Insights

Africa’s Multi-billion Dollar Potential

We believe Africa has the space—and need—not just for the hundreds of billion-dollar companies that are thriving across the continent today but also for many more.Did you know there are approximately 400 companies earning revenues of $1 billion or more and nearly 700 companies with revenue greater than $500 million in Africa? These companies are increasingly regional or pan-African. They have grown faster than their peers in the rest of the world in local currency terms, and they are also more profitable than their global peers in most sectors. Between them, they boasted $1.4 trillion in revenues in 2015. Around two-fifths of them are publicly listed, and the remainder are privately held. Just over half are owned by Africa-based private shareholders, while 27 percent are foreign-based multinationals and 17 percent are state-owned enterprises.

One of those big firms is Nigeria-based Dangote Industries, which manufactures commodities, including cement, sugar, and flour, in massive volumes. By 2017, the Dangote Group’s annual revenues exceeded $4 billion, and founder Aliko Dangote had become Africa’s richest person and the world’s richest black man. Yet he continued to aim high. His new growth projects include the world’s largest single-train petroleum refinery, scheduled to open at the end of 2019. It is being built near Lagos, Nigeria’s bustling commercial capital, at a cost of $12 billion. Dangote’s philosophy is: “Think big, dream big, and do big things.”
Another example is South Africa–based MTN, the mobile-phone company with more than 200 million subscribers in 22 nations in Africa and the Middle East. Yet another is Ethiopian Airlines, which has driven an aggressive expansion strategy that nearly tripled its passenger numbers from 3.1 million in 2010 to 8.8 million in 2017. In the year to June 2017, the airline recorded a full-year profit of $232.0 million on revenues of $2.7 billion—more than many global airlines.

Despite some notable corporate success stories, however, Africa lags behind other emerging regions in hosting large companies. Excluding South Africa, it has just 60 percent of the number one would expect if it were on a par with peer regions. In fact, nearly half of Africa’s big firms are based in South Africa. Moreover, Africa’s big companies are smaller, on average, than those in other emerging economies. Because of these twin issues—too few large firms and too little scale among those that do exist—the total revenue pool of large companies in Africa (excluding South Africa) is about a third of what it could be.
Not every company will succeed in translating the potential we’ve just described into growth that is rapid, consistent, and profitable. In a marketplace that is both complex and increasingly competitive, there are huge differences in performance between the most successful companies and the rest. Some companies are the lions of African business, standing head and shoulders above the rest. Others risk becoming the lions’ prey.

What does it take to win in Africa? As in any market, deciding where and how to compete is critical. Companies with exposure to high-growth cities, countries, and regions improve their odds. Likewise, companies that ride strong industry trends, such as rapid adoption of mobile and digital technology, have much better odds of outperforming. Sometimes those are “trends with a twist,” such as Africa’s large unserved markets or infrastructure gaps: to benefit from such trends, companies need the imagination to see unmet demand or unsolved problems as opportunities
But good strategic choices are just one piece of the puzzle for companies seeking to prosper in Africa. A smart approach to geographic expansion should go hand in hand with much more: a plan for innovating your business model. Operational solutions that will help you manage risk and boost your company’s resilience to Africa’s inevitable shocks. Fresh approaches to unleash Africa’s talent, including nurturing vocational and managerial skills at scale and fostering a new kind of business leader for the African century ahead—and a plan for doing good while doing well. These priorities are being powerfully illustrated right now by many local leaders who are pursuing them. In “Leadership lessons from Africa’s trailblazers” (to be published next month), we’ll introduce you to five such leaders, and in Africa’s Business Revolution, you’ll meet many more.

leslyicdigitalAfrica’s Multi-billion Dollar Potential