Seeds of Opportunity: The African Growth Series
November 2023 | Issue 2
In this week's issue, you will learn more about:
- Africa’s Shifting Global Interests: East vs. West - Opportunities and Threats in Africa under a New World Order
- AFRICA OPINION: Idealism of a Common Currency
- AFRICA TREND: Equitable Shift in Startup Funding
- AFRICA TREND: African Beer Market Resurgence
- AFRICA OPPORTUNITY: Sustainable Aviation Production In Africa
- UPCOMING EVENT: Consulting in the Age of AI: Paving the way for future success
Africa’s Shifting Global Interests: East vs. West - Opportunities and Threats in Africa under a New World Order
With the BRICS bloc expanding its membership from early 2024 to include six new countries, the initiative could result in a very positive driver of the developing region’s growth and industrialisation. Two of the six countries are African (Ethiopia and Egypt), adding approximately 230 million people under its remit. This will increase the broader group to 42% of the world’s population and 36% of global GDP.
In addition, the expanded BRICS will now control more than 70% of the world’s rare earths, 75% of manganese and 50% of the world's Nickel reserves.
This is a major development in geopolitics and economics, with the Global South potentially creating a new world order to counter the strong influence from the West. This could open up new opportunities for financing, trading, an investment for developing regions like Africa. The region has faced considerable challenges securing capital at scale from Development Finance Institutions based in Europe and North America. This is especially true for hydrocarbon projects required to support Africa’s industrialisation drive.
Although it is still uncertain how the expanded group will function, many opportunities exist to support each other’s development. Apart from additional financing and increased trade, other options such as a joint trading currency to reduce exchange rate volatility, enhanced monetary sovereignty, etc. are a new reality.
Join us for an engaging and thought-provoking Think Tank on “Opportunities and Threats in Africa under a New World Order” on November 16th at 15h00 SAST as our distinguished panellists Dzingira, Nicholas Matenga (CEO: Zamlim Investments), Hendrik Malan (Partner & Africa CEO: Frost & Sullivan Africa) and Craig Parker (Research Director: Frost & Sullivan Africa) share their expertise and insights.
They will address pressing questions such as:
• What are the key drivers of Africa's shifting global interests between the East and the West?
• How are China and Russia's increasing presence and investment in Africa impacting the continent's economic landscape?
• How are African countries leveraging their strategic positioning to harness opportunities and mitigate threats in the new world order?
Sign up here and join the conversation on Thursday, 16 November at 15h00 SAST: https://frost.ly/9e6
AFRICA OPINION: Idealism of a Common Currency
Much has been said about the possibility of a common currency emerging from the formation of an extended BRICS community to include countries such as Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates. But what will this mean for South Africa’s trade and foreign exchange position?
A key reason for the interest in shifting from the dollar is because of volatility in the market that arises when the US Federal Reserve raises interest rates, which places pressure on emerging market currencies. It may be a noble idea to ‘de-dollarize’; however, there are implications that need to be considered. Just one of these I will mention here, and we will be touching on more in our Frost & Sullivan Think Tank (Africa’s Shifting Global Interests: East vs. West).
Currently, South Africa’s major export partner is China, representing 10% of exports and exports to other BRICS member states only account for 4% of total exports. If we include the extended invite list mentioned above, that rises to only 7%, effectively placing our total export potential with a future BRICS group at 17%. The current BRICS community accounts for 30% of South African Imports; a future potential BRICS partnership raises this to only 38%.
Just from a balance of trade perspective, there is a clear disadvantage to South Africa joining such a common currency agreement. Our trade balance with the current and future BRICS is significantly negative in comparison to our current global trade balance, which is positive. More than 80% of our export earnings will be in dollars.
If South Africa were to drastically increase exports to the future BRICS countries, we also need to consider the availability of dollar foreign exchange to service our growing international debt.
Several key questions need to be answered before South Africa should commit to such a step from a currency perspective. The obvious ones are flexibility in wages and prices, the mobility of labour and capital, as well as the harmonisation of economic policy and political ideals, but South Africa will need to seriously consider its own valuation in the context of the trade imbalance with a future extended BRICS.
Sign up for our Think Tank: Africa’s Shifting Global Interests: East vs West - Opportunities and Threats in Africa under a New World Order (Nov 16, 2023 03:00 PM SAST) - https://frost.ly/9e6.
AFRICA TREND: Equitable Shift in Startup Funding
By August 2023's close, African startup funding has seen a significant decline of 57% over the past three quarters compared to the previous year. Funding has decreased, but funds are becoming more equitable across Africa, with a quarter of the equity investments being distributed evenly across North, West and Southern Africa. Compared to half of startup equity investments funnelled into West Africa in 2021, Nigeria alone accounted for 42% of the continent's equity funding that year. Given its reliance on external financing, Africa's diminishing investment numbers are concerning.
As of 2023, Africa's "Big Four" (Nigeria, South Africa, Egypt and Kenya) garnered 89% of Africa's equity funding, surpassing their contributions over the last four years. The change in the financing for startups reflects the growing dynamism of Africa's startup ecosystem. West Africa and East Africa attract the lion's share of funding, with startups in North Africa catching up more recently and Southern Africa showing some modest growth. However, a single country (as mentioned above in Africa's Big "Four") accounted for most of the financing in each region. Hence, this trend reveals that investors are leveraging the opportunity to more equitably invest in startups across Africa through these top four countries.
AFRICA TREND: African Beer Market Resurgence
With the Rugby World Cup just finished, it is hard to imagine watching without a beer. South Africa is winning in Rugby and dominating African beer production with 33.8 million hectolitres. Nigeria ranked as the second leading beer-producing African country, churning out approximately 18.2 million hectolitres of beer. The continent contributed to a substantial 151.1 million hectolitres of beer production.
Beer has seen a decline in recent years, facing challenges from shifting consumer preferences, economic uncertainties, and the impact of the COVID-19 pandemic. However, the African beer market is showing promising signs of growth and recovery. Forecasts show the African market is projected to grow by a Compound Annual Growth Rate of 6.2% (2023-2027), resulting in a market revenue of US$37.4 billion in 2027.
Several opportunities can be captured from the resurgence trend. First, the African beer market is becoming increasingly sophisticated. Consumers are demanding more variety and higher quality beers. This is leading to the growth of craft breweries and the introduction of new products from international brewers. The craft beer movement is still in its early stages in Africa, but it is an ongoing opportunity. Second, the distribution of beer in Africa is often fragmented and inefficient. There is an opportunity for companies to develop more efficient distribution networks that can reach consumers across the continent. Third, E-commerce is growing rapidly in Africa, and this is creating new opportunities for beer sales. Companies can develop e-commerce platforms to sell beer directly to consumers. However, online sales can create its own logistic and legal challenges. Finally, African breweries are increasingly looking beyond their borders for new markets. Exports of African beer brands are on the rise, helping to bolster the industry's growth.
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AFRICA OPPORTUNITY: Sustainable Aviation Production In Africa
Africa is the second largest continent with a significant landmass, and therefore, reaching other parts of the continent requires aviation to move people and goods within the continent efficiently. However, there has been a regional and global need to decarbonise the air transport industry, which airlines, governments and aviation stakeholders are driving. Furthermore, African airlines have prioritised survivability and economic sustainability and are taking steps to reduce their carbon footprint. Thus, to reduce the industry’s carbon emissions in aviation by 2050, Sustainable Aviation Fuels (SAFs) have been identified as the most significant solution. With Africa’s vast land mass and the availability of feedstock, Africa has the potential to produce sustainable Aviation Fuels on a large scale. South Africa alone has the potential to produce 3.2 billion litres of SAF annually with the use of sugar cane. This can be increased to 4.5 billion litres if green hydrogen is incorporated into the process. At the same time, Kenya has the potential to produce SAF through used cooking oil, which further aids in waste management.
The African SAF market has additional benefits for the region, such as job creation for farmers, truck drivers, engineers, technicians, etc. Furthermore, as the region becomes less reliant on imported fuels, the continent is likely to see a direct growth of economies and an improvement in the trade balance.
UPCOMING EVENT: Consulting in the Age of AI: Paving the way for future success
You can still join us at the Stellenbosch Business School Consulting Club on Thursday, 30 November 2023 from 18h00 - 20h00 as business consulting industry experts discuss the impact of AI technology on the Consulting industry both today and in the years to come!
Panellists will include:
Hendrik Malan, Partner & Africa CEO, Frost & Sullivan Africa
Shakeel Kalidas, Associate Partner, McKinsey Digital QuantumBlack
Theesan Moodley, CEO, Sanlam Private Wealth
There will be a networking opportunity after the event for those attending on campus.
- Register to attend in person: https://lnkd.in/ghsWgVh2
- Register to attend online: https://lnkd.in/geqKme3C
To find out more about opportunities in Africa, please get in touch with Lynne Martin.
