1. Understanding Africa’s
growth acceleration and
business opportunities
March 2011
CONFIDENTIAL AND PROPRIETARY
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McKinsey Global Institute
Discussion Document

2. McKinsey & Company 1
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Some facts that surprised us
Consumption grew more in Africa than in India or Brazil over the last decade
Africa has as many cities with 1 million people or more as Europe
Africa today is more urbanised than India, and just below China
African returns to FDI were the highest in the world by 2007
Productivity growth was widespread and jumped to 2.7% p.a. across the continent

3. McKinsey & Company 2
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Africa’s growth prospects

4. McKinsey & Company 3
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|SOURCE: International Monetary Fund; Global Insight, McKinsey Global Institute
Africa’s economic growth accelerated after 2000, making it the world’s
third-fastest growing region
African annual GDP, 2010
$ billion
Compound annual
growth rate, %
839694
461
2.4
1.9
4.2
2000
1,067
199019801970
Compound annual real
GDP growth, 2000–10
%,
1.5
World 2.6
Latin
America
3.1
Central
and Eastern
Europe
4.3
Developed
economies
Africa 4.7
Middle East 4.7
Emerging
Asia
7.21 654
1 580
1 549
1 483
1 400
1 323
1 258
1 191
1 144
1 108
5.5
4.9
2010e090807
5.6
060504030201
3.6
3.3

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Despite a steep fall in real GDP growth, Africa was one of only three
regions to grow in 2009
SOURCE: Global Insight; McKinsey Global Institute analysis
-3.3
-2.5
-2.2
-0.2
1.5
5.55.6
Developed
markets
Latin AmericaWorldMiddle EastAfricaEast Asia-
Pacific1
South Asia1
2009 real GDP growth
%, constant exchange rates
1 Only developing and emerging countries

6. McKinsey & Company 5
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Compound annual
growth rate, %
Sector share of change in real GDP, 2002–07
Percent, 100% = $235 billion1
Africa’s growth was widespread across sectors …
SOURCE: Global Insight; Arab Monetary Fund; African Development Bank; McKinsey Global Institute
6
2
2
5
5
6
6
9
10
12
13
24
Other services2
Utilities
Tourism
Real estate, business service
Construction
Public administration
Financial intermediation
Manufacturing
Transport, telecommunications
Agriculture
Wholesale and retail
Resources
1 In 2005 dollars. Includes 15 countries that account for 80 percent of Africa’s GDP: Algeria, Angola, Cameroon, Egypt, Ethiopia, Kenya, Libya, Morocco,
Nigeria, Senegal, South Africa, Sudan, Tanzania, Tunisia, Zimbabwe
2 Education, Health, Social Services, Household Services
7.1
6.8
5.5
7.8
4.6
9.0
3.9
7.5
5.9
8.7
7.3
6.9
Sectors with higher
growth than resources

7. McKinsey & Company 6
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… and countries
SOURCE: WDI
Kenya
4.4
1.9
Tunisia
4.9
4.7
Sudan
7.5
5.8
Angola
13.1
0.8
Morocco
5.1
4.4
-0.1
Egypt
4.8
4.3
Algeria
4.1
1.7
Nigeria
6.1
2.8
South Africa
4.1
1.8
2.4
Libya
2000-081990s
5.3
0.7
Gabon
2.2
1.7
Uganda
7.5
6.8
Ghana
5.5
4.3
Eq Guinea
20.9
Senegal
Tanzania
6.8
2.9
Cameroon
3.6
1.4
Cote d Ivoire
0.6
2.3
Ethiopia
8.2
2.8
4.1
3.1
Zambia
19.7
9.1
2.3
Namibia
4.8
4.2
Mauritius
4.3
5.3
Mali
5.6
4.0
Madag-
ascar 3.7
B Faso
Mozam-
bique 8.1
5.5
Congo
3.9
1.4
DRC
4.9
-5.6
Botswana
4.0
6.2
5.5
5.3
Chad
1.7
Africa top 10 – 79% of GDP Africa 11-20 – 12% of GDP Africa 21-30 – 6% of GDP
Accelerators
Average annual real GDP growth, %
1 These economies represent 97% of Africa’s GDP

8. McKinsey & Company 7
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Africa’s growth acceleration has been driven by the commodity boom,
greater stability, economic reforms, and healthy urbanisation
▪ Resources account for 32% of Africa’s growth since 2000, 24% through the
direct effect on resources GDP, and 8% through multipliers on government
spending
▪ Governments reduced inflation from 22% (1990s) to 8% (2000s) and foreign
debt from 82% to 59%.
▪ Serious conflicts1 fell from 4.8 to 2.6 per annum
▪ Widespread business-friendly reforms, including in Nigeria (telecomm,
banking); South Africa (tax); and Egypt (liberalisation)
▪ 11 ‘Reforming’ countries accelerated growth by 3% vs. 1% for ‘non-reformers’
▪ African cities’ population grew by 90m since 2000
▪ ‘Healthy’ urbanisation is associated with productivity growth across Africa, and
accounts for 30-50% of the productivity growth in Tanzania, Kenya and Morocco
The
commodity
boom
1
Macro and
political
stability
2
Economic
reforms
3
‘Healthy’
Urbanisation
4
1 Conflicts with more than 1,000 deaths per annum
SOURCE: Team analysis

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1 Each business policy metric is measured along a variety of dimensions that are aggregated into an index for each metric. Improvements in each metric
are measured as an increase in the index level
2 Reformers are defined as countries that improved along credit, labor and business regulations, and trade policy. The non-reformers have improved
along only a subset of dimensions (14 countries) or none at all
3 Percentage points
SOURCE: Fraser Institute; World Bank World Development Indicators; McKinsey Global Institute
1.1
3.2
Non-
reformers
Reformers
2.1 pp3
Acceleration in real GDP2,
2000-08 vs. 1990-2000
Unweighted country average, %
16
Many countries enacted microeconomic reforms, and this was correlated
with more rapid growth
Sample
size
50
64
8284
Trade policyBusiness
regulation
Labor
market
regulation
Credit
regulation
Sample
size
37 11 11 30 14
Share of African countries improving business policy
metrics1
%

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|SOURCE: United Nations; McKinsey Global Institute
70
60 55
27
21 18
100% =
Urban
Rural
North America
349
82
Latin America
594
79
Europe
830
73
China
1 351
45
Africa
1 032
40
India
1 219
30
Cities with
>1 million
people
52 5210948 63 48
Africa is almost as urbanized as China and has as many cities of
1 million people as Europe
Share of rural vs. urban population by region, 2010
%, million

11. McKinsey & Company 10
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|SOURCE: McKinsey
The global
race for
commodities
Projected increases in world commodity demand, e.g., 2.3% p.a., for oil
Africa is a cost-competitive location globally for sourcing
many minerals
Access to
international
capital
Capital inflows into Africa are US$65 bn p.a., and now exceed
remittances and aid
Africa has the highest return to FDI of any region
in the world
Seismic
demographic
shifts
By 2020, half of African households will have discretionary spending
power – an additional 45 million such households
At 1.2 bn, Africa will have the world’s largest workforce by 2040, an
expansion of over 500 million compared to today
African green
Revolution
Africa has 60% of world’s available arable land
Many African countries below global benchmarks for yields
4 main structural trends support Africa’s long-term growth potential
Established
trends
Possible
trends

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Private capital flows to Africa have risen sharply
since 2003
SOURCE: World Bank World Development Indicators; McKinsey Global Institute Capital Flows Database
-10
0
10
20
30
40
50
60
70
80
90
20080520009590851980
Capital inflows1
Remittances
Gross aid inflows
1 Capital inflows are defined as net foreign direct investment (FDI), equity, debt, and other flows into Africa from foreign investors.
African financial inflows
$ billion

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0
2
4
6
8
10
12
14
16
18
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
The rate of return on foreign direct investment in Africa is
higher than in other developing countries
1 The rate of return is calculated as direct investment income for the current year divided by the average of FDI stock of the previous year and the
current year. The figures for 2007 rates of return are based on 39 countries in Africa, 33 in Latin America and the Caribbean, 11 in West Asia and 18 in
Asia
SOURCE: United Nations Conference on Trade and Development; McKinsey Global Institute
Developing
economies
Asia
Africa
Latin America
Middle East
Rates of return1 on inward foreign direct investment
Percent

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Share of households in each income bracket
%, millions of households
By 2020, more than half of African households will have
discretionary spending power
Consuming middle class
(10,000–20,000)
Emerging consumers
(5,000–10,000)
Household income brackets
$ PPP1 2005
Globals (>20,000)
Basic consumer needs
(2,000–5,000)
Destitute (<2,000)
SOURCE: Canback Global Income Distribution Database (C-GIDD); McKinsey Global Institute
Households with
income >$5,000
Million
59 85 128
Basic needs
Discretionary
income
1 Purchasing power parity adjusts for price differences in identical goods across countries to reflect differences in purchasing power in each country.
34
24
18
29
32
29
18
21
23
100% =
2020F
244
17
12
2008
196
14
8
2000
163
11
6

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Opportunities and
challenges across countries

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Zambia
Uganda
Tunisia
Tanzania
Sudan
South Africa
Sierra Leone
Senegal
Rwanda
Nigeria
Namibia
Mozambique
Morocco
Mauritius
Mali
90
Libya
KenyaGhana
Gabon
Ethiopia
Equatorial
Guinea
Egypt
Côte d’Ivoire
Congo, Rep.
DRC
Chad
Exports per capita, 2008, $
10000
1000
100
10
Economic diversification
Manufacturing and service sector share of GDP, 2008, %
8070605040
Madagascar
3020 100
Cameroon
Botswana
Angola Algeria
Africa’s future growth prospects differ
across four groups of countries
SOURCE: Organisation for Economic Co-operation and Development; World Bank World Development Indicators;
McKinsey Global Institute
Diversified
Oil exporters
Transition
Pre-transition
Size of
bubble
proportional
to GDP
NOTE: We include countries whose 2008 GDP is approximately $10 billion or greater, or whose real GDP growth rate exceeds 7% over 2000–08. We
exclude 22 countries that account for 3% of African GDP in 2008
$500–1,000
$1,000–2,000
$2,000–5,000
>$5,000
<$500
GDP per capita

17. McKinsey & Company 16
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Africa’s $2.6 trillion
business opportunity

18. McKinsey & Company 17
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Four groups of industries could have combined revenue of $2.6 trillion by
2020
SOURCE: McKinsey Global Institute
Estimated annual revenue, 2020
$ billion
Compound annual
growth rate, 2008–20
%
Growth,
2008–20
$ billion
1 Took 2030 value of $880 billion and calculated straight line equivalent for 2020.
2 Represents investment. Assumes need remains as same share of GDP through 2020.
4%
2%
5%
9%
4%~980
520
110
220
130200
500
540
Total 2 620
Infrastructure
Agriculture
Resources
Consumer-
facing
1 380

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While food will account for the largest share of consumer spending,
non-food sectors will grow faster as incomes increase
SOURCE: World Bank World Development Indicators; Euromonitor; McKinsey Global Institute
Household spending 2008
Household
spending growth,
2008–20
2008 $ billion
101
26
28
46
51
97
144
369
Telecom
Banking
Education
Other
Food and
beverages
Housing
Health care
Non-food
consumer goods
60
21
30
35
32
62
101
175
Total 861 515
Compound annual
growth rate, 2008–20
%
3.3
4.5
4.2
4.2
4.9
6.2
4.9
4.0
4.0

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Demand for agricultural production will surge through 2030…
SOURCE: Firm biomass model; FAOSTAT; UN population prospect; Unica, team analysis
Billion tons
▪ 2030 Low case –
increase of total
demand driven
only by population
growth
▪ 2030 High case–
per capita food
consumption and
caloric intake
aligned to
European level;
high biofuel
expansion
Scenario
assumptions
3.3
0.6
Waste
Seed
Processing
Food
Biofuel
High case
Feed
6.0
3.1
Low case
9.4
14.8
0.3
2.5
4.6
1.4
1.0
0.2
1.2
0.20.4
0.6
3.5
2.0
0.1
2003
7.0
0.3
2.8% p.a.
1.1% p.a.
2030 demand scenarios

21. McKinsey & Company 20
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Wheat
No. 2 hard red winter wheat, USA FOB
Gulf, June/May
Rice
Milled, 100%, grade B, FOB Bangkok,
August/July
Maize
No. 2 yellow corn, US FOB Gulf,
September/August
… and long-term prices should increase over recent historical averages
SOURCE: OECD; FAO
168
2008 267
Avg
’03–’07
2017 231
3,1% p.a.
2017 335
2008 391
Avg
’03–’07
263 2,4% p.a.
165
Avg
’03–’07
113
1852008
2017
3,9% p.a.
457
2008
2017
482
Avg
’03–’07
293 4,5% p.a.
Avg
’03–’07
302
2008 216
2017
237 2,5% p.a.
2,073
2008 2,060
Avg
’03–’07
1,833
2017
1,2% p.a.
Soy Sugar Beef
Weighted average oilseed price,
European port
Raw world price, FOB Carribean port,
bulk spot price
Nebraska choice steers, 1,100-1,300
lb live weight
USD per ton

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Note: IIASA (International Institute for Applied Systems Analysis); joint project on Land Resources together with the FAO
1 Based on current yields and production for all countries, global average yields for maize and rice and best-in-class yields for cassava, sorghum and millet
2 For all crop types; the optimal crop mix will differ by location
3 Maximum climatically attainable yield
SOURCE: FAOSTAT 2007
Africa could become a worldwide player in agriculture
as the sector is far from reaching its potential
Boosting yields, more land
1.3
Rice, paddy
3.9
1.6
Maize
4.5
1.2
10.9
Cassava
7.0
0.8
14.4
6.1
Wheat
2.7
Sweet potatoes
3.0
Yams
6.1
0.8
10.2
5.7
Millet
Sorghum
1.3
0.9
Plantains
World average
SSA
Yield potential across major crops in SSA
Yield, Mt/ha
320
Housing and
infra-structure
1,320
Not suitable
for cultivation
Total land
20
2,445
785
Closed forest or
protected area
195
All types of potentially
suitable land not
under cultivation
590
Land currently
under cultivation
Land potentially
suitable for cultivation2
135
Very suitable
(80-100%)
Suitable
(60-80%)
Moderately
suitable (40-60%)
Marginally
suitable (20-40%)
590
225
140
90
Land availability and suitability in Sub-Saharan Africa
Land by degree of suitability
Million ha, % of maximum yield3
Land availability in Sub-Saharan Africa
Million ha, 2008
ESTIMATES

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Africa represents about 60 percent of the potentially available cropland
in the world
80
970
2009
590
300
Sub-Saharan
Africa
Latin
America
Others
216
38
45
49
53
53
66
72
Others
Tanzania
Central African
Republic
Mozambique
DRC
Angola
Sudan
Zambia
75
31
39
155
Others
Venezuela
Argentina
Brazil
1 Cropland defined as land producing output greater than 40% of maximum yield under rain-fed conditions,
excluding forest areas.
SOURCE: World Bank/Food and Agriculture Organization, Awakening Africa’s sleeping giant;
McKinsey Global Institute
Additional available cropland, 20091
Million hectares

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Mechanization, tractors per 100 sq km1, 2007
Fertilizer use, kg/ha1, 2007
Poor government policies
▪ Low government spending on agriculture (5% vs. 14%
Asia)
▪ Limited spending on research and extension
▪ Lack of strategy and coordination at a national level
Land fragmentation and ownership issues
▪ Widespread of small farms of <5 ha on average (e.g.,
Uganda, Morocco) with subsistence farming
▪ Difficult access to larger land pieces for investors (e.g.,
administrative hurdles, availability)
Low quality infrastructure
▪ Very low road density, 40 times lower than India in 1970
▪ Lack of adequate overall finance systems
▪ Expensive access to agro inputs and to markets
Inappropriate seeds and inputs
▪ 'Asian imported' varieties with low yields
▪ Slow development of adapted varieties due to slow
dissemination
▪ Risk of vulnerable monocultures (e.g., diseases)
258
131
16
9
1.712
USABrazil
1.901
SSA
1 Arable land
SOURCE: “Role of intermediate factor markets in Asia’s green revolution:Lessons for Africa?” Amer. J. Agr. Econ, 2003,85:3.
http://www.globalchange.umich.edu/webprojects/w01_africagr.htm, FAOStat, UN Millennium Project; Evenson and Gollin 2003
4 Root causes explain low input use and resulting low yields
…which result in large input gaps
African agriculture is facing 4 main obstacles

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The recent FDI wave in agriculture could be a potential
catalyst for the African green revolution
SOURCE: The Economist; The Guardian; IFPRI
100,000–1m ha committed
>1m ha requested
>1m ha committed
Mali
Libya secured
100,000 ha for rice
RDC
▪ ZTE international
(China) secured 2.8m
ha for biofuel oil palm
plantation
▪ 10m ha offered to South
African farmers’ union
Zambia
China requested 2m ha for
jatropha
Mozambique
Skebab (Sweden) and Sun
Biofuel (U.K.) secured
>100,000 ha for biofuels
Madagascar
Daewoo (South Korea)
buying 1.3m ha for
maize; deal now aborted
Sudan
▪ 690,000 ha to South
Korea for wheat
▪ 378,000 ha to UAE
▪ 25,000 ha to Jordan for
livestock and crops
▪ 10,000 ha to Saudi
Arabia
Tanzania
▪ Saudi Arabia requested
500,000 ha
▪ CAMS Group and Sun
biofuels (U.K.) secured
50,000 ha for sorghum,
jatropha
EXAMPLES
Kenya
Qatar to lease 99,000 ha
for fruit & vegetable
production – port
construction in exchange
Sudan
Jarch capital (U.S.) signed
deal for 800,000 ha

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700
275
+14%
20072000
Vibrant private
sector-led kick-
started by FDI
Hands off support
by the Government
of Kenya
▪ Development of the sector kick-started by flagship FDI projects
(e.g., Fresh del Monte for pineapple, Saupiquet for green peas)
and Kenyan expatriates
▪ Know-how and business mindset now clearly anchored in the
sector
– Strong investment in high-tech for production
– Close market monitoring and adaptation/anticipation of new
market requirements and shift in consumer preference
▪ Integration along the value chain and strong linkages to
importing countries (e.g., direct relationship with retailing import-
export offices abroad)
▪ Tight cooperation amongst players via the Fresh Producers
Association (e.g., branding/ marketing)
▪ Government role limited to facilitation and providing public goods
– Facilitation of FDI installation and contract farming practices
– Setup of quality infrastructure (port/airport) and education
(e.g., Kenyatta University of Agriculture and Technology)
– Enforcement of plant variety protection
▪ Private sector request for more of these interventions, esp.
increase market access and funding some R&D effort
Development of sophisticated
horticulture export
▪ Now 2nd export to tourism
export, USD m
▪ Highly sophisticated product:
from bulk to high value Add
▪ Constant adaptation to market
– Private R&D effort for
new variety
– Know-how developed
KENYA CASE STUDYIn Kenya the development of the horticulture sector
has been private-led

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* 18 countries did not report
SOURCE: “The 10 Percent that could change Africa”, CAADP
Seven countries have reached the 10 percent target
in five years*
A parading shift in Africa's approach
to agriculture
▪ Launch of the Comprehensive Africa Agriculture
Development Program (CAADP) in 2002
– An African-led initiative established by the New
Partnership for Africa's Development (NEPAD)
and the African Union
– Main goal is to focus on agriculture-based
development
▪ Maputo declaration in 2003: African
governments commitment to increase the share
of public spending going to agriculture to at
least 10%
– Public investment falling from 6,4% in 1980 to
4,5% in 2002
– Annual development assistance devoted to
agricultural investments falling from 26% in the
late 1980s to 4% currently
At least 10%
From 5 to less
than 10% Less than 5%
▪ Burkina Faso
▪ Cape Verde
▪ Chad
▪ Ethiopia
▪ Mali
▪ Malawi
▪ Niger
▪ Benin
▪ Equatorial
Guinea
▪ Ghana
▪ Kenya
▪ Lesotho
▪ Madagascar
▪ Mozambique
▪ Senegal
▪ Sudan
▪ Gambia
▪ Tunisia
▪ Zimbabwe
▪ Algeria
▪ Botswana
▪ Burundi
▪ Cameroon
▪ Democratic
Republic of
Congo
▪ Egypt
▪ Gabon
▪ Liberia
▪ Mauritius
▪ Nigeria
▪ Rwanda
▪ Sierra Leone
▪ Tanzania
▪ Uganda
▪ Zambia
Governments have put increased emphasis on agriculture
Though many countries
did not reach the goal,
the numbers appear to be
getting better slowly

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Pesticide 7
Fertilizer 14
Horticulture 490
DownstreamMidstream
Equipment 7
Seed 7
Upstream
239
Grain
processing
58
Biofuels 23
Cereals 138
Vegetable/fruit
processing
66
868
Other
processing 60
35
Livestock
processing 33
Livestock 112
Cash crops 129
Downstream agricultural processing offers
a large business opportunity
Africa agriculture revenue potential, 2030
USD billion
SOURCE: McKinsey Global Institute
0–5 percent
5–15 percent
15–20 percent
20+ percent
ESTIMATED OPERATING MARGIN

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The full report can be downloaded at:
McKinsey Global Institute
www.mckinsey.com/mgi
Thank you