Lands of Opportunity

Tapping African Potential

Kid on the phone_Africa_DPA
Afrcia is skipping landlines, nearly everybody uses a mobile phone.
  • Why it matters

    Why it matters

    Despite its many woes, Africa has growing economies and an emerging, consumer-oriented middle class – making it an attractive market for many German companies.

  • Facts

    Facts

    • Five of the 10 fastest growing national economies in the world are in Africa.
    • In a survey of 200 German companies, 65 percent described their activities in Africa as “successful.”
    • Allianz, Bayer, BASF and Siemens are all very active in Ghana.
  • Audio

    Audio

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For decades, Africa’s conflicts, wars, catastrophes and corruption have made headlines. Lately, stories of terrorists in Nigeria, the Ebola epidemic in West Africa, and overloaded refugee boats in the Mediterranean have compounded the impression of an endlessly troubled continent.

But there is another narrative, one of growth. Africa’s gross domestic product has more than doubled since 2000. The continent’s 48 sub-Saharan countries may grow on average 6 percent, much faster than the rest of the world. Five of the 10 fastest growing national economies in the world are in Africa. At least 18 of its countries are among the world’s top 50 nations pushing for reform, according to the World Bank’s Doing Business indicator.

In a strategy paper made available to Handelsblatt, the Federation of German Industries (BDI) described Africa as “the opportunity continent, with great potential for industry. Africa is on the verge of changing itself.” Africa must be considered an economic partner and a future market – no longer merely an aid recipient.

The growing African middle class represents a corresponding increase in purchasing power – albeit with lower per capita incomes than in Europe – and boasts a burgeoning young population that enthusiastically embraces new technologies.

German businesses are moving to Africa primarily because of its market for consumer and investment goods.

German companies already engaged in Africa, whether as exporters or with local, on-site presences, are pleased with how business is going on the continent. The sentiment is reflected in a study conducted by the Handelsblatt Research Institute on behalf of consulting firm KPMG, and in collaboration with the polling institute Forsa. The study said 65 percent of 200 surveyed companies described their activities in Africa as “successful.” Other companies are keen to enter this difficult but gigantic growth market as early as possible.

The availability of raw materials and lower wages only play a minor role in decisions about expansion to Africa. The survey of executive managers showed that German businesses were moving to Africa primarily because of its market for consumer and investment goods. Traditionally strong German industries such as mechanical engineering, energy technology and the automobile industries have led the charge.

BMW Pretoria_DPA
BMWs produced in Pretoria, destined for the growing middle class in sub-Saharan countries. Source: DPA

 

These businesses are gravitating toward the improving infrastructure, urbanization and growing, consumption-oriented middle class. Africa is leaping over entire stages of technological development: The continent has largely bypassed traditional landlines and instead embraced cell phones; it is comfortable with mobile banking; decentralized solar plants are being built rather than giant power plants for energy.

The top destination for German businesses is South Africa, partly because it is considered the springboard for the whole sub-Saharan region. The surveyed company managers also saw large potential in Nigeria, followed by Angola, Egypt, Morocco and Kenya.

It is not only German companies who have noticed Africa’s potential, competition is already intense for a slice of its market. “German machines are purchased for production-critical jobs, Chinese machines for simple tasks,” said Reinhold Festge, president of the German Engineering Federation, a BDI member.

“Africa is no longer only a destination for investment goods manufacturers,” said Mo Ibrahim, a Sudanese-British mobile phone tycoon and expert on corporate governance. “The market for consumer goods is growing strong. The incomes are rising, a middle class is emerging.”

 

Gross domestic product per capita

 

Ghana is a prime example. A relatively stable political situation and a good business climate has set the West African nation apart since the 1990s. In the past decade, the gross domestic product per capita in the metropolitan area of the capital Accra has multiplied more than five times, from $300 to over $1,600.

More than 100 German companies, or local businesses under German management, are located in this West African country – among them Allianz, Bayer, BASF and Siemens. German industries see great potential here for renewable energies, hydro power, construction, transportation and telecommunications.

Nigeria is another promising country, despite its widespread corruption and emergence of the Boko Haram terrorist organization. “In Nigeria, a middle class of over 40 million inhabitants is demanding high-quality consumer goods,” said Robert Kappel, an economist and president of the Giga research institute. “There are good opportunities for foreign and domestic investors in all economic sectors.”

Street scene in Kampala Uganda_DPA
Urbanization, investments in infrastructure and a growing middle class are contributing to Africa’s economic growth. Source: DPA

 

Companies aren’t expecting the corruption problems to disappear in the foreseeable future. Eleven percent of the German firms surveyed by Forsa said the problem would actually increase over the next five years. But they are trying to be part of making things better, for example, through investing in the training of skilled workers.

One thing is for certain, they have no intention of forsaking this land of opportunity.

 

Wolfgang Drechsler has been Handelsblatt’s South Africa correspondent since 1995. Thomas Sigmund heads the Handelsblatt Berlin office. Ulf Sommer covers companies and financial markets. To contact the authors: drechsler@handelsblatt.com, sigmund@handelsblatt.com and sommer@handelsblatt.com

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