Lions on the move: The progress and potential of African economies
McKinsey Global Institute
Discussion with the World Bank
July 20, 2010
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1
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Key messages
The continent’s long-term growth prospects are strong, due to both trends in the global economy and within Africa’s domestic economies
Growth opportunities and challenges vary across countries, based on their level of economic diversification and the strength of their export engines
Africa has been the 3rd fastest growing region in the world since2000, reflecting government actions to improve political and macroeconomic stability and create a healthier business climate
Africa’s business opportunities in four sets of industriescould be worth $2.6 trillion by 2020, or $1 trillion more than today
3
Africa’s growth prospects
4SOURCE: International Monetary Fund; McKinsey Global Institute
Africa’s economic growth accelerated after 2000, making it the world’s third-fastest growing region
African annual real GDP, 2008 $ billion
Compound annual growth rate, %
839694461
200019801970
1,067
1990
2.41.9
4.2
Compound annual real GDP growth, 2000–08%, constant exchange rates
Developedeconomies
2.0
World 3.0
LatinAmerica
4.0
Centraland EasternEurope
4.8
Africa 4.9
Middle East 5.2
EmergingAsia
8.31,561
1,483
1,400
1,323
1,258
1,191
1,1441,108
5.6
01 02 03 04 05 06
5.5
4.9
07 2008
3.6
5
Compound annual growth rate, %
Sector share of change in real GDP, 2002–07Percent, 100% = $235 billion1
Africa’s growth was widespread across sectors
SOURCE: Global Insight; Arab Monetary Fund; African Development Bank; McKinsey Global Institute
6
2
2
5
5
6
6
9
10
12
13
24
Wholesale and retail
Resources
Transport, telecommunications
Agriculture
Manufacturing
Tourism
Other services2
Real estate,business services
Utilities
Construction
Financial intermediation
Public administration
1 In 2005 dollars. Includes 15 countries that account for 80 percent of Africa’s GDP: Algeria, Angola, Cameroon, Egypt, Ethiopia, Kenya, Libya, Morocco, Nigeria, Senegal, South Africa, Sudan, Tanzania, Tunisia, Zimbabwe.
2 Education, Health, Social Services, Household Services.
7.1
6.8
5.5
7.8
4.6
24
3.9
7.5
5.9
8.7
7.3
6.9
6
1 Each business policy metric is measured along a variety of dimensions that are aggregated into an index for each metric. Improvements in each metric are measured as an increase in the index level.
2 Reformers are defined as countries that improved along credit, labor and business regulations, and trade policy. The non-reformers have improved along only a subset of dimensions (14 countries) or none at all.
3 Percentage points.
SOURCE: Fraser Institute; World Bank World Development Indicators; McKinsey Global Institute
1.1
3.2
Non-reformers
Reformers
2.1 pp3
Acceleration in real GDP2, 2000–08 vs. 1990–2000Unweighted country average, %
16
Many countries enacted microeconomic reforms, and this was correlated with more rapid growth
Sample size
50
64
8284
Trade policyCredit regulation
Business regulation
Labor market regulation
Sample size
37 11 11 30 14
Share of African countries improving business policy metrics1
%
7
Growth
Labor force growth1
Labor productivity growth
-0.5
3.1
-0.2
2.8 2.2
2.7
2.6% 2.6% 4.9%Total GDP growth
1 Used working-age population (15-64) as a proxy for labor force.
SOURCE: Conference Board World Economy database; McKinsey Global Institute
Africa’s labor productivity grew for the first time in decades
Real GDP growth, Africa%
1980–90 1990–2000 2000–08
8
Going forward, Africa’s increasing ties to the global economy will bolster growth
SOURCE: International Monetary Fund Direction of Trade Statistics; McKinsey Global Institute
2837
51
655
9998959493929190
13
9796
100
90
0
Intra-Africa
Western Europe
Asia
Middle East
Latin America
80
70
60
50
40
30
20
10
07060504030201
NorthAmerica
Other
08
28
11
6
5
15
00
20
12
63
17
11
32
16
45
81
198
196
108
41
33
South-south trade: 50% of total trade
Composition of African trade by trading partner, 1990–2008% Absolute, 2008
$ billion
9
Private foreign capital flows to Africa have risen sharply since 2003, surpassing aid and remittances
SOURCE: World Bank World Development Indicators; McKinsey Global Institute Capital Flows Database
-10
0
10
20
30
40
50
60
70
80
90
20080520009590851980
Capital inflows1
Remittances
Gross aid inflows
1 Capital inflows are defined as net foreign direct investment (FDI), equity, debt, and other flows into Africa from foreign investors.
African financial inflows$ billion
10SOURCE: United Nations; McKinsey Global Institute
7060 55
27 21 18
North America
100% =
Latin America
82
Rural
Urban
79
Europe
73
China
1,032
45
Africa
1,219
40
India
1,351
30
349594830
Cities with >1 million people
52 5210948 63 48
Africa is almost as urbanized as China and has as many cities of1 million people as EuropeShare of rural vs. urban population by region, 2010%, million
11
Share of households in each income bracket%, millions of households
By 2020, more than half of African households will have discretionary spending power
Consuming middle class(10,000–20,000)
Emerging consumers(5,000–10,000)
Household income brackets$ PPP1 2005
Globals (>20,000)
Basic consumer needs(2,000–5,000)
Destitute (<2,000)
SOURCE: Canback Global Income Distribution Database (C-GIDD); McKinsey Global Institute
Households with income >$5,000Million
59 85 128
Basic needs
Discretionaryincome
1 Purchasing power parity adjusts for price differences in identical goods across countries to reflect differences in purchasing power in each country.
3424
18
29
3229
1821
23
2020F
196100% = 244
17
12
2008
14
8
163
2000
11
6
12
Africa represents about 60 percent of the potentially available cropland in the world
80
970
2009
590
300
Sub-SaharanAfrica
LatinAmerica
Others
216
38
45
49
53
53
66
72
Others
Tanzania
Central AfricanRepublic
Mozambique
DRC
Angola
Sudan
Zambia
75
31
39
155
Others
Venezuela
Argentina
Brazil
1 Cropland defined as land producing output greater than 40% of maximum yield under rain-fed conditions, excluding forest areas.
SOURCE: World Bank/Food and Agriculture Organization, Awakening Africa’s sleeping giant; McKinsey Global Institute
Additional available cropland, 20091
Million hectares
13
Opportunities and challenges across countries
14
Zambia
Uganda
Tunisia
Tanzania
Sudan
South Africa
Sierra Leone
Senegal
Rwanda
Nigeria
Namibia
Mozambique
Morocco
Mauritius
Mali
90
Libya
KenyaGhana
Gabon
Ethiopia
EquatorialGuinea
Egypt
Côte d’Ivoire
Congo, Rep.
DRC
Chad
Exports per capita, 2008, $
10000
1000
100
10
Economic diversificationManufacturing and service sector share of GDP, 2008, %
8070605040
Madagascar
3020 100
Cameroon
Botswana
Angola Algeria
Africa’s future growth prospects differacross four groups of countries
SOURCE: Organisation for Economic Co-operation and Development; World Bank World Development Indicators; McKinsey Global Institute
Diversified
Oil exporters
Transition
Pre-transition
Size of bubble proportional to GDP
NOTE: We include countries whose 2008 GDP is approximately $10 billion or greater, or whose real GDP growth rate exceeds 7% over 2000–08. We exclude 22 countries that account for 3% of African GDP in 2008.
$500–1,000
$1,000–2,000
$2,000–5,000
>$5,000
<$500
GDP per capita
15
Diversified economies’ must increase their global competitiveness, since unit labor costs are much higher than China or India
1 Unit labor costs are defined as the wages divided by the output per worker and are computed by taking the average of a large sample of firms in a particular country.
SOURCE: Enterprisesurveys.org; Ramachandran, Gelb, and Shah (2009); Kinda, Plane et al (2009); McKinsey Global Institute
Unit labor costsWages/value added per worker
60
57
46
23
16
Morocco
Egypt
South Africa
India
China
Unit labor costs1
Wages/value added per worker
16
4
54
5
31
37
-5
127
Algeria
100% =
35 24.0Nigeria
18.344 7
Libya 11.063 2
Angola 12.286 8 1
SOURCE: World Bank World Development Indicators; McKinsey Global Institute
Africa’s oil exporters should use their wealth to diversify their economy – a path Nigeria is taking
Real GDP growth by industry sector, 2002–07%, 2000 $ billion
Resources
Agriculture
Manufacturing
Services
17
36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86
2008
2008 20041994
19881982
1969
1964
20041999
1992
1989
19821962
10,000
1,000
100
Economic diversificationManufacturing and service sector share of GDP
%
Export engineReal exports per capita2005 $
Africa’s oil exporters have diversified less than their international peers
SOURCE: World Bank World Development Indicators; McKinsey Global Institute
AlgeriaNigeriaIndonesiaMalaysia
Size proportional to real GDP per capita
18
Share of exports to other African countries, %
Intra-regional trade is growing in transition economies, particularly for manufactured goods
SOURCE: Comtrade; International Trade Centre; McKInsey Global Institute
Primary commodities exports
Manufactured goods exports
20.8
6.5
+16% p.a.
9.9
1.5
+27% p.a.
20082000
Nominal exports, 2008$billions
23%
62%
19
Africa’s $2.6 trillion business opportunity
20
Four groups of industries could have combined revenue of $2.6 trillion by 2020
SOURCE: McKinsey Global Institute
Estimated annual revenue, 2020$ billion
Compound annual growth rate, 2008–20%
Growth, 2008–20$ billion
1 Took 2030 value of $880 billion and calculated straight line equivalent for 2020.2 Represents investment. Assumes need remains as same share of GDP through 2020.
4%
2%
5%
9%
4%~980
520
110
220
130
2,620
200
500
540
1,380Consumer-facing
Resources
Agriculture
Total
Infrastructure
21SOURCE: Global Insight; United Nations Conference on Trade and Development; McKinsey Global Institute
African consumption has grown by $275 billion since 2000—similar to Brazil’s and more than in India
... with greater absolute growth in consumption than in Brazil or India
222
247
274
451
662
India
Russia
Brazil
Africa
China
Private consumption growth, 2000–08 2008 $ billion
Household consumption has grown steadily in Africa …
1990 1995 2000 2005
200
1 600
800
600
400
1 400
1 200
1 000
0
India
China
Russia
Brazil
AfricaPrivate consumption2008 $ billion
CONSUMER-FACING INDUSTRIES
22
While food will account for the largest share of consumer spending,nonfood sectors will grow faster as incomes increase
SOURCE: World Bank World Development Indicators; Euromonitor; McKinsey Global Institute
Household spending 2008
Household spending growth, 2008–20
2008 $ billion
101
26
28
46
51
97
144
369
Telecom
Banking
Education
Other
Food and beverages
Housing
Health care
Nonfood consumer goods
60
21
30
35
32
62
101
175
Total 861 515
Compound annual growth rate, 2008–20%
3.3
4.5
4.2
4.2
4.9
6.2
4.9
4.0
4.0
CONSUMER-FACING INDUSTRIES
23
An African “green revolution” could raise agricultural productionto $880 billion per annum by 2030
Source: Food and Agriculture Organization; McKinsey Global Institute analysis
5.8 2.7
500
140
235
225
880
280
Revenue in 2010
Cultivation of new land
Yield growth Revenue in 2030 under baseline scenario
Shift to high-value crops
Revenue in 2030 in Green Revolution scenario
Compound annual growth rate 2008–30%
Africa agricultural production revenue $ billion
AGRICULTURE
24
Pesticide 7
Fertilizer 14
Horticulture 490
DownstreamMidstream
Equipment 7
Seed 7
Upstream
239
Grainprocessing
58
Biofuels 23
Cereals 138
Vegetable/fruitprocessing
66
868
Otherprocessing 60
35
Livestockprocessing 33
Livestock 112
Cash crops 129
Downstream agricultural processing also offers a large business opportunity
Africa agriculture revenue potential, 2030USD billion
SOURCE: McKinsey Global Institute
0–5 percent
5–15 percent
15–20 percent
20+ percent
ESTIMATED OPERATING MARGIN
AGRICULTURE
25
Africa’s resource production volumes are expected to grow by 2 to 4 percent for most key commodities
SOURCE: RMB; International Energy Agency; McKinsey Metals Practice Commodity Models
1.01.6
3.03.5
4.0
9.1
Iron ore
GoldCoalGas Copper Oil
Share of African production 2008%
1 9 3 2 73 3
Annual production growth of major African resources, 2008–20%
RESOURCES
23% of foreign resource deals in Africa now include an infrastructure or industrialization component, up from just 1% of deals in the 1990s
26
Key take-aways
Africa's collective GDP, at $1.6 trillion in 2008, is now roughly equal to Brazil's or Russia's. Economic growth has accelerated, making the continent the third-fastest growing region in the world.
Africa's growth acceleration was widespread, including 27 of its 30 largest economies. 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 in recent years. Key to Africa's growth surge were improved political and macroeconomic stability and microeconomic reforms.
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.
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 continent’s top 18 cities could have a combined spending power of $1.3 trillion.
Africa's economic growth is creating substantial new business opportunities that are often overlooked by global companies. MGI 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.
27
The full report can be downloaded at:
McKinsey Global Institutewww.mckinsey.com/mgi
Thank you
28
Back-up
29
Africa’s workforce will become the world’s largest by 2040
SOURCE: United Nations World Population Prospect; McKinsey Global Institute
1 Population aged 15–64.
800
700
600
500
400
300
200
1,200
1,100
1,000
100
0Japan
North America
Europe
Latin America
Southeast Asia
China
India
Africa
40353025201510052000
900
90858075 956560551950 70
Size of the working-age1 populationMillion
30
99%91%
77%
2006–2010
196
23%9%
1%
119
2001–2005
108
1991–2000
All other deals
Deals with infrastructure or other component
Resource deals in Africa > $250 Million%, $ billion
Resource deals in Africa > $250 Million%, $ billion
SOURCE: Dealogic; Factiva; McKinsey Global Institute
Africa’s resource deals increasingly include an infrastructure or industrialization component
▪ 2001 De Beers $7 billion diamonds deal with Botswana government includes a sorting facility, commitment to value and aggregate locally, and creation of 3,000 jobs
▪ 2006 China National Oil Company $2.7 billion deal for deepwater oil rights in Nigeria includes $2 billion investment in Kaduna refinery
▪ 2007 Mittal $2.2 billion deal for iron ore in Senegal includes iron ore processing facility and railways to ports
▪ 2008 China Railway / Sinohydro $2.9 billion deal with DRC for 10 metric tons of copper and 2 metric tons of cobalt includes 3,200 km of railway, 31 hospitals, 145 health centers,2 universities
▪ 2010 China Petroleum and Chemical Corporation$2.5 billion deal for deepwater oil stake includes component to build a refinery in Angola
▪ 2001 De Beers $7 billion diamonds deal with Botswana government includes a sorting facility, commitment to value and aggregate locally, and creation of 3,000 jobs
▪ 2006 China National Oil Company $2.7 billion deal for deepwater oil rights in Nigeria includes $2 billion investment in Kaduna refinery
▪ 2007 Mittal $2.2 billion deal for iron ore in Senegal includes iron ore processing facility and railways to ports
▪ 2008 China Railway / Sinohydro $2.9 billion deal with DRC for 10 metric tons of copper and 2 metric tons of cobalt includes 3,200 km of railway, 31 hospitals, 145 health centers,2 universities
▪ 2010 China Petroleum and Chemical Corporation$2.5 billion deal for deepwater oil stake includes component to build a refinery in Angola
ExamplesExamples
RESOURCES
31
Africa invests $72 billion annually in infrastructure
Annual average infrastructure investment, 2005–08$ billion
11
62
11
6
Private share%
25
SOURCE: Private Participation in Infrastructure (PPI) Database, Africa Infrastructure Country Diagnostic; National budgets; McKinsey Global Institute
21
17
7
3
13
2
8
Total 7253 18
Water & Sanitation 80
Energy 19
Telecom 21
Transport 24
Public and Donor
Private
INFRASTRUCTURE
32
SOURCE: World Bank PPI database; PPIAF: “Building Bridges: China’s Growing Role as Infrastructure Financier for Africa”; ICA (2007); McKinsey Global Institute
Private and Chinese investment in infrastructure will be key to meeting Africa’s infrastructure needs
Private investment
13%
2008
17.9
07
17.9
06
22.1
05
15.4
04
10.5
03
8.7
02
5.1
01
8.0
2000
6.5
Telecom
Transport
Water and sewerage
Energy
Infrastructure investment in Africa$ billion
Compound annual growth rate%
4.5
7.1
1.71.30.60.30.5
46.1%
200706050403022001
Chinese investment
INFRASTRUCTURE