Africa – The last great emerging market Australia Africa Business Council (NSW) 21 September 2011

Africa Today US$1.6 trillion Africa’s GDP in 2008, approximately equal to Brazil or Russia US$860 billion Africa’s combined consumer spending in million New mobile phone subscribers signed up in Africa since % Africa’s share of the world’s total uncultivated, arable land 52 Number of African cities with more than 1 million people 20 Number of African companies with annual revenues in excess of US$3 billion Source: McKinsey Global Institute

Africa Tomorrow US$2.6 trillion Africa’s forecast collective GDP in 2020 US$1.4 trillion Africa’s forecast combined consumer spending in billion Number of Africans of working age in in 5 Africa’s proportion of the planet’s young people by million African households with discretionary income in % Proportion of Africans living in cities by 2030 Source: McKinsey Global Institute

Africa is a Big and Diverse Continent Africa is a non-homogenous continent of 54 countries at different stages of economic and political development. There are 29 exchanges in Africa, representing 38 nations' capital markets. Source: Creative Commons License CountryArea (x1000km 2 ) USA9,629 China9,597 India3,287 Mexico1,964 Peru1,285 France633 Spain506 Papua New Guinea462 Sweden441 Japan378 German357 Norway324 Italy301 New Zealand270 United Kingdom243 Nepal147 Bangladesh144 Greece132 TOTAL30,100 AFRICA30,221

1. Improved Macroeconomic Stability… Improved macroeconomic stability across the African continent has been achieved by (amongst others): - Reducing the collective inflation rate from 22 percent in the 1990s to 8 percent after Shrinking budget deficits from 4.6 percent of GDP to 1.6 percent of GDP. - Reducing the combined foreign debt from 82 percent of GDP to 59 percent of GDP. - Adopting policies aimed at energizing markets (privatisations, business competition, open trade, lower taxes, strengthened regulatory and legal systems). Source: World Bank Development Indicators, Political Risk Services, McKinsey Global Institute

…Debt Levels Are Becoming More Sustainable External debt has declined significantly over the last ten years. External debt is now lower than that of Central and Eastern Europe… …and is approaching the levels found in Developing Asia. Source: IMF, African Alliance estimates

2. GDP Per Capita Growth and Increased Savings… Despite the growth in Africa’s population, GDP per capita continues to grow strongly. Africa is poised to achieve a sustainable 5% per annum GDP growth rate, which represents a major improvement on the late 1990s. Sub-Saharan Africa’s savings rate has increased steadily since 2000, and is forecast to surpass the global average in 2011, from a substantially weaker position just 10 years ago. Source: IMF, African Alliance estimates

…Increasing Labour Productivity Internal structural changes have fuelled an increase in African productivity since 2000, creating a more dynamic business environment, illustrated by: - More than 1,400 publically listed companies. - More than 100 companies with revenues greater than US$1 billion million new mobile phone subscribers since Source: World Bank Development Indicators, Political Risk Services, McKinsey Global Institute

3. Africa’s Favourable Demographics Africa’s labour force is expanding faster than anywhere else in the world. Africa currently has 500 million people of working age (15 to 64 years). By 2040 the number of Africans of working age is projected to exceed 1.1 billion – more than China or India. Over the past 20 years three quarters of Africa’s increase in GDP per capita came from an expanding workforce, with the remainder coming from increased labour productivity. Source: The United Nations World Population Prospect

4. Increasingly Diversified Growth Economic growth has accelerated across the African continent, in 27 of the 30 largest economies. Africa’s growth story is only partly explained by the commodities boom. During the period natural resources accounted for just 24 percent of Africa’s GDP growth. Labour productivity has increased by 2.7 percent annually since Africa’s growth surge is a result of improved political and macroeconomic stability coupled with microeconomic reforms. Sector Sector Share of Change in Real GDP ( ) (%) 1 CAGR (%) Resources247.1 Wholesale and retail136.8 Agriculture125.5 Transport and telecommunications107.8 Manufacturing94.6 Financial intermediation68.0 Public administration63.9 Construction57.5 Real estate and business services55.9 Tourism28.7 Utilities27.3 Other % = US$235 billion in 2005 dollars Source: Global Insight, Arab Monetary Fund, African Development Bank, McKinsey Global Institute

5. A Unique Business Opportunity Africa’s economic growth is creating substantial business opportunities for both local and global companies. Four categories of opportunities could be worth US$2.6 trillion in annual revenues by Consumer-facing sectors present the largest opportunity, and are growing 2-3 times faster than in OECD countries. Africa’s projected 5 largest consumer markets in 2020 – Alexandria, Cairo, Cape Town, Johannesburg, and Lagos – will each have more than US$25 billion a year in household spending and be comparable in size to Mumbai and New Delhi. Industry Group Estimated Annual Revenue (2020) (US$ Billion) Growth ( ) (US$ Billion) Compounded Annual Growth Rate ( ) (%) Consumer1, % Resources % Agriculture % Infrastructure % Total2, % Source: McKinsey Global Institute

6. The Rise of the African Urban Consumer Increased urbanization and an expanding labour force are leading to the rise of the middle-class African consumer. In 1980 just 28 percent of Africa’s population lived in cities – today 40 percent of Africa’s 1 billion inhabitants do. By 2030 Africa’s top 18 cities could have combined spending power of US$1.3 trillion. The number of African households earning US$5000 or more – the level at which people start spending roughly half their income on items other than food – is projected to increase from 85 million today to 128 million by IndiaAfricaChinaEuropeLatin AmericaNorth America Population (Millions) 1,2191,0321, Cities With >1 Million People Source: United Nations, McKinsey Global Institute

7. Growth in Consumer Spending Food still accounts for the largest share of consumer spending. Non-food sectors grow faster as incomes increase. Current household spending of US$862 billion (2008) is projected to increase by US$516 billion to US$1.4 trillion by Source: World Bank Development Indicators, Euromonitor, McKinsey Global Institute

8. Africa and the BRICs BRIC-Africa trade as a proportion of World-Africa trade grew from 4.6% in 1993 to over 19% in China-Africa trade increased from US$3.5 billion in 1990 to over US$100 billion today – two-thirds of Africa’s total BRIC trade. In 2008 Africa ran a trade surplus of US$20.2 billion with the BRICs. The proportion of BRIC-Africa trade held by Sub-Saharan Africa has increased from 53% in 1980 to 77% in Total BRIC-Africa trade is projected to exceed US$4 trillion by 2030, equal to 10% of BRIC-World trade and 45% of Africa-World trade. Source: IMF, WTO, Standard Bank Group

9. Opportunity for Increased Intra-Regional Trade Current trade between African countries remains low at just 12 percent of total imports and exports – less than half the level in other emerging market regions. Half of Africa’s intra-regional trade occurs within the Southern African Development Community (SADC), in which South Africa trades with its smaller neighbours. Expanding Africa’s intra- regional trade could provide a significant boost to regional growth. Source: IMF Direction of Trade Statistics, McKinsey Global Institute

10. African Markets (ex South Africa) Have Been Ignored Since global market lows in early 2009 African markets (ex South Africa) have largely been ignored by international investors. While emerging markets in general have doubled over this time period, Africa ex South Africa is essentially flat. This has occurred despite continued economic growth and constantly improving business fundamentals in these markets. Source: Bloomberg, African Alliance PeriodJohannesburg All ShareMSCI Emerging MarketsMSCI EFM Africa ex SA FY %74.5%3.1% FY %16.4%14.3% FY2011 YTD (July)-4.5%-1.2%-18.1% Jan Jul %100.6%-3.5%

Finally….Some On The Ground Observations Regionalisation Social change Longer-term focus Expatriate skills

Thank you! Any questions?