Africa: The Last Frontier of the World Economy

Once dismissed as an economic backwater beset by political turmoil, Africa has become an attractive market for globally active companies seeking long-term profitable growth.

The exhibit below shows the International Monetary Fund’s GDP growth forecasts for key regions of the world economy. With an estimated 2013 real GDP growth of 5.6 percent, Sub-Saharan Africa trails Developing Asia (7.1 percent) but surpasses other emerging/developing regions (Latin America 3.4 percent, Former Soviet Union 3.4 percent, Central and Eastern Europe 2.2 percent). The Sub-Sahara is projected to grow by 6.1 percent in 2014. Nine of the world’s ten fastest growing economies are located in Africa: Sierra Leone, Niger, Côte d’Ivoire, Liberia, Ethiopia, Burkina Faso, Rwanda, Mozambique, and Zambia.

Many African economies are resource-centric, and the continent benefitted from rising global commodity prices (oil, gas, minerals) in the 2000s. But natural resources accounted for just 24 percent of African growth between 2000 and 2008. Non-resource sectors (communications, construction, financial services, tourism, transportation) posted stronger growth rates than energy and raw materials. Even Nigeria, Africa’s most populous country and one that has become a global leader in hydrocarbons, registered strong growth in telecom and other non-energy sectors, signaling increasing diversification to support broad-based economic growth. 

Africa’s long-term trajectory justifies the common designation of the region as the “last frontier” of the global economy. The continent’s aggregate GDP will reach $2.6 trillion by 2020. The total population of Africa will approach 1.4 billion by 2025, approximating that of India. According to McKinsey Global Institute, Africa’s working age population will reach 1.1 billion by 2040, the largest in the world – a vast consumer market whose expectations and demand profile are converging toward Western standards.

Drivers of African Growth

Africa’s robust GDP growth path illustrates the following factors:

  • Strong Macroeconomic Fundamentals: A number of African countries experienced spikes in food prices in the mid- and late-2000s. But inflation (both food-related and total inflation) has subsided in the region under strengthened monetary policies. Fiscal balances and current account deficits are now at manageable levels in most African countries. Debt/GDP ratios have risen in the region, but remain below those of many developed countries. The HIPC (Heavily Indebted and Poor Countries) and MDRI (Multilateral Debt Relief Initiative) programmes have significantly reduced the debt burdens of low-income African countries such as Cameroon, Senegal, Tanzania, and Uganda, freeing those countries to pursue pro-growth policies.
  • Increased Political Stability: Wide-spread violence persists in several African countries (Central African Republic, Somalia, Sudan). Armed conflict recently erupted in historically stable Kenya, while the war in DRC Congo has killed an estimated 5.4 million people (the deadliest conflict since World War II). But ceasefires hold in other African countries (Angola, Burundi, Eritrea-Ethiopia, Mozambique, Rwanda, Sierra Leone), stimulating growth in economies previously deemed too risky for trade and investment.
  • Improved Governance: Parallel with the subsiding of violence in regional conflict zones, a number of African countries are enacting legal/institutional reforms to strengthen governance and spur business investment. Nigeria is pursuing price deregulation, trade liberalization, SOE privatization, and other business-friendly reforms. Other African countries appear among the list of most improved countries in the World Bank’s “Ease of Doing Business” index: Botswana, Ghana, Kenya, Morocco, Rwanda, Senegal, Zambia.
  • Regional Integration: The share of intra-regional trade in Africa (12 percent of total trade) remains well below levels in Asia-Pacific, Europe, and North America, reflecting (1) Africa’s deficient transportation infrastructure, particularly in landlocked interior areas, (2) high tariffs and non-tariff barriers, and (3) burdensome border and customs procedures. Multinational companies headquartered in South Africa (the continent’s largest and most developed economy) often forego lucrative intra-regional transactions to pursue commerce outside the region. Expanding infrastructural investments (including the UN-sponsored “Cairo to Cape Town” trans-African highway) and deepening regional trade integration (notably the Southern African Development Community) promise to unlock the potential of intra-regional trade and investment in Africa.
  • Expanding Middle Class: McKinsey estimates that Africa will host 128 million households with discretionary income by 2020. The rising purchasing power of African’s emerging middle class creates major growth opportunities across a wide range of industries: consumer products, health care, education, housing, financial services, telecommunications.
  • Rising Urbanization: In 1980, 28 percent of Africans lived in cities. The current urbanization share is 40 percent, surpassing that of India and approaching China’s. By 2020, half of all African citizens will reside in cities, expanding the pool of consumers with growing demand for products and services. This urban concentration includes large cities in North Africa and the Sub-Saharan (Cairo, Johannesburg, Cape Town, Lagos, etc.) as well as middle-tier cities like Pretoria, Algiers, Nairobi, and Abidjan.

Commercial Opportunities in Africa

Inbound foreign direct investment flows in Africa reached $42.7 billion in 2011, surpassing Central and Eastern Europe ($40.7 billion) but below FDI inflows in the Former Soviet Union ($84.5 billion), Latin America ($217.0 billion), and Developing Asia ($359.0 billion). Inbound stock FDI in Africa totals $570.0 billion, or 8 percent of global FDI stock–of which South Africa accounts for nearly one-fourth.

But while Africa lags in aggregate FDI, the rate of return on foreign direct investment in Africa (approximately 12 percent) surpasses that of any other region, including Developing Asia. The high ROI on African investments indicates a substantial untapped commercial opportunity for Western companies.

The following sectors offer the foremost opportunities for profitable growth in Africa:

  • Food and Agriculture: With 60 percent of the world’s total uncultivated arable land, Africa constitutes the “bread basket” for a global community that will require greatly expanded food production in coming years. The largest swaths of non-utilized cropland are located in Sudan (72 million hectares), DRC Congo (66 million), Angola (53 million), Zambia (53 million), and Mozambique (49 million). Exploiting Africa’s agriculture potential requires (1) large investments in seeds, fertilizers, and farm equipment to boost crop yields in a region that missed the “Green Revolution” that transformed agriculture in other regions in the 1960s-70s, (2) improvements in infrastructure (irrigation, storage, transportation, processing, distribution) to speed the modernization of African farming, and (3) delivery of technical assistance, financing mechanisms, and business consulting services to African farmers.
  • Healthcare: spending in Africa (approximately $190 per capita) lags behind that of Asia-Pacific ($300) and South America ($760) and far behind Europe ($2500) and North America ($5300). Even South Africa, which boasts Africa’s highest per capita income and most sophisticated healthcare sector, reports lower healthcare spending than other middle income economies. Healthcare expenditures in Africa are certain to grow under the impact of (1) increased spending on drugs and vaccines for treatment of HIV/AIDS, malaria, tuberculosis, and other infectious diseases, (2) heightened demand for chronic disease treatments to address the rapid growth of non-communicable diseases (diabetes, emphysema, cardiovascular ailments, etc.) in Africa, (3) an expanding middle class that displays increased healthcare awareness and rising demand for Western-type health and nutrition products.
  • Infrastructure:  Africa will require $130 billion yearly investments in national and regional infrastructure in coming years: power stations, electricity grids, roads, bridges, railways, airports, port facilities, telecommunications, water and sanitation. Nigeria (which at its current GDP growth rate will soon surpass South Africa as the largest economy in the Sub-Sahara) alone undertakes $45 billion annual investment in infrastructure. Africa’s infrastructural imperative creates important opportunities for Western power companies, engineering and construction firms, and other service providers.


Africa presents an unusual set of challenges for global companies. The African continent comprises 54 countries with diverse cultural traditions, economic structures, and political institutions. Regional integration has only recently begun, while poverty and underdevelopment persist in many African countries. But for companies willing to take the long view of global strategy, Africa holds great promise for sustained profitable growth. 


David Bartlett
Economic Advisor


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