There’s real optimism about the future of B2B market activity across the African continent, and it’s being led by the World Bank, which predicts improvements in key measures across the majority of African countries. 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 increase from $2.6 trillion in 2015 to $3.5 trillion by 2025.
McKinsey expects there will be an incredible rate of expansion in B2B spending activity from companies based in Africa. In the years leading up to 2025, they estimate a 50% increase in spending by African businesses. There are several factors contributing to this growth.
First, the continent is home to some of the world’s fastest-growing economies. Ethiopia, for example, recently reported double-digit growth. There’s predicted to be an expansion in both the number and size of businesses, and great leaps forward to be made in terms of how much easier it will be to conduct business in many African markets.
Second, many countries in Africa have demographics that are favourable to growth, including young and growing populations that are rapidly urbanizing. This is increasing domestic demand and improving tax-base potential. For businesses looking to expand, it also means an available workforce.
A favorable environment
Rapid population growth can work in the continent’s favor—provided it’s properly harnessed to ensure inclusivity of opportunity. Harvard Business Review reports that job creation across Africa is outpacing labor-force growth, although unemployment still remains high.
Many countries in Africa are seeing a growth in the 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. Urbanization concentrates populations, meaning businesses end up with readily accessible markets. 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 undergoing to improve their business environment. Fast-growing economies, for example, are making it easier to set up a formal business structure, and are also implementing rules to protect investors.
Mauritius and Rwanda are emerging as the countries where it’s easiest to do business in Africa, thanks to scoring well on such measures as accessing credit and registering property. They currently rank 49th and 56th in the world in terms of ease of doing business.
Historically, African growth has been strongly tied to commodity prices, and commodities like minerals and metals have often been exported without any added value. In future, Africa may see more manufacturing activities, which will add value to commodity production—a scenario that seems likely thanks to a growing labor force.
Distribution
In 2015, a large chunk of B2B spending was concentrated in just two countries: Nigeria and South Africa. Spending patterns focused on materials, with large sums also invested in overcoming infrastructure problems such as transportation concerns. It’s likely these patterns will change in future.
Spending on B2B services is predicted to increase, and growth may well become more widely spread across a broader number of countries. Urbanization will likely lead to business “clustering”—a focus of economic activity in key urban areas.
By failing to respond to the realities of business activity in some of Africa’s busier markets, brands aren’t adequately serving those markets. This leaves opportunities on the table. One example is the telecommunications industry’s failure to fully serve business needs. Solon Strategy noted that telecommunications companies weren’t fully addressing market activity in sub-Saharan markets, with potential opportunities going unmet or inadequately met.
Solon found that better serving SMEs through 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 telecommunications 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. In particular, they cited the opportunities that will arise when the continent finalizes its vision to become the world’s largest free-trade zone by 2030.
By industrializing and adding value to its huge raw-materials output, Africa stands to completely transform its fortunes.
There are still significant obstacles to tackle if B2B potential is to be fully realized across Africa. High unemployment, mismatched skills, and low investment in education and training frustrates both businesses and workers.
Infrastructure also makes it hard to transport goods and supplies. But there’s room for optimism. High growth rates and a rapidly improving business environment mean there’s hope for a bright future when it comes to B2B activity in many African markets.