Francois Dosold – Risk and Resilience Consultant, Protean Business Solutions
With the coronavirus pandemic closing various economies at the beginning of the second quarter of the year, 2020 has had more than its fair share of destructive events so far. As of June, governments are slowly starting to reopen their economies.
So far, Africa has shocked the world with the low number of COVID-19 cases – perhaps an indication of how resilient African countries are to various challenges. As a continent of endless untapped potential, we continue our fight for socioeconomic development. Both global and local companies underestimate this potential – yet a company like South African Breweries (SAB) has proved that taking on short-term risk for long-term gain pays dividends (and offers a high return on investment). Every stakeholder, from government to citizens, need to find solutions to the country’s challenges to make the road ahead a smoother one.
This will not be easy. As the influence of climate change is felt around the globe, Africa will also experience problems. Drought across the continent is resulting in crop reduction and worsening human health, leaving the population and economy vulnerable. One in three Africans still lives below the global poverty line, meaning nearly 430 million Africans live on $1.90 per day and represent 70% of the world’s poorest individuals. However, the campaign to decrease poverty seems to be having an effect, according the World Data Lab. At the beginning of 2020, roughly 3 000 Africans per day were being lifted out of the ‘poverty’ category (a total of 1 million by the end of 2020, according to the Brookings Institute (Brookings, 2019).
The trend would have continued, allowing more than 45 million Africans to lift themselves out of poverty by 2030, but the influence of COVID-19 has seen that progress reverse. The African Union (AU) projects a loss of 20 million jobs on the continent. At the time of writing, the youth already account for roughly 60% of the total unemployment rate (2019) according to the World Bank, which found that university graduates are facing severe challenges in trying to enter the formal job market.
In terms of good governance, the Foresight Africa 2020 report explains that Africa is making good progress in this regard. The improvement can be traced to institutional reforms and new leaders that look to prioritise Africa as a global player. But the continent is far from reaching its objective. To identify the economic cost of corruption, the Global Financial Integrity report explains that just more than $30 billion to $69 billion was lost to unlawful financial flows for the time period of 2005 to 2014 (Kodongo, 2018). The sub-Saharan African (SSA) region is seen as the least corrupt region in Africa, however Ghana, South Africa and Senegal are identified as the most corrupt nations on the continent, according to the Corruption Perception Index (CPI). There are still many nations that have not achieved the needed reforms to rule out corruption and dictatorship. High levels of political instability, vulnerability to terrorist attacks and poor governance will hamper Africa as it tries to achieve its economic and social targets.
The continent has many developing nations and therefore the importance of inexpensive, good-quality infrastructure cannot be overemphasised, particularly with climate change an increasing risk. The African Development Bank forecasts the need of $170 billion annually for infrastructure investments if the continent is to reach its potential. It cannot reach its goals with crippled infrastructure in the water, transport, and energy sectors. Political agendas get in the way and lack of technical expertise is a problem, and although digital and technological infrastructure is improving, cybercrime alone cost the continent nearly $3.5 billion in 2018, according to Serianu, an IT and consulting firm. Cyber criminals are finding African businesses an easy target as various firms in Africa do not comply with the security regulations as advised by governments and institutions.
Africa is not simply a continent of poverty. For 2019, the World Economic Forum (WEF) identified the top five highest GDP growth economies in Africa, with all economies recording a growth of more than 5%: Ethiopia (8.5%), Côte d’Ivoire (7.4%), Senegal (7%), Tanzania (6.4%) and Ghana (6.3%). Prior to the lockdowns, the African Development Bank projected a growth rate of 3.9% for the African continent in 2020, while growth of 4.1% was projected for 2021. The continent is rich with natural resources, holding roughly 30% of the world’s mineral reserves, yet only ten African nations are among the top 100 most competitive, according to the 2018 Global Competitiveness Index.
If leaders can look to work together and successfully implement the Africa Continental Free Trade Area (AfCFTA), domestic manufacturing is projected to grow, with annual output to increase to more than $1 trillion by the end of 2025, and more than 14 million job creation opportunities (Brookings, 2019). With our wealth of natural resources, the risk of commodity price volatility, as has been seen in recent years, has allowed leaders to think strategically and start to diversify their economies. An increase in intra-African exports has further facilitated the production of domestic goods and services, with a decrease in dependence on imported goods and services.
The change of demographics and an improvement in the business environment has led to the highest growth of the middle class, with nearly 45% of Africa’s population falling into this middle-class grouping (Signe, 2019). Domestic consumption on the continent is projected to reach more than $2.5 trillion at the end of 2030. As the middle class continues to grow, Africa’s population will double by the end of 2050, creating a bigger market for consumers. Although Africa is still playing catch-up towards Industry 4.0, the continent is leading the world in mobile adoption (WEF, 2019), allowing for the identification of new business models, with the informal sector getting more involved into the economy. The adoption of mobile applications has seen companies such as Novartis and Olam improve the management of their supply chains, suppliers, and customers. Mobile adoption has been viewed as highly successful as it reaches all consumers, from urbanised cities to rural areas. Africa’s financial sector has gained more access to international capital markets and is no longer dependent on domestic financial services only.
The adage “the higher the risk, the higher the reward” certainly applies to Africa. Return models cannot always be predicted, and one sometimes needs more patience then expected to see the dividends on one’s investment. However, Africa offers a range of new markets and consumers. With the right strategic planning and foresight, global organisations can find their next success story on the African continent. It’s a real pity that COVID-19 will delay the continent from reaching its objectives, but growth has been remarkable in recent years, and strong leadership, together with the right reforms, can make the continent resilient enough to capitalise on future opportunities.