The path to greater productivity and economic growth
Africa is a continent of immense diversity, opportunity, and potential. It is home to 54 countries, each with its own history, culture, and development trajectory. It has a population of 1.3 billion people, which is expected to grow to 2.5 billion by 2050, making it the world’s most populous region. It also has abundant natural resources, both traditional and green, that can fuel its economic transformation and contribute to the global energy transition.
However, Africa also faces significant challenges that hinder its economic growth and productivity. These include low levels of industrialization, urbanization, digitization, and human capital development; high dependence on commodity exports and imports; weak infrastructure and connectivity; and vulnerability to climate change and environmental degradation.
In this article, we aim to explore how Africa can overcome these challenges and reimagine its economic growth in the 21st century. We draw on the latest research from McKinsey & Company entitled Reimagining economic growth in Africa – Turning diversity into opportunity, which analyzes the performance and prospects of Africa’s economy at the continent, country, city, and company levels.
We also highlight the role of different sectors, such as services, manufacturing, resources, and agriculture, in driving economic transformation. Furthermore, we discuss how Africa can leverage its young and growing population, as well as its digital and technological innovation, to create jobs, skills, and solutions for the continent and the world. Finally, we argue that Africa can turn the threat of climate change into an opportunity by tapping into its abundant green resources, such as energy transition minerals, hydrogen, and carbon credits.
The diversity of Africa’s economy
One of the key messages of the McKinsey report is that there is no one Africa. Africa today is a $2.5 trillion economy. It’s over 1.3 billion people. But it is spread across 54 countries that have different levels of growth, productivity, and potential.
The report organizes the continent into four groups of countries based on their economic performance in the past two decades: consistent growers (such as Ethiopia and Rwanda), recent accelerators (such as Côte d’Ivoire and Senegal), recent slowdowns (such as Nigeria and South Africa), and slow growers (such as Libya and Zimbabwe).
The report finds that about half of Africa lives in above-average countries that have been growing above the average for the past ten years. But those countries represent only a quarter of Africa’s GDP, because they tend to be smaller countries in East and West Africa primarily.
What has dragged down the growth average is the fact that the top six economies — Nigeria, Egypt, Morocco, SouthAfrica, Algeria, and Angola — have all slowed down in the past decade due to various factors such as lower commodity prices, political instability, or structural constraints.
The report also zooms in on the city level and identifies 30 dynamic cities that are expected to drive more than half of Africa’s GDP growth by 2030. These cities are diverse in terms of size, location, sector mix, and growth drivers. They include megacities such as Cairo and Lagos; regional hubs such as Nairobi and Abidjan; resource-rich cities such as Luanda and Port Harcourt; and emerging cities such as Addis Ababa and Kigali.
At the company level, the report showcases the stories of African champions — companies that make $1 billion or more in revenue — and how they are contributing to Africa’s development. The report identifies 345 such companies across various sectors and ownership types. They include private-sector companies such as Dangote Industries Limited (Nigeria) and Safaricom PLC (Kenya); public-sector companies such as Sonatrach (Algeria) and Eskom Holdings SOC Ltd (South Africa); state-owned enterprises such as Ethiopian Airlines (Ethiopia) and Senelec (Senegal); and multinationals such as MTN Group (South Africa).
The diversity of Africa’s economy reflects its opportunities and challenges. It also calls for tailored strategies and solutions for different contexts.
The levers for boosting productivity and growth
The report identifies six key levers for boosting productivity and growth across different sectors in Africa: digitization and technology; talent development; manufacturing; climate change opportunities; resources; and agriculture.
Digitization and technology can enable African businesses to improve their efficiency, reach new customers, innovate new products or services, and access new markets. The report estimates that digital technologies could add $300 billion to $500 billion to Africa’s GDP by 2025.
Talent development can help African workers acquire the skills that employers need in a rapidly changing world. The report estimates that Africa could add $130 billion to $230 billion to its GDP by 2025 by improving its human capital development.
Manufacturing can help Africa create jobs, add value, and diversify its economy. The report estimates that Africa could add $150 billion to $300 billion to its GDP by 2030 by increasing its manufacturing output and exports.
Climate change opportunities can help Africa turn the threat of global warming into an opportunity by tapping into its abundant green resources, such as energy transition minerals, hydrogen, and carbon credits. The report estimates that Africa could generate over $100 billion per year by 2030 from these sources.
Resources can help Africa sustain its economic growth and development by improving the productivity and sustainability of its mining and oil and gas sectors. The report estimates also that Africa could add $100 billion to $200 billion to its GDP by 2030 by increasing its production volumes and decarbonizing its operations.
Agriculture can help Africa feed its growing population, reduce its dependence on food imports, and increase its value addition. The report estimates that Africa could add $200 billion to its GDP by 2030 by matching India’s agricultural performance in the 1980s and 1990s.
The report also provides examples of best practices and success stories from various countries, cities, companies, and sectors that have implemented these levers and achieved positive results.
The implications for stakeholders
The report is relevant for a wide range of stakeholders who have a role to play in reimagining economic growth in Africa. These include:
- African governments, who need to create enabling environments for growth, invest in infrastructure and human capital, promote regional integration and trade, and foster innovation and entrepreneurship.
- African businesses, who need to seize the opportunities in their markets, invest in their capabilities and competitiveness, leverage digital and technological solutions, and collaborate with other stakeholders.
- Foreign investors, who need to recognize the potential and diversity of Africa’s economy, adopt long-term perspectives and strategies, partner with local players, and contribute to social and environmental impact.
- Development partners, who need to support Africa’s economic transformation, align their interventions with the continent’s priorities and needs, leverage their expertise and networks, and coordinate their efforts.
Africa’s economic growth and diversity are not only important for the continent but also for the world. Africa is a source of talent, innovation, resources, and markets that can benefit the global economy. By reimagining its economic growth in a more inclusive, sustainable, and resilient way, Africa can achieve its full potential in the 21st century.