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pi article - why africa


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									                                                                                                                        Why Africa
                                                                                                                                                                       Export Opportunities in


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Why Africa

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                      ith the     and Africa are some of the
                      current     options available. New research
                      economic    from McKinsey Global Institute
                      upheaval    (MGI) shows that midsize cities
                      of the      in these emerging markets
last couple of months, there      are poised to generate much
are rumours of a double dip       of the world’s growth in the
recession.1,2 America has lost    years ahead and will become
its AAA credit rating due to      dramatically richer. Today
its chronic debt problems, the    the average GDP per capita
Eurozone facing economic crisis   of emerging-market cities is
as Greece, Italy, and Spain       only about 30% of developed-
default on loans. In the UK,      economy levels. By 2025, it will
budget cuts are announced,        be closer to 60% and more
redundancies are being made       of the world’s middle class
and the recent youth riots have   households will be in emerging
been said to be partly due to     rather than developed markets.4
these cuts. The chancellor
                                  So why Africa
George Osborne refers to the
Eurozone debt crisis, as the          Africa is positioned to be the
‘most dangerous time for the      next emerging market after Asia
global economy since 2008.3       according to UKTI and Mckinsey
All these precluding factors      Global Institute.5
have caused the Economist              Africa’s growth is being
Intelligence Unit this month to   attributed to: its evolving global
lower its forecast for global     ties particularly with Asia; its
growth from over 4% in 2011       growing access to international
and 2012 to 3.6% and 3.5%         capital; the emergence of an
respectively.3                    urban African consumer; and,
    Companies planning for        agriculture.
growth will now need to look          According to EIU the
outside the UK and other          economic growth in Sub-
developed countries for new       Saharan Africa will average
opportunities. The emerging       4.6% in 2011 before
markets Brazil, China, India      strengthening to 5.2% in 20122.

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                                                                                                                                                                                                             Below are some facts about Africa
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                                                                                                                                                                                                      Financial Data                              Available Resources
                                                                                                                                                                                                             ◆   In the last 2 decades of the        ◆   It has 60% of world’s
                                                                                                                                                                                                                 20th century, Africa had very           uncultivated arable land.
                                                                                                                                                                                                                 little growth but in the late       ◆   10% of world’s reserves of
                                                                                                                                                                                                                 1990’s growth began and                 Oil
                                                                                                                                                                                                                 rose from 2000 to 2008 by
                                                                                                                                                                                                                 4.9% a year.                        ◆   40% of world’s Gold
                                                                                                                                                                                                             ◆   The continent has a $1.6            ◆   80-90% of world’s Chromium
                                                                                                                                                                                                                 trillion collective GDP as at           and Platinum
                                                                                                                                                                                                                 2008 and is still growing.          ◆   50% of Africans will be living
                                                                                                                                                                                                                 This is comparable to Brazil’s          in cities by 2030
                                                                                                                                                                                                                 or Russia’s. Its projected
                                                                                                                                                                                                                 GDP by 2020 is of $2.6              ◆   52 out of the 54 countries
                                                                                                                                                                                                                 trillion.                               in Africa have more than 1
                                                                                                                                                                                                                                                         million people each
                                                                                                                                                                                                             ◆   Its combined consumer
                                                                                                                                                                                                                 spending in 2008 was $860        Africa’s Growth Profile
                                                                                                                                                                                                                 billion. This is projected to
                                                                                                                                                                                                                 rise to $1.4trillion by 2020         Africa is currently the
                                                                                                                                                                                                                                                  world’s THIRD fastest growing
                                                                                                                                                                                                             ◆   It has the fastest growing
                                                                                                                                                                                                                 telecoms market in the world     region in the world. 80% of its
                                                                                                                                                                                                                 with 316 million subscribers     combined GDP emanates from;
                                                                                                                                                                                                                 in only 10 years.                Algeria, Angola, Cameroon,
                                                                                                                                                                                                             ◆   20 African companies have        Egypt, Ethiopia, Kenya, Libya,
                                                                                                                                                                                                                 achieved revenues of at least    Morocco, Nigeria, Senegal,
                                                                                                                                                                                                                 $3billion                        South Africa, Sudan, Tanzania,
                                                                                                                                                                                                             ◆   By 2030, the top 18 cities       Tunisia and Zimbabwe.3
                                                                                                                                                                                                                 are projected to have $1.3
                                                                                                                                                                                                                 trillion combined spending
                                                                                                                                                                                                             ◆   Africa currently invests
                                                                                                                                                                                                                 $72bn annually in
                                                                                                                                                                                                      Source: Economist Intelligence Unit

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   The key sectors driving           consumer facing industries,

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growth are:-                         resources, agriculture and
    ◆   Telecommunication            infrastructure.
    ◆   Banking                         ◆   Consumer markets
                                            spending will reach $1.4tn
    ◆   Retail                              – Food and beverages
    ◆   Construction (especially            (largest), Housing, Non-food
        infrastructure)                     consumer goods, Health
                                            care, Telecommunications,
    ◆   Agriculture
                                            Banking, and Education.
    ◆   Resources
                                        ◆   Agricultural output will reach
Opportunities                               $500bn and with additional
                                            markets (bio fuel production,
     There is currently                     grain refining and other food
increasing world demand for                 processing) reaching $275bn
raw materials which accounts            ◆   Resources estimated to
for half of Africa’s total trade.           reach $540bn from demand
Oil rose from less than $20 a               for its oil, gas and coal
barrel in 1999 to more than
$145 in 2008. Growth in                 ◆   Infrastructure –
                                            Governments and private
demand for Consumer Goods
                                            investors are currently
such as telecommunications,                 spending $72bn a year
retail, banking, food, beverage,            across the continent but will
housing, agriculture is currently           still need significantly more
2-3 times faster than in OECD               investment3
countries. All these factors are        To achieve these projected
contributing to the continent’s         revenues, the continent will
economic growth and opening             need expertise, investment
new business opportunities to           and training from the
companies based outside Africa.         developed world constituting
     If the continent maintains         opportunities for UK
political and macroeconomic             businesses.
stability; and, if the governments
continue to create attractive
business environment, Africa
could generate as much as
$2.6trillion in revenue annually
by 2020. This revenue is
projected to come from

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                                                                                                                                                                                                             are projected.

                                           Country                         2009             2010            2011             2012            2013             2014            2015            2016

                                           Angola                       75.508           85.312          110.06           122.542         129.719          135.694         148.051          160.594
                                           Cameroon                     22.189           22.478          25.042           26.708          28.403           30.245          31.811           33.69
                                           Côte d’Ivoire                22.496           22.823          22.955           24.938          26.909           28.953          31.427           34.12
                                           Equatorial Guinea 12.233                      14.485          19.374           20.801          22.094           23.125          23.247           22.124
                                           Ethiopia                     32.249           29.717          29.707           32.372          36.439           40.839          45.78            51.269
                                           Ghana                        25.988           31.084          37.481           43.705          48.767           53.46           58.62            62.479
                                           Kenya                        29.394           32.163          35.787           40.62           45.476           50.97           57.107           64.231
                                           Nigeria                      168.846          216.803         267.779          288.822         309.671          335.808         365.267          398.447
                                           South Africa                 283.977          357.259         383.124          402.493         423.775          447.48          473.357          500.986
                                           Tanzania                     20.956           22.671          23.295           25.428          27.824           30.453          33.332           36.271
                                                                                                                                                                                                             (billion dollars) according to the IMF, April 20116. The shaded figures

                                          Source: IMF
                                                                                                                                                                                                             The table below provides a breakdown of the countries with highest GDP
Political and Economic              and his party returned to
Stability                           power. The EIU predicts GDP
                                    growth of 6.3% this year, down
     The political and economic     from 7.9% in 2010. Stronger
climate of the African countries    growth is expected to resume
is generally stable (see Dun and    in 2012, led by the non-oil and
Bradstreet ratings table below).    banking sectors, and the country

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The 3 countries with the highest    is forecast to enjoy average
GDP, South Africa, Nigeria          annual growth of just under 7%
and Angola have experienced         in 2012-16. Economic growth
political stability and economic    potential will remain constrained
growth for over 10 years.           by the dire state of Nigeria’s
     Angola’s political scene is    infrastructure, notably electricity
frozen but stable. The country      supply.
has made enormous progress               South Africa’s economic
in the nine years since the end     performance started improving
of the civil war, which virtually   in the third quarter of 2009
destroyed it. The only cloud        when the economy gradually
on the political horizon is the     emerged from the recession.
question of who will succeed        Currently, the economy is
President Dos Santos, who is        experiencing an upswing,
reputedly in poor health. The       but is expected to recover
performance of the Angolan          slower than other emerging
economy is currently highly         market economies because
dependent on international oil      of ‘shortcomings in both
prices and has suffered in the      households’ and the private
past due to market shocks.7         sector’s ability to restore
     Nigeria’s economic growth      previous spending trends as
continues to be broad based,        effectively.’8
oriented primarily toward           Risk Rating for top ten African
the domestic market, and            Countries
driven by strong performance
of the agricultural, trade,          Country                   DnB risk rating
telecommunications, and              Angola                    Improving
manufacturing sectors.               Cameroon                  Stable
     In April 2011, Nigeria held     Côte d’Ivoire             Stable
its fourth consecutive national      Equatorial Guinea         Not rated
elections, further consolidating     Ethiopia                  Stable
the transition from military to      Ghana                     Stable
democratic rule that began           Kenya                     Stable
in 1999. These elections are         Nigeria                   Stable
considered to have been among        South Africa              Stable
the fairest in the country’s         Tanzania                  Deteriorating
                                    Source: Dun & Bradstreet
history, with the incumbent
president, Goodluck Jonathan,

                                                                                 Platinum Integrations Ltd
                                                                                                                                                                                                      Growth Trends                                       Returns on investment are

                                                                                                                                                                                                                                                          surpassing any other region
                                                                                                                                                                                                             ◆   Rate of return on foreign                of the world.9 causing an
                                                                                                                                                                                                                 investment has been found                increase in new foreign
                                                                                                                                                                                                                 to be higher than that in any            capital and investment into
                                                                                                                                                                                                                 other developing region. The             the continent.10 African
                                                                                                                                                                                                                 continent is also experiencing           businesses will be able to
                                                                                                                                                                                                                 increased urbanization and               improve quality, products and
                                                                                                                                                                                                                 the rise of the middle class             services; and, compete for
                                                                                                                                                                                                                 African consumer.                        product world market share.
                                                                                                                                                                                                             ◆   Production of oil, gas and           ◆   Reduction in the developed
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                                                                                                                                                                                                                 most minerals is set to                  world’s population causing
                                                                                                                                                                                                                 continue to grow at 2-4% per             a decreased labour force.
                                                                                                                                                                                                                 year.                                    Africa has over 52 cities with
                                                                                                                                                                                                             ◆   By 2020 the largest                      over 1 million people and
                                                                                                                                                                                                                 consumer markets will be                 has a labour force expanding
                                                                                                                                                                                                                 Alexandria, Cairo, Cape Town,            more rapidly than anywhere
                                                                                                                                                                                                                 Johannesburg and Lagos.                  in the world11
                                                                                                                                                                                                             ◆   Dakar, Ibadan, Kano and              ◆   World food production may
                                                                                                                                                                                                                 Rabat will develop markets               need to rise over the next
                                                                                                                                                                                                                 more than $10billion                     40 years by 70% to feed the
                                                                                                                                                                                                                                                          growing world population.12
                                                                                                                                                                                                             ◆   By 2040 Africa is set to have
                                                                                                                                                                                                                                                          Africa has 60% of the world’s
                                                                                                                                                                                                                 1 in 5 of the planets young
                                                                                                                                                                                                                                                          arable uncultivated land.
                                                                                                                                                                                                             ◆   128 million African               Companies investing in
                                                                                                                                                                                                                 households will have              and experiencing growth
                                                                                                                                                                                                                 discretionary income in 2030
                                                                                                                                                                                                                                                   in Africa
                                                                                                                                                                                                             ◆   1.1 billion Africans will be of
                                                                                                                                                                                                                                                      ◆   Guinness – Investing up to
                                                                                                                                                                                                                 working age by 2040
                                                                                                                                                                                                                                                          £250m in Nigeria
                                                                                                                                                                                                      World Trends and Africa                         ◆   Nestle – Investing over
                                                                                                                                                                                                             ◆   Liquid-fuel and hard mineral             $200m
                                                                                                                                                                                                                 consumption will increase by         ◆   PZ Cussons – Investing over
                                                                                                                                                                                                                 25%. Africa has 10% of the               £60m between 2007-2012
                                                                                                                                                                                                                 world’s reserves of oil, 40%
                                                                                                                                                                                                                                                      ◆   Heineken – developing 5
                                                                                                                                                                                                                 of its gold and 80-90% of
                                                                                                                                                                                                                                                          new breweries (estimated at
                                                                                                                                                                                                                 chromium and platinum - of
                                                                                                                                                                                                                 known reserves and will be
                                                                                                                                                                                                                 well positioned to satisfy this      ◆   Standard Chartered – Has
                                                                                                                                                                                                                 demand.                                  branches in 14 countries.
                                                                                                                                                                                                             ◆   Increasing south-south               ◆   Unilever – American – Has
                                                                                                                                                                                                                 trade between developing                 branches in 21 African
                                                                                                                                                                                                                 economies is enabling Africa             Countries.
                                                                                                                                                                                                                 to build its infrastructure.         ◆   Ecobank – Nigerian – Has
                                                                                                                                                                                                                 ◆   China and Democratic                 branches in 29 African
                                                                                                                                                                                                                     Republic of Congo -                  countries.
                                                                                                                                                                                                                     $6bn for infrastructure          ◆   MTN – South African - Has
                                                                                                                                                                                                                     investments for mines,               branches in 21 countries
                                                                                                                                                                                                                     roads, rails, hospitals and
                                                                                                                                                                                                                     schools                          ◆   Shoprite – South African
                                                                                                                                                                                                                                                          – Has branches in 17
                                                                                                                                                                                                                 ◆   Arcelor Mittal and                   countries
                                                                                                                                                                                                                     Senegal – rails and port
                                                                                                                                                                                                                     infrastructure                   ◆   Barclays – British – Has
                                                                                                                                                                                                                                                          branches in 4 countries
                                                                                                                                                                                                                 ◆   China and Nigeria - $23bn
                                                                                                                                                                                                                     on oil refineries in hope        ◆   UBA – Nigerian – Has
                                                                                                                                                                                                                     of future access to oil              branches in 16 countries

                                                                                                                                                                                 Platinum Integrations Ltd
    Other UK companies                                Stability. Alex Vines and Marckus
                                                      Weimer. June 2011. A Report
growing in Africa include: De                         of the CSIS Africa Program by
La Rue; Production Services                           Chatam House
Network; Peters & May Global                      8. Africa’s macroeconomic and

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Logistics Secure Solutions                            financial stability prospects:
                                                      The cases of South Africa and
Limited.                                              Nigeria. Richard Meissner
                                                      June 2010. Consutance Africa
Summary                                               Intelligence.
     Over the last 10 years,                      9. “Is Investment in Africa low
                                                      despite high profits?” – Jean-
emerging markets including                            Louis Warnholz, Center for the
Africa have outperformed the                          Study for the Study of African
world multinationals. The risks                       Economies, Oxford University,
                                                      August 2008
involved in investing in Africa                   10. World Bank World Development
are high but so are the returns.                      Indicators
The traditional response to risks                 11. United Nations World Population
involved in trading with Africa                       Prospect
need to be reassessed. As with                    12. “How to Feed the World in
                                                      2050” UN Food and Agriculture
all emerging markets the early                        Organisation 2009
entrants stand to gain the most.
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References and Sources                            Platinum Integrations Ltd
    1.    Britain on the edge of double-      (Pi) is a one stop international
         dip recession – Phillip Aldrick –
         The Telegraph 27/04/2011             consulting firm that assists
    2.    World Economy: Darkening            companies wishing to do
         outlook – EIU’s forecast. August     business in Africa. We provide
         17 2011
                                              International (or aspiring
    3.   The Guardian 11/08/2011
         http://www.guardian.co.uk/           International) companies with
         business/video/2011/                 assistance in trading with Africa.
         crisis-parliament-video                   To discuss your company’s
    4.    The world’s new growth              strategy for entering or
         frontier: Midsize cities in          expanding in Africa please call
         emerging markets. March 2011
         - Richard Dobbs, Jaana Remes
                                              or see our website at www.
         and Sven Smit. McKinsey Global       platinumintegrations.com.
    5.    Lions on the move: The
         progress and potential of
         African economies. June 2010
         – Charles Roxburgh, Norbert
         Dorr, Acha Leke, Amine Tazi-Riffi,
         Arend van Wamelen, Susan
         Lund, Mutsa Chionga, Tarik
         Alatovik, Charles Atkins, Nadia
         Terfous, Till Zeino-Mahmalat
    6.   World Economic Outlook
         database April 2011
    7.    Angola – Assessing Risk to

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