Businesses taking the long view ought to consider investing in Africa, where the combination of a young population, urbanisation and natural resources will make it a “pillar of growth”, according to two McKinsey executives.
“It’s a little like thinking about whether [companies] should have gone into China 25 years ago,” said Georges Desvaux, McKinsey partner and co-author of a new book, Africa’s Business Revolution.
“Having lived in China at the time, you can see the parallels playing out in Africa,” he said in a McKinsey podcast. “It’s roughly the same population but also what I find quite extraordinary is the level of energy, the level of development. When you go to a city like Lagos, you really think you are in China 25 years ago.”
But he highlighted two important differences: Africa’s young population and the availability of technology – the latter enabling the continent to leapfrog other places and open more opportunities, in the use of mobile money for example.
Already, there are more than 400 companies with revenues of more than $1bn operating in Africa and which are often growing faster than their peers elsewhere the world, he pointed out.
“It’s actually a healthy place if you know what you’re doing and if you know how to capture the opportunity,” he said.
His colleague and co-author Acha Leke offered an example. “In Nigeria alone, there are more babies born every year than in the whole of Western Europe. If you’re a diaper company, where would you want to be based?”
He conceded that setting up operations in Africa was not without risk but argued that “there’s a big difference between perceived risk and the reality on the ground”.
Leke’s advice includes diversifying a portfolio across multiple countries, but including at least one of South Africa, Nigeria, or Egypt in order to build scale. “If you’re a consumer-facing company, think cities not countries. So what 20 cities do you want to be in versus what five countries?”
After selecting locations, three other vital questions need to be addressed, he suggested: What parts do you want to innovate in? How are you going to build resilience? How are you going to build the talent you need?
“The most successful companies have come up at it from wanting to do the right thing for the continent,” Leke added. “They didn’t come here just because they wanted to make money. They said, ‘I want to solve a problem and on the back of that I will make money.’ You have a longer-term perspective.”
Sourced from McKinsey; additional content by WARC staff/warc.com