AFRICAN GROWTH MARKETS AND OPPORTUNITIES

AFRICAN GROWTH MARKETS AND OPPORTUNITIES Presentation at the PMA Fresh Connections Conference By Hannah Edinger, Frontier Advisory Cape Town, August 13, 2015

Contents of Presentation Africa Overview Disaggregating the African Opportunity The Role of Demographics Estimating Africa s Middle Class Regional Integration? The Emerging Arc Economy Strategies for Growth Markets

Africa Overview

African Markets are Looking Up Real GDP Growth by Region (%), (2008-2020f) 10 8 6 4 2 Developing Asia SSA 0-2 2008 2009 2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f 2020f -4-6 -8 Advanced economies Commonwealth of Independent States Emerging and developing Asia Emerging and developing Europe Latin America and the Caribbean Middle East and North Africa Sub-Saharan Africa SSA is the second-fastest growing region in the world, after Developing Asia Source: IMF, 2015

Key Drivers of Growth Still underwritten by natural resources and commodities in many countries; impact of commodity price decline Growth also due to improved macroeconomic, business and investment frameworks Capital inflows from BRICS, new players, traditional players Deepening capital markets growing equity culture Remittances as a capital provider Rollout of sizeable infrastructure development projects Slowly improving intra-regional trade networks, integration policies Changing demographics, including urbanisation and population growth Emergence of African multinationals

Tunisia Morocco Mauritius Lesotho Comoros Swaziland Egypt South Africa Togo Kenya Madagascar Uganda Sao Tome and Principe Senegal Liberia Niger Djibouti Namibia Burundi Gambia Cabo Verde Tanzania Malawi Zambia Zimbabwe Cote d'ivoire Cameroon Eritrea Mali Benin Ethiopia Central African Republic Rwanda Seychelles Mozambique Botswana Burkina Faso Ghana Sierra Leone Somalia Congo, Dem. Rep. Congo, Rep. Equatorial Guinea Gabon Sudan Guinea Libya Nigeria Algeria Chad Guinea-Bissau Mauritania Angola % Commodity Exports as Share of Merchandise Exports (2012/2013) Commodity exports account for >70% of merchandise exports in 74% of African countries Commodity exports account for >90% of merchandise exports in 45% of African countries 100 80 60 40 20 0 Source: IMF, 2015

Sectoral Drivers of Growth Commodities remain a key driver of growth, with mining driving growth in resource-rich countries and new oil & gas fields coming on stream; 17% of global exploration expenditure and mining investment during 2013 (up from 5% in 1990s) Agriculture constitutes large share of a number of countries economies but still underperforms and is subject to nature; Africa remains net food importer Manufacturing still lagging other regions given weak industrial infrastructure (bottlenecks, power shortages, red tape for investors) Infrastructure financing gap increasingly met by non-oecd financiers; link to resources, regional integration; focus on power, ICT, natural gas, rail Consumer goods supported by rising GDP per capita, strong population growth and urbanisation (50% urban by 2035); small real middle class, however; consumer expenditure expected to accelerate from US$600bn in 2010 to US$1tr in 2020 Services are improving, including transport, real estate, financial, trade and especially ICT services; with greater diffusion of mobile phones and PCs

A Fragmented Africa French West Africa Population: 240m Languages: French GDP Growth: 2.3% GDP: US$198bn North Africa Population: 221m Languages: Arabic, French, English GDP Growth: 4.6% GDP: US$788bn Horn of Africa Population: 106m Languages: Arabic, French, English, Somali, Amharic GDP Growth: 4.7% GDP: US$59bn English West Africa Population: 207m Languages: English GDP Growth: 8.5% GDP: US$338bn Lusophone Africa Population: 49m Languages: Portuguese GDP Growth: 3% GDP: US$140bn East Africa Population: 164m Languages: English, Swahili GDP Growth: 5.5% GDP: US$115bn Source: IMF, 2015 Southern Africa Population: 88m Languages: English GDP Growth: 3.9% GDP: US$419bn *GDP Growth = Average growth for the region

Regional Economic Growth GDP growth (2015f & 2020f) West Africa 2015f: 3.3% 2020f: 5.9% North Africa 2015f: 3.7% 2020f: 4.5% Central Africa 2015f: 3.3% 2020f:3.2% East Africa 2015f: 5.2% 2020f: 5.5% Southern Africa 2015f: 4.3% 2020f: 5.4% Source: IMF, 2015

Regional Demographics Population (2015f & 2020f) West Africa 2015f: 344.3m 2020f: 393.8m CAGR: 2.7% Central Africa 2015f: 153m 2020f: 175.8m CAGR: 2.8% North Africa 2015f: 217.3m 2020f: 238.6m CAGR: 1.9% East Africa 2015f: 290.9m 2020f: 330.2m CAGR: 2.6% Source: IMF, 2015 Southern Africa 2015f: 137.7m 2020f: 152.2m CAGR: 2%

Regional Urbanisation Urbanisation (2014) West Africa 2014: 45.2% North Africa 2014: 58.6% Central Africa 2014: 49.1% East Africa 2014: 28.7% Southern Africa 2014: 37.6% Source: World Bank,, 2015

Disaggregating the African Opportunity

Growth Hotspots Real GDP Growth (CAGR%) (2015f-2020f) 15.6% 8.6% 9.3% 8.9% 9.6% 9.1% 9% 10% CAGR based on GDP (PPP) 10.4% 9.2% 9% >8.5% 6.5%-8.5% 4.5%-6.4% 8.7% 9% 9.5% 0%-4.4% <0% No data Source: IMF, 2015 GDP <US$5bn (2015)

Income Hotspots US$15,200 Real GDP Per Capita (2020f) US$17,600 US$31,300 GDP per capita (PPP) >US$30,000 US$20,000-US$29,999 US$15,000-US$19,999 US$10,000-US$14,999 US$5,000-US$9,999 <US$4,999 No data US$20,600 US$32,300 US$32,800 US$25,300 Source: IMF, 2015

Drivers of Growth for Top Economies Morocco Services sector is growing; mining and new industrial activities; agriculture is contracting Algeria Infrastructure projects; stable agriculture; hydrocarbons and industrial manufacturing declining Côte d Ivoire Infrastructure investment/construction; consumer spending Ghana Services; industry; agriculture Nigeria Non-oil sector; services; manufacturing; agriculture Angola Manufacturing; agriculture; energy; construction; services South Africa Services: technology, e-commerce, retail and financial services; infrastructure Source: African Economic Outlook, 2015; Frontier Advisory analysis, 2015 Tunisia Manufacturing; mining; hydrocarbons declining DRC Government reforms encouraging investment; agriculture; extractive industries Libya Extractive industries (oil and gas); dependent on conflict resolution Egypt Manufacturing Sudan Agriculture; extractive industries; possible shortterm future political reform Ethiopia Agriculture; industry and manufacturing are fastestgrowing contributors Kenya Construction; manufacturing; financial services; ICT; wholesale and retail trade Uganda Infrastructure; domestic consumption; agriculture Tanzania Government spending; agriculture; manufacturing

The Role of Demographics

Population in Africa Country Populations (2020f) Population size in 2020f (million) >100 75-99.9 50-74.9 25-49.9 0-24.9 No data By 2020, Nigeria, Ethiopia, Egypt and the DRC will continue to have the largest populations, together accounting for 31.2% of the continent s population. Other large countries by population include South Africa, Tanzania and Kenya. Source: IMF, 2015

Population Growth in Africa Population Growth (2015f-2020f) As three of the four most populous nations, Nigeria, Ethiopia and DRC also have the fastest-growing populations. The highest population growth rates until 2020 are expected to be seen in Eritrea, Mali, Niger and Zambia. Source: IMF, 2015 Population growth (CAGR%) 2015f-2020f >3% 2.01%-3% 1.01%-2% 0%-1% <0% No data The slowest growing populations are those of Lesotho, Mauritius, Morocco, Namibia and Tunisia.

Population by Age Population Younger than 30 Years of Age (% share) (2025f) By 2025, most of Africa s population will be under the age of 30. Countries that are able to provide education and skills training to these youth bulges could see the youth bulge mature into a worker bulge. Percentage of population under 30 years >60% 45%-59% 30%-44% Source: National Intelligence Council, 2008

x% Source: IMF, 2015 Urbanisation Rates Urbanisation and Urbanisation Rates (2014) Angola is the only country with a high urban population (43.3%) and a high average urbanisation growth rate (5.1%) Urban population as a share of total (2014) 81%-100% 61%-80% 41%-60% 21%-40% 0%-20% 64.8% No data Average urbanisation growth rate (2010-2014) of fastest-urbanising countries 6% 64.5% 5.1% 70.1% 86.9% 5.1% 66.6% 78.4% 5.1% 77.3% 5.4% 5.5% 6.6% 5.7% 6.6% 5.1% 64.3%

Urbanisation Rates in Africa 2010 2030 2040 urban rural Urban spending is increasing twice as fast as rural spending Urban per capita income 80% higher compared to rural per capita income Higher population density in cities - consumers are easier to reach Source: World Population Prospects 2012

Africa Through the Lens of the Retailer Most Populous Urban Areas (> 1m People), (2014) Dakar (3.2m) Ouagadougou (2.1m) Rabat (1.8m) Casablanca (3.9m) Marrakesh (1.1m) Agadir (1m) Nouakchott (1m) Conakry (2.2m) Bamako (2.9m) Oran (1.3m) Fes (1.2m) Kaduna (1.7m) Niamey (1.1m) Algiers (3.6m) Tunis (2.4m) Tripoli (1.1m) Abuja (2.7m) Ndjamena (1.2m) Kano (4m) Alexandria (5.1m) Cairo (16.6m) Khartoum (5.5m) Maiduguri (1m) Addis Ababa (3.4m) Freetown (1.4m) Monrovia (1.3m) Cotonou (1.4m) Abidjan (5m) Accra (4.5m) Kumasi (2.6m) Lagos (16.7m) Lome (1.7m) Doula (2.8m) Ibadan (3.1m) >5m Yaoundé (2.7m) Onitsha (1.1m) 4m 4.9m Benin City (1.5m) 3m 3.9m Aba (1m) 2m 2.9m Port Harcourt (2m) 1m 1.9m Source: City Populations, 2014 Kinshasa (10.4m) Luanda (6.6m) Cape Town (4m) Brazzaville (1.9m) Bangui (1m) Kampala (2.9m) Lubumbashi (1.9m) Lusaka (2.2m) Johannesburg/ Pretoria (13.1m) Mbuji-Mayi (1.8m) Harare (2.3m) Lilongwe (1m) Maputo (2.2m) Durban (3.2m) Port Elizabeth (1.2m) Nairobi (5.1m) Mogadishu (2.1m) Mombasa (1.1m) Dar es Salaam (5.2m) Antananarivo (2.2m)

million Africa s Mega Cities of the Future Top Cities of the Future by Population (2000, 2015f & 2025f) 20 18 16 14 12 10 8 6 4 2-2000 2015f 2025f Source: UN Habitat, 2014

Africa s Largest Cities in the Past Largest Global City Populations (2000) Source: The Economist, 2015

Africa s Largest Cities To Date Largest Global City Populations (2010) Source: The Economist, 2015

Africa s Largest Cities of the Future Largest Global City Populations (2025) Lagos, Cairo, Kinshasa and JHB will be Africa s largest cities in 2025. Nairobi, Dar es Salaam, Abidjan and Luanda will be large cities. Source: The Economist, 2015

Africa s Top 10 City Hubs 4. Casablanca Best GDP diversity in Africa, best business environment, good transport infrastructure 2. Tunis Highest level of human capital, developed healthcare system, good infrastructure 1. Cairo Mature city with the best infrastructure in Africa, large middle class, significant international political clout 9. Addis Ababa Large physical size, growing middle class, 3 rd best infrastructure 5. Algiers 2 nd highest level of human capital, good healthcare system, very low levels of crime 6. Accra Ranks well in Ease of Doing Business, high level of communications infrastructure, stable political environment Criteria: 1. Current development or future potential 2. Location 3. Nature of opportunity 4. Must-have or knockout factors 5. Time scale Source: PwC, 2015 8. Lagos Strong financial services sector, attractive FDI location 10. Kampala Highest population growth, good economic diversity, steady GDP growth high literacy rates 7. Nairobi International political clout, top FDI attractor, strong financial services sector 3. Johannesburg Ranks well in Ease of Doing Business, high quality infrastructure, best airport connectivity in Africa, high level of human capital

Estimating Africa s Middle Class

Billion of people 1.6 Rise in SSA Consumer Numbers Number of Consumers by Income Groups (1980-2025) 1.4 In 2010: 760 million above poverty line By 2025: 1.23 billion above poverty line 0.185 1.2 1 By 2025: 475 million new consumers added in 15 years (rise in income levels and population growth) 0.085 0.105 0.129 0.152 0.8 0.063 0.6 0.4 0.035 0.264 0.035 0.043 0.291 0.24 0.046 0.379 0.456 0.545 0.654 0.775 0.911 1.051 0.2 0 0.318 0.322 0.312 0.243 0.272 0.293 0.267 0.194 0.23 0.181 1980 1985 1990 1995 2000 2005 2010 2015f 2020f 2025f Below poverty line Above poverty line and below US$5,000 GDP per capita Above US$5,000 GDP per capita Source: Deloitte, 2015

Million of households Growth of the Middle Class Number of Middle Class Households (1990-2030f) Only 40 million middle class households by 2030 19.2 22 Source: Taken from Standard Bank, 2014

Regional Integration? The Emerging Arc Economy

Regional Agreements

The Africa-Arabia-Asia Arc Economy *GDP Growth = Average of GDP Constant Price % Changes of Select Countries Source: Frontier Advisory, 2015

The Africa-Arabia-Asia Arc Economy Population: 434 million GDP: US$618 billion GDP growth: 5.1% *GDP Growth = Average of GDP Constant Price % Changes of Select Countries Source: Frontier Advisory, 2015

The Africa-Arabia-Asia Arc Economy Population: 1.6 billion GDP: US$4.6 trillion GDP growth: 2.8% *GDP Growth = Average of GDP Constant Price % Changes of Select Countries Source: Frontier Advisory, 2015

The Africa-Arabia-Asia Arc Economy Dubai Djibouti Mumbai Nairobi Mombasa Dar es Salaam Antananarivo Maputo Port Louis *GDP Growth = Average of GDP Constant Price % Changes of Select Countries Source: Frontier Advisory, 2015

The Africa-Arabia-Asia Arc Economy Population: 2.1 billion GDP: US$ 5.2 trillion GDP Growth: 4.1% *GDP Growth = Average of GDP Constant Price % Changes of Select Countries Source: Frontier Advisory, 2015

The Africa-Arabia-Asia Arc Economy Total Exports From African Select countries to ME and Asia Select countries: US$7.6bn Total Exports to East African Select Countries from ME and Asia Select countries: US$32.3bn *GDP Growth = Average of GDP Constant Price % Changes of Select Countries Source: Frontier Advisory, 2015

US$mn The Arc Economy Total Trade Trends EAC Total Trade (1995-2014) 35 EAC and China: CAGR: 23% 30 25 EAC and Western Asia and India: CAGR: 14% 20 15 EAC and Southern Africa: CAGR: 8% 10 5-1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 EAC Total trade with Western Asia and India EAC Total trade with China EAC Total trade with Southern Africa Source: UNCTAD; Frontier Advisory, 2015

Strategies for Growth Markets

The First Mover Advantage

Contents Investing in Africa Why do Foreign Investors Fail in Africa? Replicate a foreign strategy Too much theory, too little local knowledge and experience Lack of flexibility Lack of cultural understanding Difficult operating and business environments including lack of infrastructure services, lack of distribution channels Don t know how to deal with the diversity of the continent Risks of being a first mover

Contents Investing in Africa Succeeding will require: First-hand experience Although investing in data sources and expert information is recommended, visiting local resellers and experiencing how the market operates allows companies to gain first hand knowledge. The right partner Finding the right partner is a strategic endeavour. Partnerships in African markets are likely to require long-term commitments. Companies need to find partners that share their values. Localisation Adapting product/services to needs of local customer as well as investing in local community (e.g. Coca Cola; Unilever) and working together with governments. Taking a holistic and long-term view Long-term talent investment With high annual growth and competitors seemingly appearing overnight, firms need to plan to both attract and retain top talent in the long term.

Introduction to Emerging Markets Success Factors Networks/ Relationships Competent sales people Effective leadership Establish business relationships with local suppliers Primary data-driven research Appropriate timing of entrance Identify potential customers Ample financial resources Glocalisation vs reverse innovation Local strategic knowledge to bridge the gap between guessing and knowing Offer a valuable product/ service

Ease of Doing Business 7 African countries among the 10 most difficult countries to do business in globally Eritrea Most difficult country to do business Global Rank: 189 of 189 Difficult Easy Mauritius Easiest country to do business Global Rank: 28 of 189 Source: World Bank 2015

Global Corruption Perception Index 90% of African countries score below 50 Somalia Africa s most corrupt country Global Rank: 175 of 177 Score: 8 Botswana Africa s least corrupt country Global rank: 30 of 177 Score: 64 Source: Transparency International, 2015

China s Special Economic Zones in Africa Zone Name Status Ogun Zone Suez Zone EGYPT Suez Economic and Operational Trade Cooperation Park (Suez) ETHIOPIA Eastern Industry Zone Partially (Dukem, near Addis operational Ababa) MAURITIUS Jinfei Economic Trade & Cooperation Zone (Riche Terre) Construction completed; to start operations NIGERIA Lekki Free Trade Operational Zone (Lagos) Ogun-Guangdong Free Trade Zone (Igbesa) Operational ZAMBIA Zambia-China Operational Economic & Trade Sub-zone Cooperation Zone under (Chambishi) construction Lusaka East subzone (Lusaka) Source: Frontier Advisory research, 2015 Lekki Zone Chambishi MFEZ & Lusaka sub-zone Eastern Industry Zone Jinfei Zone

Thank you

Contact Details Hannah Edinger Director Frontier Advisory T +27 11 447 8038 E hedinger@frontieradvisory.com W www.frontieradvisory.com