There’s real optimism about the future of B2B market activity across the African continent – led by the World Bank, which predicts improvements in key measures across the majority of countries on the continent. Analysis by both Bain and McKinsey also shows optimism about the future of B2B markets across many parts of the continent. Harvard Business Review reports that business spending will rise from $2.6 trillion in 2015 to $3.5 trillion by 2025.
McKinsey expects there to be an incredible rate of expansion in B2B spending activity from companies based in Africa. In the years leading to 2025, they estimate a 50% increase in spending by African business. There are several factors contributing to this growth.
Firstly, the continent is home to some of the world’s fastest-growing economies. Ethiopia is just one example – a country that recently reported double-digit growth. There’s predicted to be an expansion in both the number and size of businesses and great leaps forward in terms of the ease of doing business in many African markets.
Many countries in Africa also have demographics that are favourable to growth – young and growing populations that are rapidly urbanising. Young and growing populations means expanding domestic demand and improved tax base potential. For businesses looking to expand, it means an available workforce.
Favourable environment
Rapid population growth can really work in the continent’s favour, provided it’s harnessed properly to ensure inclusivity of opportunity. Harvard Business Review reports that job creation is outpacing labour force growth – although unemployment remains high.
Many countries in Africa are seeing the growth of a middle class and there’s a strong trend towards lifting people out of the most extreme poverty.
Africa’s changing population distribution also supports growth. Urbanisation concentrates populations, meaning businesses have a readily-accessible market. That’s also important to help overcome a key challenge for African growth – poor infrastructure.
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The World Bank has identified the progress many African markets are making to improve the business environment. Fast-growing economies are taking steps such as making it easier to set up a formal business structure or implementing rules to protect investors.
Mauritius and Rwanda are seen as the countries that are easiest to do business in on the continent thanks to scoring well on measures such as accessing credit and registering property. To put this into context, in world terms they rank 49th and 56th in terms of ease of doing business.
Historically, African growth has been strongly tied to commodity prices. Commodities such as minerals and metals have tended to be exported without any value being added. In the future, Africa may see more manufacturing activities to add value to commodity production. There’s likely to be helped by the availability of a growing population that creates an available labour force.
Distribution
In 2015 a hefty chunk of B2B spending was concentrated in just two countries: Nigeria and South Africa. Spending patterns focused on materials, with large sums also focused on overcoming infrastructure problems such as transportation concerns. It’s likely that these patterns may change in future.
Spending on B2B services is likely to show an increase and there’s room for optimism that growth will become more widely spread across a broader number of countries. Urbanisation is likely to lead to business “clustering”; a focus of economic activity in certain urban areas.
By failing to respond to the realities of business activity in some of Africa’s livelier markets, brands aren’t adequately serving markets. This leaves opportunities on the table. One example is the telecoms industry failing to serve business needs fully.
Solon Strategy identified that telecoms operators just weren’t fully addressing market activity in sub-Saharan markets, with potential opportunities going unmet or being met inadequately.
Solon identifies that better serving SMEs by developing services that cater to their needs is the way to capture B2B opportunities in this sector. Editorial credit: David Pickett / Shutterstock.com
With high growth forecast in the business telecoms sector, there’s an opportunity for providers to better leverage the market’s full potential in some of Africa’s more dynamic markets.
The FT recently accused the West of overlooking opportunities for investment in Africa, citing, in particular, the opportunity that will come when the continent finalises its vision to become the world’s largest free trade zone by 2030.
By industrialising and adding value to its huge raw materials output, the continent stands to completely transform its fortunes.
There remain significant obstacles to tackle if B2B potential is to be realised across Africa. High unemployment, skills mismatch and low investment in education and training frustrates both businesses and workers.
Infrastructure makes it hard to transport goods and supplies. But there’s also huge room for optimism. High growth rates and rapidly improving business environment means there’s likely to be a bright future for B2B activity in many African markets.