It has been interesting to watch the U.S.-Africa Leaders Summit in Washington this week. As a White House statement notes, the event builds on President Obama’s trip to Africa last summer, and will strengthen ties between the U.S. and one of the world’s most dynamic and fastest growing regions. Indeed, representatives from nearly 100 American and African companies have gathered at the meeting to discuss ways to boost economic partnerships.
The Obama administration announced $14 billion in commitments from U.S. businesses to invest in Africa yesterday. That comes after GE announced Monday it will invest $2 billion in Africa by 2018, according to an Agence France-Presse story I saw on IndustryWeek. The money will be used to build infrastructure, deliver localized solutions to customers, and build capacity by providing skills training and growing supply chain development in local communities.
“Over the last few years, we have expanded in growth markets by 15 percent each year,” says GE CEO Jeff Immelt in the article. “Our capability and culture give us great momentum in Africa and other developing regions around the world. We’re solving problems for our customers and countries where we invest.”
The U.S., of course, isn’t the only country to take note of Africa’s population and economic growth. Africa is home to six of the world’s fastest-growing economies, and a decade of solid growth has created a middle class with increasing spending power.
China has already been spending aggressively in Africa, for three main reasons. The first is because Africa has considerable resource wealth, a recent article in BusinessWeek notes. Secondly, Chinese executives figure that the wealth their companies accumulate in Africa—along with the lessons they learn—will help the companies expand into bigger and tougher markets, the article notes. For instance, the article continues, companies such as Tecno (cell phones) and ZTE (mobile phone infrastructure) have relied on Africa in part to launch themselves globally.
A third factor in Chinese companies’ strategy is perhaps most significant. At a casual glance, Africa may still look like a poor continent. However, it has become the fastest-growing region of the world—Africa already has a middle class larger than India’s. What’s more, it now appears that the majority of global population growth will take place in Africa, the World Population Review notes.
Population growth is one thing, but perhaps most important is Africa’s so-called demographic dividend, which over the next few decades will place most of the population in the most productive, youthful, and heavily consuming phase of life, the BusinessWeek article explains. Young people in Africa increasingly are urban and highly globalized in terms of culture, the article explains.
Consider, for example, the explosive growth of the mobile phone market in Africa. In “Rich Expectations, Poor Allocations,” a Citi Private Bank outlook, Philip Watson, Global Investment Lab Head, writes that according to a survey by the International Telecoms Union, Africa recently became the world’s fastest-growing mobile phone market. Mobile phone usage in the continent has increased at an annual rate of 65 percent over the past five years, which is twice the global average. Additionally, Nigeria has become one of the fastest growing markets in the world for mobile communications—driven by a young population, market liberalization and telecom-sector reforms—and has an estimated 88 million mobile phones in use compared to a population size of 170 million, Watson writes.
The challenge for companies then will be to familiarize Africans with their products. Building brand equity in those budding markets will take time, and of course, considerable investment.
What do you think of Africa’s changing demographics? Does your company have plans for expansion in some of those countries?