Africa’s future? There’s a case for optimism

Published Sep 15, 2016


Economic statistics can be used to paint very different pictures of Africa’s economic prospects. Pessimists can point to figures showing slower overall growth, rising budget and current account deficits, and an increase in political instability in many nations. But there is a robust - and often unsung - case for optimism about future growth, including rising consumer and business spending, and 400 successful African firms with revenue of $1 billion (R14bn).

The International Monetary Fund (IMF) projects that Africa will be the second-fastest growing region to 2020.

Between 2010 and 2015, Africa’s gross domestic product (GDP) grew at 3.3 percent a year as a whole, compared with an average of 5.4 percent between 2000 and 2010. This decline has mainly been in two groups of countries that generate about 60 percent of African GDP: a sharp fall in the oil price has undermined growth in oil-exporting countries, and the political turmoil of the Arab Spring has badly affected northern economies.

However, 40 percent of Africa’s GDP is generated by economies that have experienced accelerating growth from 4.1 percent a year in 2000 to 2010 to 4.4 percent in 2010 to 2015 - even in the face of challenging global conditions.

Look beyond recent shocks and the opportunities are huge. New McKinsey Global Institute (MGI) research finds that consumption by households is expected to grow from $1.4 trillion in 2015 at an annual rate of almost 4 percent a year to total $2.1trln in 2025, almost double Africa’s household consumption in 2010 of $1.1trln. Together with business spending, which is expected to grow from $2.6trln in 2015 to $3.5trln over this period, Africa’s markets will present a $5.6trln opportunity by 2025.


Interview a chief executive in the consumer-facing sector today, and you may encounter pessimism. Indeed, urban consumers in five out of six countries surveyed by MGI this year said they had cut back spending (Ethiopia was the exception). Two-thirds of respondents expressed worry about their finances. But this downbeat message appears to reflect the present rather than the future. The same survey showed that 83 percent of respondents expected their household situation to improve over the next two years; in Ghana and Nigeria, that share was 90 percent.

The survey mirrors data on household consumption showing that growth in many countries slowed in 2015. But consumption growth will recover, due to rapid population growth and rising income factors. Africa will have a larger labour force than either China or India by 2034.

Expect to see a shift in the geographic spread of African consumption. South Africa’s share is expected to decline from 15 percent in 2005 to 12 percent in 2025, and Nigeria’s from 26 percent to 22 percent (Nigeria is still set to remain the biggest market). But we project that east Africa’s share of consumption will rise from 12 percent to 15 percent, and Francophone Africa from 9 percent to 11 percent.

Companies need to keep track of changing patterns of consumption, and develop deep understanding of income and demographic trends in order to target the most promising consumer markets. Definitions of “middle class” are hotly debated; MGI’s view is that all households with income above $5 000 a year are potential consumers as they spend more than half their income on discretionary items. Based on this, our analysis shows that four broad groups of African consumers will account for most new consumption spending over the next decade.

First are affluent consumers (earning more than $50 000 a year) in north Africa and South Africa, who are expected to spend an additional $174bn a year by 2025, or 27 percent of African consumption growth. Their biggest spending categories will be housing, consumer goods, education and transportation services.

The second is Nigeria, expected to account for 15 percent of growth in African consumer spending to 2025, evenly split between affluent households, “global” consumers earning $20 000 to $50 000 a year and “emerging” consumers with annual incomes of $5 000 to $20 000. Here, the largest categories will be food and beverages, housing, consumer goods, education and transportation services.

Third is east Africa, where emerging and global consumers are expected to account for 14 percent of Africa’s consumption growth to 2025. Food and beverages will be by far the largest spending category, but there will also be opportunities in housing, consumer goods and hospitality and recreation.

Finally, emerging and global consumers in west and central Africa are set to generate 11 percent of African consumption growth, spending more than $70bn in the period to 2025.

The pessimists on Africa may be out in force, but there are strong grounds for renewed optimism.

* Georges Desvaux is senior partner and managing partner of Africa, and Acha Leke is a senior partner at McKinsey South Africa. Lions on the move II: Realising the potential of Africa’s economies is published by the McKinsey Global Institute. The report can be downloaded at

* The views expressed here do not necessarily reflect those of Independent Media.


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