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Report| McKinsey Global Institute

Lions on the move: The progress and potential of African economies

June 2010 | byCharles Roxburgh, Norbert Dörr, Acha Leke, Amine Tazi-Riffi, Arend van Wamelen, Susan Lund, Mutsa Chironga, Tarik Alatovik, Charles Atkins, Nadia Terfous, Till Zeino-Mahmalat

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Africa's collective GDP, at $1.6 trillion in 2008, is now roughly equal to Brazil's or Russia's. While Africa's increased economic momentum is widely recognized, less known are its sources and likely staying power. Among the key findings:

Podcast

Foreseeing the potential rise of Africa's economic lions

MGI's London-based Director Charles Roxburgh and South Africa-based Principal Arend Van Wamelen discuss the sources and staying power of Africa's economic growth, the continent's compelling business opportunities, and the rise of the African urban consumer.

Africa's growth acceleration was widespread, with 27 of its 30 largest economies expanding more rapidly after 2000.

All sectors contributed, including resources, finance, retail, agriculture, transportation and telecommunications. Natural resources directly accounted for just 24 percent of the continent's GDP growth from 2000 through 2008. Key to Africa's growth surge were improved political and macroeconomic stability and microeconomic reforms.

Future economic growth will be supported by Africa's increasing ties to the global economy.

Rising demand for commodities is driving buyers around the world to pay dearly for Africa's natural riches and to forge new types of partnerships with producers. And Africa is gaining greater access to international capital; total foreign capital flows into Africa rose from $15 billion in 2000 to a peak of $87 billion in 2007.

Africa's economic growth is creating substantial new business opportunities that are often overlooked by global companies.

MGI projects that at least four groups of industries—consumer-facing industries, agriculture, resources, and infrastructure—together could generate as much as $2.6 trillion in revenue annually by 2020, or $1 trillion more than today.

Today the rate of return on foreign investment in Africa is higher than in any other developing region.

Early entry into African economies provides opportunities to create markets, establish brands, shape industry structures, influence customer preferences, and establish long-term relationships. Business can help build the Africa of the future.

The rise of the African urban consumer also will fuel long-term growth.

Today, 40 percent of Africans live in urban areas, a portion close to China's and continuing to expand. The number of households with discretionary income is projected to rise by 50 percent over the next 10 years, reaching 128 million. By 2030, the continent's top 18 cities could have combined spending power of $1.3 trillion.

To understand the growth opportunities and challenges of individual economies, MGI developed a framework that groups them in four broad clusters: diversified economies, oil exporters, transition economies, and pre-transition economies. Though imperfect, this framework can guide business leaders and investors developing strategies for the continent and policymakers working to sustain growth.

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