Africa’s Incredible Economic Potential, in 10 Charts

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If some key hurdles can be cleared, Africa could experience explosive GDP growth over the coming decades.

At present, the contributions of Africa to the global economy are often overlooked. With a roughly $1.6 trillion GDP, sub-Saharan Africa equals approximately 10 percent of the U.S. total and 2 percent of the worldwide total. In the coming decades, however, Africa is poised to experience incredible growth that will make it a meaningful contributor to the global economy.

Population Explosion

Africa’s population is expected to grow significantly over the next several decades, while many developed markets will grow only slightly. By 2050 Africa will have a population substantially larger than the current developed world, with one of every four global inhabitants living on the continent.

 

Data Source: UN Projections

Africa will also be home to one of the world’s largest individual countries; by 2050, only India and China are expected to have more people than Nigeria. Nigeria’s population is expected to be approximately 440 million in 2050. A simple visual emphasizes this point surrounding Africa’s population; Nigeria, outlined below, will have 40 million more people than the U.S.

Africa is already home to several large urban areas. Though it doesn’t come close to matching China, Africa has more urban areas with at least one million residents than the U.S. or any of the other BRICs:

Data Source: CityPopulation.de

Growing Economies

Africa’s economic importance is expected to increase not only because of its population growth. As measured by expected 2016 GDP growth, four of the top five economies are located in Africa.

Data Source: World Bank

Africa’s GDP is expected to grow at a considerably higher rate than the United States and other developed economies over the next several years. The following chart compares the World Bank projections for sub-Saharan Africa and the United States.

Data Source: World Bank

Overextended periods, seemingly small differences in annual GDP growth can compound and result in very different trajectories. For example, PWC projects that Nigeria’s economy will expand by about 5.4 percent annually through 2050 compared to a growth rate of 2.4 percent for the U.S.

That difference may seem nominal, but when compounded over 35 years, it results in the following trajectories.

Available Land

Beyond simply large and growing populations and short-term GDP growth, real economic opportunity can be derived from natural resources.

Hunger remains a major issue facing Africa; nearly a quarter of sub-Saharan Africa is undernourished, compared to about 14 percent in developing regions globally.

There is an opportunity for Africa to not only feed itself but become a major exporter of agricultural commodities as well. The continent is home to a significant percentage of the world’s “potentially available” cropland.

Data Source: World Bank

Efforts to develop this farmland have met many challenges to date, and unlocking the potential here will take time. But Africa’s natural resources could ultimately make it a leading provider of several essential commodities.

Broadband Penetration

While many Africans already use cell phones, penetration of smartphones and Internet connectivity is relatively low. But in coming years, hundreds of millions of Africans are expected to gain access to mobile broadband for the first time.

Data Source: Informa

The above chart has several implications. Most importantly, hundreds of millions of Africans will experience increases in productivity related to a mobile broadband connection. But it also captures the fact that Africa is home to hundreds of millions of consumers who may potentially begin making discretionary purchases in the coming decades. Beyond smartphones, Africa will be a massive market for cars, televisions, and clothing.

Moving in Right Direction

From several economic perspectives, Africa is moving in the right direction — in some cases quite quickly. Life expectancy has increased by two years since 2010, while the time needed to start a business has declined significantly.

Data Source: Africa Development Bank

Data Source: Africa Development Bank. (Note: there is no data for 2011.)

Low-Hanging Fruit

While considerable progress has been made, there remains some significant low-hanging fruit that can extend life expectancy and provide economic stimulus.

For example, the number of physicians in Africa is significantly lower than in other developing economies. Access to clean water and sanitation facilities is similarly well below the developing world average.

Data Source: Africa Development Bank. Reflects physicians per 100,000 people and percentage of population with access to improved water and facilities.

It’s important to note that improvements in per capita GDP to reasonable levels — those currently prevailing in other developing economies — would result in enormous economic impact. If the per capita GDP in sub-Saharan Africa increases to the same level as China, global GDP will increase by $4.7 trillion, a roughly 6 percent increase. If the per capita GDP of sub-Saharan Africa increases to the same level as Greece, global GDP will increase by about $19 trillion — more than the total of the U.S.

There are undoubtedly major challenges ahead for African economies; the rapidly growing population creates enormous opportunities and introduces several threats.

About the Author: Michael Johnston

Michael Johnston is senior analyst for All Emerging Markets, and also serves as COO of parent company Poseidon Financial. His investment expertise has been featured in The Wall Street Journal, Barron’s, and USA Today, among other publications. He resides in Chicago.

 


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