To talk of the “African economy” can be a difficult proposition. With dozens of countries and over a billion people on the continent, economies and industries vary greatly from country to country and region to region. But it's still possible to identify trends broadly and answer the question: What are the continent's industries to watch, and what challenges do they face?
Industries driving Africa
Needless to say, while Africa's economy is diverse, there are several major industries that drive the African economy and are worth watching now and in the coming years. They include:
Agriculture
Many African countries are heavily dependent on agriculture, which is the main source of livelihood for a large portion of the population. The World Economic Forum estimates that up to 70% of Africans make a living through agriculture, and the industry accounts for a significant share of GDP in many African countries, and includes crops such as cereals, roots and tubers, fruits and vegetables, sugar, and cocoa.
Mining
Africa is rich in natural resources such as diamonds, gold, oil, and other minerals. The mining sector plays an important role in the economies of many African countries, particularly those in southern and central Africa. It also presents many opportunities and challenges. For example it has the potential to boost export revenues but is also a prime target for corruption and cronyism.
Oil and gas
Many African countries have significant reserves of oil and gas, and the extraction of these resources is a major industry in countries such as Nigeria, Angola, and Algeria. As renewables become more affordable and widely adopted, the value of these reserves may decline, but in the near future, these countries will remain important players in the energy sector.
Telecommunications
The telecommunications industry is a rapidly growing sector in Africa, with a growing number of mobile phone users and increasing access to the internet. According to Vanguard: “The World Bank and African Development Bank estimate that there are some 650 million mobile phone users in Africa, a continent with a population of over 1.3 billion people.”
Manufacturing
Manufacturing is a key industry in several African countries, including South Africa, Egypt, and Morocco. Manufacturing includes textiles, clothing, footwear, food and beverages, chemicals, and more. Countries that prioritize industrialization and training will be best positioned to reap the benefits.
Services
The service sector has been growing across Africa, particularly in the areas of finance, tourism, and retail. With the increase in digital infrastructure, the service sector is becoming more important, especially in the areas of e-commerce and online services. McKinsey expects the coming years to be the beginning of a new fintech renaissance on the continent.
Infrastructure development
There is an increasing demand for infrastructure development across Africa, including the construction of new roads, railways, airports, and ports to improve connectivity and facilitate trade. Successful execution of these projects will need to be coupled with stronger continental integration in order for them to be truly effective catalysts for development.
Africa's economy in context
While the African economy has been growing in recent years, it still lags behind many other regions in terms of economic development. So, how does it compare?
GDP per capita
On average, GDP per capita in Africa is much lower than in other regions. According to the World Bank, GDP per capita in Africa was $1,931 in 2019, compared to $9,874 in Latin America and the Caribbean, $37,732 in Europe and Central Asia, and $60,964 in North America.
Economic growth
Economic growth in Africa has been positive in recent years, but it has been more volatile than in other regions. According to the International Monetary Fund (IMF), economic growth bounced back to 4.7% in 2021, but fell to an estimated 3.6% in 2022. This is compared to a 3.3% increase in Europe in 2022 (anticipated to fall to 0.5% in 2023) and approximately 2.0% increase in Latin America during the same time.
Poverty
Poverty remains a significant problem in many parts of Africa. According to the World Bank, 1 in 4 people in Sub-Saharan Africa lived in extreme poverty in 2019. This is much higher than in other regions, such as Latin America and the Caribbean, where the extreme poverty rate for the same period was just under 8%.
Income inequality
Income inequality is also a major issue in many parts of Africa. According to Oxfam, “The richest 0.0001% [in Africa] own 40% of the wealth of the entire continent.” Africa's three richest billionaires’ combined wealth is greater than that of the bottom 50% of the continent – approximately 650 million people.
Dependence on natural resources
The African economy is heavily dependent on natural resources, such as oil, gas, minerals, and agricultural commodities. Organizations like the African Development Bank are attempting to guide management of these resources, but dependence on them makes the African economy vulnerable to fluctuations in commodity prices and can create challenges for sustainable economic development.
Lack of infrastructure and investment
As mentioned above, Africa faces a significant gap in infrastructure and investment compared to other regions. While China has made significant investments in recent years, future financing now looks less rosy. Without a proper long term vision, inadequate transportation, energy, and communication networks will continue to hinder economic growth and development.
Final note
While we’ve listed a number of industries to watch in the coming years, it will be equally important to track how African nations deal with the challenges to unleash the potential of these sectors. While the continental economy has been growing in recent years, there are still significant challenges to be overcome in order to achieve sustainable economic development and improve living standards across the continent.
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