Deloitte predicts Africa’s GDP to expand by 50% by 2019



24-11-2014
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Cape Business News
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"Africa’s gross domestic product (GDP) will grow by 50% to $3.7tn over the next five years as the continent’s rapidly expanding middle class helps drive faster rates of urbanisation and increased consumer demand for goods and services.

The predicted expansion of Africa’s economy will see mobile subscription penetration grow from 72% currently to 97% by 2017 as the continent adds 334 million new smartphone subscribers over that timeframe, according to a new report by Deloitte titled “Africa: A 21st Century View.” Africa’s middle class is also expected to increase to more than half a billion people by 2030, says Deloitte, which broadly defines the continent’s middle class as those earning between $2 and $20 per day.

“Africa presents many opportunities at present and these are only likely to grow as the groundswell of economic momentum being witnessed on the continent gains further traction in coming years,” says Rodger George, Advisory Leader at Deloitte East Africa. “Much of Africa’s economic potential still remains untapped by international investors, particularly in the emerging consumer sector, but this is set to change in the next decade and a half.”

As high growth economies like China, India and Brazil show signs of slowing, the report highlights that international businesses are increasingly looking to the fast growing African market for new growth opportunities. Sub-Saharan Africa’s GDP is expected to expand by 5.1% this year, led by markets such as Chad (9.6%,) the Democratic Republic of the Congo (8.6%,) Côte d’Ivoire (8.5%,) Mozambique (8.3%,) Ethiopia (8.2%) and Nigeria (7%,) according to the International Monetary Fund’s 2014 World Economic Outlook.

George says that Africa’s economic story has thus far been focused on natural resource and commodity exports. In future, it will be driven by the consumer opportunity as rising incomes and urbanisation boost domestic demand. This transformation is coinciding with the growth of the African middle class, a demographic that is characterised by optimism, mobile connectivity and brand consciousness.

“Right now Africa is at a point where South East Asia was 30 years ago – on the cusp of a consumer boom,” says George. “Africa’s population is predominantly young with 680 million, or 60% of the continent’s total population, aged below 25. These younger Africans will play a critical role in the continent’s economic development not only because they will want increased connectivity and access to a wider choice of food, consumer goods and entertainment, but also as they bring a more innovative and entrepreneurial mind-set.”

Africa’s population is also increasingly clustered in large urban centres, and urbanisation is likely to be a key driver of economic activity. Deloitte’s research shows that across the four fastest growing markets in Africa*, nearly a quarter of young consumers said buying well-known brands makes them feel good, while one in four say they can afford to buy the latest gadgets, which points to an awareness and appetite for branded goods and high end products.

“Notwithstanding the many infrastructural challenges that Africa faces, Africans have shown they are willing to innovate,” says George. “Africans have leapfrogged poor or no fixed line infrastructure moving straight to mobile, which has seen the fastest growth in the world over the last five years. In addition Kenya is already one of the world leaders in mobile money and the continent as a whole has a mobile subscription penetration of 72% which is set to grow to 97% by 2017.”

Despite significant growth prospects, Africa remains complex and carries risk. There are 54 countries with different markets and challenges, and issues like a lack of infrastructure, poor governance, fragile security and unreliable logistics can make strategic planning difficult. However, Africa is making progress, with widespread democracy suggesting the dominant trend is positive.

“Our research shows Africa is not suffering from lack of demand, but a lack of supply,” says George. “However, there are no quick wins and businesses must be prepared to engage with the various challenges on a long-term basis while carefully weighing the risks and rewards if they want to reap the benefits of Africa’s emerging consumer economy.”

However, where there are challenges, there are also opportunities to innovate and given the potential for growth the continent offers, the business opportunities in Africa could outweigh the risks as Africa heads towards fulfilling its economic potential.”

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