the business part often went in one ear and out the other. Most responded by asking if I worked for an NGO, the Peace Corps, or USAID, the development assistance arm of the U.S. government. When explaining that I managed a for-profit consulting firm that had never done business with the aid community, I might as well have been saying that I came from a planet a little beyond Jupiter.

In late 2010 and early 2011, one publication and a short article on Africa would begin to shift many of these conversations, arousing serious attention at the highest levels in international business circles. The first was global strategy consulting firm McKinsey Company's bullish "Lions on the Move" report, which emphasized that Africa's 2008 GDP of $1.6 trillion equaled that of Brazil or Russia. McKinsey projected Africa's collective economic output to rise to $2.6 trillion by 2020. Then, in January 2011, The Economist published a widely circulated feature showing that Africa had 6 of the 10 fastest-growing economies in the world over the decade to 2010, forecasting that the continent would produce 7 of the 10 top economies forward to 2015. The Economist included a compelling graphic that started popping up in business blogs and PowerPoint presentations showing a table with Angola ahead of China as the world's fastest-growing economy from 2001 to 2010 and Africa's expected economic output surging past the entire Asian region.

The McKinsey "Africa report," to which it became commonly referred, aroused further interest by debunking a common knee-jerk conclusion among economists: that Africa's growth surge must be isolated to the 2000s' commodities boom. If true, this would dismiss the continent's GDP performance as an oil- and minerals-driven fluke, rather than coming from any forceful economic changes. McKinsey confirmed that while commodity price increases certainly played a significant role in Africa's growth in the 2000s (around 32 percent), the continent's economic expansion was more than a cyclical resource boom: "Two-thirds [of Africa's GDP growth] came from other sectors, including wholesale and retail, transportation, telecommunications, and manufacturing." This piqued the interest of the business community even more.

Suddenly there was economic diversity to Africa's newfound growth. To global business executives coming off the Great Recession, this translated to profit opportunities in fresh markets in an otherwise income-flat world. And of all regions, it was where most expected it least, Africa. New associations were beginning in the mainstream media. In 2010, as the IMF characterized the world's major economies by "recovery," McKinsey, an elite source for cutting-edge business trends, was equating Africa with "revenue."

For me (Aubrey), "The Lions on the Move" report was a welcome validation of all that I had been observing in my work in African countries. It also caught my (Jake's) attention. I had started to pick up on Africa's new business momentum beginning in 2007, on the first of several trips back to post-war Sierra Leone and traveling in West and East Africa. Business opportunities and economic expansion came up in just about every conversation with friends, government officials, and local media. In Accra, Ghana, and Freetown, Sierra Leone, shiny new Nigerian and Pan-African bank branches had sprouted up in finance rows throughout each city. In 2009 in Nairobi, I saw the recently built offices of multi-national companies, while construction equipment lined the horizon, building Kenya's eight-lane Thika Super Highway.

The McKinsey report was forwarded to me (Aubrey) dozens of times by friends and associates, all expressing surprise, as if it were the first time they had heard of Africa in a business context, even though I'd been raising the topic for years. Suddenly my phone began ringing more often. The group of doubters who previously asked whythey should do business in Africa was becoming a growing chorus of individuals inquiring how they could do business in African markets.

For the broader audience in the United States and beyond, the 2010 McKinsey and 2011 Economist Africa growth reports marked a critical juncture in the launching of new conversations about Africa. From Davos to Hong Kong, factoids, buzzwords, and taglines from each report began to pop up in just about every major speech, panel discussion, and article on Africa. New data and analysis continued to follow. Soon, it seemed, all the major global strategy consulting firms (Accenture, Ernst and Young, the Boston Consulting Group et al) were lining up to do their own reports on some component of Africa's emerging growth story. All this continued to enter the mainstream business sphere, which was evident when we both attended a 2011 New York Stock Exchange Africa investor conference. Speakers paired references to McKinsey's first report to allusions of the continent as the "new Asia" or of its young tech movement producing "the next Google." New York's corporate establishment heard forward-looking outlooks by African presidents, Wall Street analysts, and representatives of the continent's 29 stock exchanges. Much was made of the expanding power of the continent's consumer class. Africa's emerging growth story was rapidly putting it on the map for something very different than war, poverty, or a celebrity charity. And those tuning in with interest were the world's top business leaders, such as GE's CEO, Jeff Immelt.

A Primer on Africa

Before expanding on drivers of Africa's 21st century growth surge, some demographic and historical orientation is needed. Economies are driven by many things, namely, nations, geography, people, and events. As a landmass, Africa and Sub-Saharan Africa (the continent south of the Sahara Desert and the primary focus of this book) is massive.

Some reminders of this were required during the 2014 Ebola crisis, which was largely contained to three small West African countries, but extrapolated by some to the entire continent. When speaking on Bloomberg News during the crisis, we noted a conversation between two financiers, a private equity manager traveling to Nairobi and a banker cautioning him not to. The private equity manager pointed out that the distance between Ebola-free Kenya, in East Africa, and many points of West Africa, was farther than flying from New York to Los Angeles by some 1,000 miles.

Second in size only to Asia, the African continent is larger than the United States, China, and India combined. The climates and landscapes of its 54 countries (48 in SSA) are diverse and highly unique in the world. There are jungles in Sierra Leone; rain forests in Côte d'Ivoire; and deserts, such as the Danakil in Ethiopia and the Kalahari in Botswana, Namibia, and South Africa. Then, of course, there's Africa's unique wildlife and geographical wonders, such as Victoria Falls, straddling borders with Zambia and Zimbabwe. Known for its red earth in places such as Tanzania's Serengeti National Park, Africa also gets snow on Mount Kilimanjaro (its highest peak) and in South Africa's Drakensberg and Lesotho's Maluti Mountains.

Even for all its Pan-African unity, Africa is the most diverse continent on the planet by numbers of linguistic and ethnic groupings (more than 2000 in each). When it comes to population, Africa is surging forward on four global demographic milestones. It has the world's fastest-growing population (surpassing a billion in 2009), largest youth population (200 million between the ages of 15 and 24), most rapidly urbanizing population (3.09 percent going rural to urban annually), and the globe's fastest-growing consumer class, in terms of expanding individual spending power.5 These trends alone speak volumes to the thesis of Africa's prominent role in the 21st century. As the continent's richest man, Nigeria's Aliko Dangote, frankly told us, "Whatever the preconceptions, the world can't ignore Africa's numbers."

On Africa's history, experts would likely agree that the continent's past has been markedly more difficult compared to that of others. Africa's development was greatly interrupted first by slavery, then by several hundred years of European colonization, extending into the 1950s, '60s, and '70s independence movements. Africa's first decades of independence were negatively influenced by colonial overhang and the proxy status of its new nations on the Cold War chess board. Finally, for Africa, the first decade of the post-Cold War era of globalization carried a great deal of instability, with a majority of the world's armed conflicts occurring in SSA through the 1990s.

On an economic level, much of Africa's commercial potential over the 20th century was either stunted or heavily driven by commodities, its natural resources among the most abundant in the world. Two additional characteristics of most SSA economies through the 1990s were global debt and global disconnect. By the late 1990s, African governments had racked up several hundred billion dollars in external debt, which was weighing down commercial prospects. Many countries were bankrupt, and SSA as a region was largely detached from the world economy. Excluding South Africa, few had linked up to global bond or currency markets, or had connected to the new digital infrastructure of the financial world. Stock exchanges were nascent or non-existent. More than 85 percent of SSA's people were unbanked. And by the start of the 21st century, SSA ranked low (when data were even available) on other global connectivity factors such as flows of goods, services, and digital communications between its countries and the rest of the world.

Entering the 2000s, as the markets and governments of the highly connected world charged toward financial meltdown and debt-to-GDP ratios of 100 percent, something different was happening in Africa. Somewhat paradoxically, the continent's commercial marginalization and the timing of its own debt crisis placed many of its economies in a less vulnerable position through the Great Recession.

Commodities and Beyond: Drivers of Africa's Top Economies

The statistics that launched the African growth story had two core themes for two key periods: 2005-2010 and 2011-2015. First, there was the number of African countries on the world's top ten fastest-growing economies list. Then there was SSA's robust GDP growth as a region.

For the decade ending in 2010, several overarching trends helped stage Africa's economic boom. To start, there was both an abatement of conflicts and greater political stability. Fewer wars on the continent, fewer coups, and more democratic governments enabled greater economic reforms such as the privatization of industries (telecoms, in particular) and an improved business environment. Then there was the ordering of fiscal houses, as SSA governments closed budget deficits and reduced their external debt significantly through a combination of debt forgiveness and better management. Nigeria alone unloaded $30 billion in external debt. These efforts and others did much to reduce inflation and stabilize currencies in African countries.

While the global financial crisis did adversely impact many African economies, because of SSA's weak financial links it was not as severe as in other regions and did not threaten the continent's banks. Africa emerged from the Great Recession with little impact to its financial system and the lowest amount of public debt in the world. And while a boom in global commodities prices from 2000 to 2009 played a significant role in boosting Africa's aggregate economic growth to the level of regions such as Asia, there was more to the story. Natural resources sectors did account for roughly 30 percent of Africa's economic performance over the period (per McKinsey and African Development Bank stats), but that also meant two-thirds of the continent's commercial activity was occurring in other sectors. In telecoms, Africans were buying mobile phones, and telecom companies were expanding. In retail, growing middle classes were purchasing appliances, clothing, and other wares. African countries such as Ethiopia began to build new manufacturing facilities, and governments across the region were fast upgrading power and transport grids.

More information has become available for the IMF's original African growth projections for 2011-2015 per figure 1.4.

Some SSA countries have fallen from the region's top-ten fastest growing economies status while others have ascended. Commercial developments in SSA, along with many other trends, are moving very rapidly. There are also intermittent gaps and progress in data collection, and less dynamic economies, such as the heavily mining driven Democratic Republic of the Congo, are more prone to upward or downward GDP surges.

Whatever the imperfections in data, few can dispute that there's a tremendous amount of commercial activity in key SSA countries. In her research, Tufts University economist Margaret McMillan suggests that a number of structural changes are fueling Africa's economic growth-such as improvements in worker and sector output through shifts in many countries' labor forces "away from low productivity agriculture to higher productivity manufacturing and services."

While some Afro-pessimists have continued to doubt the depth and sustainability of SSA's economic performance, we join McMillan in believing the contrary: that the size and activity of many African economies (namely, Nigeria) have been underestimated.

Uncovering Africa's True Economic Power

In April 2014, Nigeria captured global business headlines. The West African nation was crowned Africa's largest economy, surpassing long-standing business beacon South Africa, after a government statistical revision nearly doubled its economic output to $510 billion. This IMF-endorsed exercise (or GDP rebasing), undertaken by the country's top statisticians, was less about capturing marked increases in Nigerian commercial activity, and more about accounting for business activity that had been flying under the country's economic radar for years. The revised metrics uncovered billions upon billions of dollars of business activity that was previously untracked: spending on consumer goods, electricity and power generation, financial services, and several billion dollars in economic activity around Nigeria's film and music industries.6

Shortly after Nigeria's 2014 GDP rebasing came Kenya's, which expanded the value of the East African nation's economy by 25 percent and moved Kenya up several rungs on SSA's largest economies list to third. The GDP revisions now under way in several other SSA countries with assistance from the IMF and the African Development Bank (AfDB) are not clever exercises in cooking the national books. What they show is that statisticians in many African countries have been missing large amounts of economic activity simply because of outdated practices.

For anyone who's spent time in Africa's major cities, the notion that there is much more business occurring than economists are accounting for probably comes as little surprise. A walk through capitals such as Abuja, Nairobi, or Dakar reveals tremendous day-to-day commerce and individual entrepreneurship brimming from all corners. On the streets of Accra, Ghana, or Lagos, Nigeria, girls and boys run their own portable businesses, with bowls of bananas, bread, and other goods stacked on their heads-Africa's vertically integrated version of lemonade stands. They chant their slogans in local English-based pidgin-col wata de ("cold water for sale") or fine kola de("fine kola nuts for sale")-serving as all-in-one portable showrooms, sales clerks, and cash registers. And many of these young vendors report back to parents, aunts, or grandmothers who may be running two or more ventures in local markets or at roadside kiosks. Bustling commerce did not fall out of the sky or discover Africa over the last decade. Large amounts of economic activity have always existed across the continent, just not necessarily on a formal grid or captured by IMF statistics.

This brings us to three important themes in Africa's contemporary growth story:

1. Increased formalization of Africa's informal economies;

2. Efforts to quantify new business activity versus existing commerce; and

3. Constraints of GDP alone in determining which countries surge forward and deliver dividends to their people.

In SSA, informal economies have little to do with the black market or what may be considered nefarious activities in the United States or Europe. Informal economic activity, at its basic classification, consists of commercial transactions that are not recorded by formal structures, such as government agencies or official exchanges. It is business that is not taxed or officially accounted for in GDP, and it sometimes includes barter outside the use of currency. While paying the neighborhood babysitter is Americans' most likely interaction with an informal economy, in SSA informal markets typically eclipse the formal economy in size and significance. In 2014, AfDB chief economist Mthuli Ncube estimated that the informal sector accounted for roughly 55 percent of SSA's economic activity and 80 percent of its labor force.

Even as it grows, this large catch-all sector is beginning to change in structure. Many African governments have worked hard over the past 15 years to introduce reforms that make it easier to start, own, and operate a business. Reducing business-registration times from months to several days and minimizing licensing requirements brought many informal businesses into the formal economic realm for the first time.

Africa's informal sector bears both challenges and opportunities. For analysis and projections, this enormous, opaque commercial space is problematic because it represents so many unknowns. Imagine central bank officials of the European Union attempting to set monetary policy, or the CEO of a major multi-national company planning an expansion into a new market with only 25 percent accurate data. Lots of business is happening in Africa; it is just hard to measure who is selling what to whom and where in a consistent manner. Efforts are under way by governments across the region to better account for true GDP, including the value being created by the informal businesses. Until measures are improved, some questions will remain as to how much growth in African economies derives from new activity versus existing business previously uncaptured.

Despite their challenges, the informal economies of SSA present big possibilities. While informal economies are efficient at meeting many market needs, they often fail to unleash greater productivity and profits. A number of small commercial entities in African markets may be disconnected from basic small business banking services, accountants, or the benefits of enterprise technology. These disconnects present opportunities for new players to enter the market and for existing businesses to reap large productivity gains. There are also multitudes of consumer and business needs in SSA that have only marginal, if any, formalized sectors serving them. From hair care to dry cleaning to Internet services, so much is wide open. Expect the formalization of Africa's informal economies to bring some of the most profound change and opportunities in the continent's transformation story.

Finally, as the growth of African economies factors more heavily in media coverage of the continent, we believe there are limitations to GDP alone in determining progress in many SSA countries. In some cases, the economies of African nations are so dynamically different that GDP comparisons can become misrepresentative. Take, for example, the trajectory of Sierra Leone over 2014. In January 2014, the small West African nation was featured in a Washington Post global business article as the second-fastest-growing economy in the world (11.2 percent), outpacing SSA countries such as Nigeria and Kenya. Only a fraction the size of Nigeria's economy, and much less diversified, Sierra Leone saw the bulk of its growth forecast come from increased business in only one sector: mining. By the fall of 2014, due to the Ebola crisis and a fall in iron ore prices, nearly all major mining activity in Sierra Leone had halted, causing its economy to plunge from the top of the world's fastest-growing economy rankings deep into the negative by December. Of course, an Ebola outbreak would adversely affect any country's business statistics, but this severe swing illustrates some limits of GDP as a lone proxy for prosperity. It was misleading in the first place to elevate Sierra Leone's narrowly defined, one-sector-driven GDP growth in business news above commercial powerhouses such as Nigeria, with an economy more than 50 times the size of Sierra Leone's and steadily diversifying.

Then there's the question of the inclusiveness of Africa's growth story. Similar to many of the continent's growing economies, both Sierra Leone and Nigeria entered 2014 with double-digit unemployment numbers colliding with expanding youth labor markets. The narrative around Africa's well-publicized 10-year economic boom is entering a new phase. While double-digit growth captured the world's attention, it's no longer enough to just post big GDP figures. Now people are asking how African countries translate growth into rising wages, higher living standards, and job creation-all core factors of national success on a global scale. It will take more than GDP growth alone for certain African countries to surge ahead toward 21st century prosperity.

Africa Front and Center on the World's Business Stage

Perhaps the greatest validation of how far SSA's economic growth story has come in the last decade was the Business Forum of the 2014 U.S.-Africa Leaders Summit. Organized by the White House and hosted by U.S. secretary of commerce Penny Pritzker and Mayor Mike Bloomberg, the Washington, D.C., summit brought together more than 200 African and American CEOs as well as two U.S. presidents and multiple African heads of state.

Among some $14 billion in new deals between American and African firms unveiled, the most significant business announcement, both in dollars and symbolism, came from Africa's most recognized billionaire, Aliko Dangote, and U.S. private equity moguls Stephen Schwarzman and David Rubenstein. During an investment panel moderated by Bill Clinton, Dangote unveiled $6 billion in joint ventures with Schwarzman's Blackstone Group and Rubenstein's Carlyle Group to fund African infrastructure projects. Seated next to Dangote on the panel was GE CEO Jeff Immelt, who quipped, "Just remember who sells power-generating equipment," gesturing to Dangote and then Schwarzman and Rubenstein in an auditorium packed with some of the world's most prominent business leaders.

As we illustrate throughout this work, there are many facets to Africa's transformation. The economic growth narrative that started small in 2010 has continued to gain momentum, credibility, and scope-intersecting with many fast-moving demographic, political, and cultural currents in SSA and the world. There's certainly more to the 21st-century Africa story than commerce. Business statistics are not simply numbers. Those numbers reflect trends being driven by some extraordinary people. Africa's economic performance has served as the catalyst to putting the continent front and center on the world's business stage. Growth has opened another vital link to Africa's imminent status as a global powerhouse: that of record investment in its economies and people. When it comes to financial flows, if Africa's past was heavily characterized by foreign aid, its future is quickly becoming more defined by foreign direct investment.

Copyright © 2015 by Jake Bright and Aubrey Hruby