Reimagining economic growth in Africa: Turning diversity into opportunity

 

This article was written by Mayowa KuyoroAcha LekeOlivia WhiteJonathan WoetzelKartik Jayaram, and Kendyll Hicks. The original article was published by McKinsey & Company. You can find the article here.

Africa’s economy downshifted over the last decade, yet half of its people live in countries that have thrived on the continent. Africa has the human capital and natural resources to accelerate productivity and reimagine its economic growth, which is, more than ever, vital for the welfare of the world.

Africa is home to the world’s youngest and fastest-growing population, burgeoning cities, and bold innovations in everything from fintech to clean energy. With its population expected to nearly double to 2.5 billion people by 2050, the continent presents myriad opportunities for robust, inclusive growth that harness its rich natural resources and abundant human potential to increase prosperity not only in Africa but around the world.

These strengths and assets present a chance for the continent to vastly improve its productivity and reverse the economic deceleration it endured from 2010 to 2019. GDP growth fell 35 percent over that period—and then the COVID-19 pandemic took hold, followed by the Russian invasion of Ukraine. Those events set off shifts that are still working their way through the global economy. Today, 60 percent of Africa’s population lives in poverty, the result of per capita income growth that has averaged just 1.1 percent a year for the past several decades.

Yet the continent-wide statistics obscure successes in many of its constituent countries that can serve as models to establish productivity as the foundation of Africa’s economic growth. Over the past decade, certain countries, cities, sectors, and companies have been beacons of innovation, productivity, and growth—there is no “one Africa.” In those beacons lie lessons and innovations that can reinvigorate the African economy. Our new research indicates that abundant growth and development are still possible in Africa, still happening—and, more than ever, vital for the welfare of the world.

Africa’s growth has downshifted since 2010 after a promising opening to the millennium
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Africa’s real GDP per capita has grown only 1.1% annually since 1990.

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Bar charts compare the compound annual growth of GDP for Africa, China, and India over three time periods: 1990 to 2000, 2000 to 2010, and 2010 to 2019. Remaining well below China’s and India’s rates, Africa’s rate averaged 3.7%. Another set of bar charts compare the compound annual growth in population over the same time periods, and Africa stands above the other two with an average of 2.6%.

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There is no ‘one Africa’—the continent’s recent slowdown masks divergence across countries
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Wide variation in economic performance across the continent makes it clear that there is no ‘one Africa.’

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A stylized pie chart plots the four country categories’ share of Africa’s 2019 GDP, with the recent slowdowns leading at 46%. A second chart plots the categories’ share of Africa’s 2019 population, with the consistent growers leading at 41% and recent slowdowns closely following at 37%.

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Africa’s economies are shifting rapidly from agriculture and extraction to services, but productivity still lags
Africa is undergoing a fundamental structural shift to services.

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A sequence of stacked bar charts plots Africa’s distribution of employment over time across four sectors. Agriculture leads but shrinks from 58% in 2000 to 49% in 2019. The services sector gains the most, rising from 30% to 39% over the same period. The other two sectors, extraction and industrial, hold steady. A second sequence of stacked bar charts plot those same sectors’ gross value added. Services again gains, rising from 50% to 56%, almost entirely at the expense of the extraction sector’s share.

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Improved productivity will create the jobs needed to sustain Africa’s burgeoning population
Africa will add 796 people to the global workforce and be home to the largest and youngest population by 2050.

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A line chart plots the change in the working age population across six geographies from 1950 to 2020, and projected through 2050. Africa leads with a line that rises sharply from left to right, reaching above 1.5 billion in 2050. Next is India, China and Europe, which end up around 1 billion each. And below those are North America and Latin America, which end up around 500 million.

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Imagining a more interconnected Africa
Africa trades more with other world regions than itself.

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Two sets of stacked bar charts show the sources of Africa’s imports and the destinations of African imports across 13 trade sectors, specially highlighting how much trade stays within Africa. Only 10% of African countries’ imports come from another African country. Top sectors for intra-Africa imports are mining, food and beverages, wood and paper products, and oil and gas. Only 17% of African countries’ exports go to another African country. Top sectors for intra-Africa exports include food and beverages, machinery, wood and paper products, and medical supplies and pharmaceuticals.

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Africa is the world’s fastest urbanizing region, but depends too heavily on its primary cities
African second cities are undersized compared with primary cities.

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A dot plot shows a population comparison of the largest and second-largest cities in 14 African countries. The countries are shown in rows, with two circles representing the cities and a line connecting them. Cameroon is at the top with primary city Yaounde connected by a short line to second city Douala, whose population is about 90% of the size. The next closest pairs of cities are in Malawi, Ghana, Republic of Congo, and South Africa. The circle pairs get farther apart as you go downward. Adjacent is a similarly formatted chart of select non-African countries whose second cities are about 75% of the size of their primary cities: China, India, the United States, and Brazil.

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Africa’s many large companies have been resilient—and have considerable unmet potential for growth
Africa has at least 345 companies with revenues of $1 billion or more, roughly 40% of which are headquartered in South Africa.

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A map of Africa overlays circles atop the 27 countries that have companies worth at least 1 billion dollars. The circles are sized proportionally by the number of billion-dollar companies, lia with 23, and Morocco with 20.

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Africa has potential to unlock more than $3 trillion in consumer spending—but this will take more than a growing population
Consumption in Africa lags behind other developing regions, in part because more people on the continent live in poverty.

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A series of stacked bar charts compares Africa to other geographies by the share of their populations who consume less than $11 a day between 2000 and 2020. In Africa, about 90% of the population was in that category, falling to about 80% in 2020. In China, nearly 100% were in that category in 2000, but that dropped to 80% by 2009, matching Africa’s 2020 share. In India, that group went from 90% in 2000 to 80% in 2012. In Southeast Asia, it went from 90% in 2000 to 80% in 2003. And in Latin America, that group was at 60% in 2000, already well below Africa’s 2020 level.

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Improving and increasing the productivity of all sectors must power Africa’s economic growth going forward. The continent is blessed with a young and vibrant population, rich natural resources, thriving cities, and emerging innovations, all assets that can be enlisted to enhance output and add value. Successes achieved at granular levels in countries, cities, and sectors offer models to reaccelerate growth. Increasing digitization, developing talent, collaborating more regionally, supporting more business champions, and building green businesses are just some of the ways Africa can increase productivity. The world needs a thriving Africa to make the transition to net zero, lessen the emerging impact of demographic decline, and give the continent its rightful place in global commerce and trade. Achieving sustainable growth from a foundation of strong productivity will increase African resilience and spread well-being and prosperity across the continent.

 

 

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