The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy.
Patrick Dupoux, Lisa Ivers, Stefano Niavas, and Abdeljabbar Chraïti
Date of Publication: April 4, 2018
At A Glance
- African business is integrating Africa—economically and otherwise. African corporate entrepreneurs are overcoming the high barriers that have long restrained African nations from greater business and economic interaction.
- Fragmentation, in many forms, remains a major problem for businesses in Africa. Complications associated with geographic, economic, and logistical fragmentation add significantly to the economic challenges of countries that typically lack the critical mass to compete globally.
- Despite existing barriers, economic integration in Africa is not only taking place, but also gathering speed. The primary drivers come from within the continent, led by African business. Africa invests more in Africa, Africa trades more with Africa, and Africans travel more to Africa.
- This report continues to track the progress of African companies, focusing on how they are driving the continent’s economic integration by expanding their operations and their capabilities. Their activities are starting to overcome the barriers that have long restricted African nations from greater business and economic interaction. African companies look to Africa first for growth, and removing barriers is crucial to their strategies. Their primary goal, of course, is to build value for their owners, but they understand that their activities also further economic and social development, and that this dynamic creates environments in which their businesses can thrive. Integration is therefore both a strategy and a highly desirable outcome.
Fragmentation: A Barrier to Business
- Africa is vast, but only a handful of its cities have populations of 4 million or more, and they are dispersed across the continent. Direct flights are few, and flight times are long—the longest in the world, on average, at 12 hours between cities, including connections.
- Then there’s the issue of geopolitical and economic fragmentation. Africa has 54 sovereign countries—more than four times the number in South America and triple the number in East Asia. Most African countries are small in population and economic activity, if not in landmass. It takes 24 African nations to aggregate $1 trillion in GDP—far more than any other region of the world.
- Africa has 16 trade zones, many more than South America (which has 6) and East Asia (which has 1). Four-fifths of African nations require a visa to visit. The Abuja Treaty, signed in 1991, contemplates an African Economic Community, but progress toward continent-wide free trade has been slow and uncertain and involves multiple steps, including the creation of multiple regional economic communities in 1991, a continent-wide customs union in 2019, a common market in 2023, and projected economic and monetary union in 2028.
- Despite many new infrastructure initiatives, Africa lacks major road and rail networks to connect people and businesses across the continent—and many of the roads and rail lines that do exist are in poor repair and end at nations’ frontiers. This greatly increases the cost of doing business. We calculate that the average cost of shipping and distributing goods to market in Africa is equal to 320% of their value.
Continued Growth and Integration
- Four statistics—covering foreign direct investment, goods trade, M&A, and people— provide insight into the key advances. Between 2006–2007 and 2015–2016, the average annual amount of African foreign direct investment— money that African companies invested in African countries—nearly tripled, from $3.7 billion to $10 billion. Over the same period, the average number of yearly intra regional M&A deals jumped from 238 to 418, with African-led transactions representing more than half of all African deals in 2015. Meanwhile, average annual intra-African exports increased from $41 billion to $65 billion. And the average annual number of African tourists (Africans traveling in Africa) rose from 19 million to 30 million. African tourists made up more than half of all tourists on the continent in 2015–2016.
Led by African Corporate Entrepreneurs
- African airlines have rapidly expanded the number of countries that they serve, often establishing routes and stations ahead of actual passenger demand. Ethiopian Airways flew to 36 nations in 2016, up from 24 in 2006. Royal Air Maroc serves 30 countries (twice as many as in 2006). Air Côte d’Ivoire flies to 17 countries, and RwandAir to 16. African airlines are making intra-African air connectivity—a prerequisite to economic integration—a reality.
- African financial institutions are championing trade and expansion, the glue of economic integration. For example, three major Moroccan banks had expanded their operations from 3 countries in 2005 to 14 countries by 2016 and had financed a fivefold increase in Moroccan exports to those nations.
- Telecom operators and media companies are doing their part to advance pan- African connectivity and communications. The West Africa Cable System, an alliance of 12 operators, has connected 11 African countries and Europe. A separate alliance of 20 operators has connected 17 West African nations and Europe. As a result, internet penetration in Africa passed 30% in 2016. African and international media companies are facilitating the free flow of information, ideas, and personal connections through their media operations as well as through increasingly high- profile meetings and events. CNBC Africa, BBC Africa, Africa 24, and Africanews are developing into pan-African outlets. Events such as the Africa CEO Forum, organized by the Jeune Africa Media Group and the Mo Ibrahim Forum, attract business leaders and decision makers from across the continent.
- In addition, international logistics companies such as Maersk, Bolloré, Barloworld, and Imperial Logistics International, are facilitating greater trade. From 2005 to 2016, they helped drive an increase in intra-African trade of almost 120%, from $30 billion to $64 billion, while almost doubling the average number of African countries that they serve.
Introducing 150 Pan-African Pioneers
- We have identified 150 companies that are blazing a trail toward a more integrated Africa. They consist of 75 Africa-based companies and an equal number of MNCs that have established impressive track records in Africa and are contributing to further integration. The African pioneers come from 18 countries on the continent: 32 are based in South Africa and 10 in Morocco; Kenya and Nigeria are home to 6 each; 4 are from Egypt; and 2 each come from Côte d’Ivoire, Mauritius, Tanzania, and Tunisia. The MNCs are a global group, with France, the UK, and the US most strongly represented. At the same time, a dozen MNCs from China, India, Indonesia, Qatar, and the UAE are active across Africa.
- African pioneers do eight things:
- They actively expand their footprint.
- They make greenfield investments.
- They use M&A to expand.
- They build brand recognition.
- They innovate locally.
- They develop a people advantage.
- They build local ecosystems.
- They connect Africa by facilitating the movement of people, goods, data, and information.
The Challenges Ahead
- African Lions and MNCs alike face plenty of challenges, starting with fragmentation in all of its manifestations and extending through the difficulties of attracting and retaining talent and managing a plethora of local stakeholders. But if the past decade has demonstrated anything, it’s that these companies can overcome adversity masterfully. They’ve built impressive track records of creating value for themselves and advancing the development of the continent—and its many economies— against the odds. They have a strong tailwind of momentum.
They understand the challenges ahead, and they know that continuing to drive the integration of the African markets where they do business is one key way to pave the road to greater success. By trailblazing the much-needed economic integration of Africa, these companies are making a difference for African business and economic development.
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