Written by Dana Sanchez:
Africa’s companies are growing faster and generally more profitably than their global peers and the continent needs more large companies like them, according to the latest McKinsey Global Institute Report, “Lions On The Move II: Realizing The Potentials of Africa’s Economy.”
The continent has 400 companies with revenues of more than $1 billion and 700 companies with revenue of more than $500 million. About 40 percent of the 700 companies are publicly listed, and half are located in South Africa.
Source: McKinsey/QuartzSource: McKinsey/Quartz
Collectively, these 700 companies account for $1.4 trillion in revenue, but this is just 60 percent of the number of large firms one would expect if Africa was on a par other developing regions, , according to McKinsey. The average company revenue — $2 billion a year — is half that of large firms in Brazil, India, Mexico, and Russia. No Africa-owned company is in the Fortune 500.
Some African countries have seen a slowdown as a result of lower commodities prices and higher political instability. Others are still showing growth. Governments will have to play a stronger role to make the most of their potential, McKinsey reported.
“Africa’s top 100 companies have achieved success by developing strong positions at home, staying the course to build their businesses over decades, integrating what other companies would usually outsource, and investing in building and retaining talent,” McKinsey reported.
Revenues of more than 1 billion US
Six sectors with high growth, high profitability, and low consolidation include wholesale and retail, food and agricultural processing, health care, financial services, light manufacturing and construction, according to Financial Watch.
Just over half of the continent’s large firms are African-owned, 27 percent are foreign-based multinationals, and the remaining 17 percent are state-owned enterprises, according to Quartz.
The multinationals dominate in food and agricultural, while state-owned companies focus on resources, transportation and utilities. Family businesses make up 10-to-20 percent of the companies by revenue. Read more here about African family businesses that made it against the odds.
What’s driving Africa’s growth in business opportunities
Four basics are likely to underpin Africa’s economic growth, McKinsey reports.
Africa has the fastest urbanization rate in the world with 187 million more Africans expected to live in cities in the next 10 years — that’s half the U.S. population today.
Africa has the largest working-age population in the world, expected to hit 1.1 billion in 2034—larger than China and India.
Africa has the largest reserves in the world of many key natural resources (60 percent of the world’s arable cropland and the largest global reserves of vanadium, manganese, and more.)
Africa has a penchant for leapfrogging old technology using mobile, with 18 percent smartphone penetration in 2015 expected to hit 50 percent in 2020.
McKinsey identified six priorities African governments must work on from its research. Delivering on these will require far-reaching reforms in many areas of public life, the report said:
Mobilize more domestic resources.
Aggressively diversify economies.
Accelerate infrastructure development.
Deepen regional integration.
Create tomorrow’s talent.
Ensure healthy urbanization.
“Transforming public administration and governance does not have to be complex,” the report said. “Successful countries have put in place simple, quick, yet high-impact measures that have tackled challenges in operations, transparency, and compliance to remove business stresses and minimize opportunities for corruption—without requiring a systemic overhaul.”
About Dana Sanchez
Dana Sanchez was born in South Africa and is a U.S. citizen. After working in advertising, she went back to school and earned a master’s degree in journalism from the University of South Florida. As a business writer, she won regional and national writing awards. As editor of a daily newspaper, she coordinated staff writers, freelancers and photographers in the fast-paced environment of daily news. Dana was an editor at Moguldom Media Group for four years, helping to build and manage a team of staff and freelance writers. She works now on Moguldom.com for Nubail Ventures. A long-distance hiker and cyclist, she writes about the business of technology.