Posted by: Home Strange Home | July 1, 2010

“African Lions” According to McKinsey Global Institute

Like the Asian Tigers of yesterday, here come the African Lions of tomorrow – the African market is not to be ignored.  That is the main message of the report, “Lions on the Move: the Progress and Potential of African Economies,” recently published in June by the McKinsey Global Institute, the economic research arm of the management consulting firm McKinsey & Company, available online.

The report was authored by several Directors of the McKinsey Global Institute in cooperation with several external economists and academics.  It presents a positive picture of economic growth on the African continent over the past decade and optimistic projections for the next ten years.

The seventy-page report necessarily looks at Africa in the aggregate, for example citing a collective GDP of $1.6 trillion across 53 countries in 2008 (projected to be $2.6 trillion in 2020) and noting that more than 52 African cities now have a population of 1 million or more each.  The document presents a picture of newfound growth from the late 1990s to present, following the stagnation experienced in the 1980s and 1990s, and speaks of a “growth acceleration” since 2000. 

The authors write that real GDP for Africa went up 4.9% per annum during the period 2000 to 2008, twice the rate of growth of the 1980s and 1990s.  The Institute argues that this improved growth cannot be attributed only to the rise in global commodity prices over the past decade (in particular the prices of oil and minerals); they assert the growth “goes beyond a resource boom.” 

According to the Institute’s calculations, the resource sector constituted only 24% of the change in real GDP over the period 2002 to 2007.  The resource sector was followed by the wholesale and retail sector (13%), agriculture (12%), transport and telecoms (10%), and manufacturing (9%), the latter sector widely thought to be crucial to export-oriented economic growth.   GDP growth in non-resource-rich countries was found to be comparable to GDP growth in resource-rich countries.

Africa has historically suffered from low labor productivity and has high labor unit costs relative to China and India, rendering it non-competitive in many labor-intensive exports (the notable exception being Mauritius, which has built a successful export-oriented manufacturing sector in textiles).  The MGI report finds that labor productivity, which was declining in many countries throughout the 1980s and 1990s, has increased 2.7% annually since 2000. 

The McKinsey Global Institute believe this “growth acceleration” over the past decade is sustainable, unlike the 1970s oil boom whose progress was wiped out by the collapse of oil and many other commodity prices in the 1980s.  The report segments African countries into four categories: diversified economies (e.g. South Africa, Morocco, and Egypt); oil exporters (e.g. Angola, Algeria, Gabon, and Nigeria); transition economies (e.g. Kenya, Tanzania, Zambia, and Cameroon); and pre-transition economies (e.g. Democratic Republic of Congo, Ethiopia, and Mali).   

The document also highlights the “growing middle class African consumer” and says business opportunities in consumer, resources, agriculture, and infrastructure abound, particularly for the former category in FMCG, telecoms, and banking.   


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