Growing Africa Cities Helping you size the market October, 2013 1
In a world struggling for growth, Africa stands out 2
The rate of growth is significant in all African countries EIU forecast for GDP Growth 2013-2017 3
Opportunities lie beyond the traditional markets of Cairo, Johannesburg, Cape Town Population of Africa s ten biggest cities, 2013 forecast, m The world has long looked at Cairo, Johannesburg and Cape Town as Africa s heavyweight cities. However, the tropics are crucial for future opportunities. 4
Across the continent a middle class is emerging Africa s attraction increasingly stems from its new middle class, loosely defined by the African Development Bank as anyone who spends between US$2 and US$20 a day in purchasing-power parity terms. 5
And this new urban middle class is young compared to the rest of the world Africa's people are its biggest asset. One day, its workforce could be as dynamic and vital as Asia's - especially compared with that of ageing Europe. 6
To date, Africa s growth story has revolved around commodities. Energy and mining remain crucial to growth. Across the continent, official budgets are still being buoyed by resource revenue. Commodities are estimated to generate one-third of Africa s GDP growth, not counting indirect benefits. However, East Africa is a good example of a region that has managed to achieve high growth rates without relying on significant commodity resources. Botswana Congo DRC Zimbabwe Angola South Africa Namibia Sierra Leone CAR Guinea Ghana 0.3% 0.2% 0.2% 1% 0.3% Rough Diamond Production (2011) 7% 7% 7% 16% % of world's total 18% 0 5,000 10,000 15,000 20,000 25,000 Cts ('000) 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Barrels (bn) 50 45 40 35 30 25 20 15 10 5 0 Bcf 200 180 160 140 120 100 80 60 40 20 0 Oil: Proved Reserves (2011) Long considered dry, East Africa is experiencing a relative resource boom with recent oil discoveries in Sudan and Uganda. Libya NigeriaAngola Algeria Sudan Egypt Gabon Congo Eq. Chad Tunisia Brazz. Guinea Natural Gas: Proved Reserves (2012) Countries like Mozambique, who have made major gas discoveries recently, could change the traditional resources pecking order in Africa. Nigeria Algeria Egypt Libya Tanzania Angola % of world total 7% 6% 5% 4% 3% 2% 1% 0% % of world total 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Sources: EIU, BP, EIA, Kimberly Process 7
But Africa s growth story is becoming more diverse The peace dividend After years of armed conflict and military rule, democracy is the latest wind of change sweeping across the continent Urbanisation - Half of all Africans are under 20, and are rapidly moving to cities: more than 40% of Africans now live in urban areas Improved governance Greater accountability comes hand-in-hand with democracy and the slow strengthening of institutions Trade, not aid Europe is still Africa s largest trading partner, but China s share of trade has exploded in the last decade The rise of technology The number of mobile subscribers in Africa exceeded the 0.5 billion mark in 2010, allowing companies greater access to consumers Infrastructure investment Chinese companies are building roads and upgrading railways, ports and airports 8
Non-traditional industries are experiencing rapid growth: Financial services Banking is undeveloped, but potentially vast. Technology, such as mobile banking, is starting to fill the gap. Sources: EIU, ADB, World Bank, Euromonitor 9
Non-traditional industries are experiencing rapid growth: Infrastructure The African Development Bank is finalising a US$22bn infrastructure bond to try and solve the continent s huge infrastructure gaps. Africa Infrastructure Development Index (2010) Seychelles South Africa Egypt Mauritius Tunisia Morocco Algeria Botswana Zimbabwe Senegal Ghana Rwanda Kenya Uganda Cameroon Angola Sudan Tanzania Sierra Leone Chad Ethiopia Niger Somalia 0 20 40 60 80 100 10
Non-traditional industries are experiencing rapid growth: Tourism By 2017, the number of tourists travelling to sub- Saharan Africa is set to reach 42 million. Top Arrivals by Destination Sources: EIU, ADB, World Bank, Euromonitor 11
And a revolution may be underway in agriculture and retail Africa consumers are under-served and overcharged Frank Braeken, Unilever Africa Source: The Economist profile of African consumers: A Continent goes shopping (2012) Top companies investing in the Africa food sector Company name Source country No of projects Nestle Switzerland 21 Shoprite South Africa 13 Pick n Pay South Africa 8 Olam International Singapore 8 Lonrho UK 6 Nakumatt Holdings Kenya 5 AB Foods UK 5 Choppies Botswana 5 Uchumi Kenya 5 Naivas Kenya 4 Reported land acquisition deals by outside investors Sudan Ethiopia Madagascar Mozambique Tanzania Sierra Leone Benin Liberia Kenya Ghana Angola Nigeria 4 7 18 8 5 21 9 41 96 36 56 17 # of deals ( = actual + reported) 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 Hectares 120 100 80 60 40 20 0 Sources: FDI Intelligence, Land Portal, World Bank. 12
Major challenges do remain Poor roads Bribery and corruption Inefficient border crossings Inadequate rail networks Poor skills Congested ports Red tape Uninviting airports 13
But companies are more interested than ever in expanding into Africa 45% 40% 35% For your company, expanding in Africa is: (% of total respondents) 30% A recent survey conducted by The Economist Group of 217 global companies based in 45 countries revealed that expansion in Africa is a priority for two thirds of them within the next decade. 25% 20% 15% 10% 5% 0% An immediate priority One goal among many A priority within the next decade Irrelevant 14
Companies expanding into Africa are big and reputable brands 15
Cities in Africa paint a much different picture than nations and this is where companies need to focus Companies looking to expand into Africa need to concentrate their strategy where growth and demographics are most favourable in major cities. It is not enough to plan a strategy around nationally-forecasted growth, but rather to have critical forecasting and business information on a particular city. According to EIU data, per-capita expenditure was higher in all 25 African cities studied, than in their respective nations. Citizens in cities spent 94.4% more, per capita, than their countrymen as a whole. The demographic profile of these cities can be much different than the national level picture, posing interesting market opportunities. Per capita city-level expenditure v national-level expenditure Demographic profile of Lagos v Nigeria Source: EIU 16
Cities also offer the best opportunity to overcome infrastructure challenges Across the continent considerable efforts are underway to boost intra- African trade by developing new transport links between major cities. Africa Logistics Network as of 2008 Although financing will be an issue, several international organizations and private companies have pledged their support. 17
By focussing on city-level data rather than national-level data, firms can uncover previously-missed opportunities 18
But certain cities also face major challenges, such as high costs of living. Africa s Most Expensive Cities Source: EIU 19
The EIU has identified 29 key African cities that companies should be targeting Based on key economic drivers, client feedback and a survey of Economist Corporate Network members, the EIU identified 29 African cities (across 21 countries) that are of particular interest. These cities represent some of the best opportunities for growth, but up until now data has been lacking to support the case, and strategy, for market entry. Abidjan Abuja Accra Addis Ababa Alexandria Algiers Cairo Cape Town Casablanca Dakar Dar es Salaam Douala Durban Harare* Ibadan* Johannesburg Kinshasa* Kampala Khartoum Kumasi Lagos Luanda Lusaka Maputo Mombasa Nairobi Port Harcourt* Tripoli Tunis * New cities added in 2013 20
Our data tool allows you to gain a comprehensive understanding of the relative attractiveness of each city, for your company 2. View an in-depth profile of a city 1. Compare indicators across all 25 cities 3. Compare two cities head-to-head 21
The EIU s data tool contains historical data and forecasts for a wide range of crucial indicators Demographics Population Number of households Age distribution Gender distribution (male/female) Income Income distribution (households) Middle class suburbs locations* Expenditure Consumer spending Breakdown by product* Lifestyle indicators^ Internet penetration Mobile phone usage Passenger car ownership In addition to historical data for each city, the tool provides 5-year forecasts to 2017, allowing you to understand how each city s relative attractiveness will change. ^ Limited availability; * No forecast 22
How are companies using this data? Forecasting sales of their products and services in African cities Benchmarking African cities to find the best opportunities for their products and services Forecasting demand for their products and services Determining wages for staff in various African cities Finding new market opportunities among African consumers 23
Want to know more? Please contact us. Charles Verbeken Business Development Manager, MEA Tel: +971 44 33 4211 Email: charlesverbeken@eiu.com Robert Metz Senior Analyst Tel: +971 44 33 4212 Email: robertmetz@eiu.com Conor Griffin Analyst, MEA Tel: +971 44 33 4216 Email: conorgriffin@eiu.com 24