Presented by ESMT Berlin
By leveraging its abundant natural resources and immense human potential, Africa is poised to drive prosperity both within and outside of its borders this decade. Gregor Theisen, Managing Partner for Africa at McKinsey & Company, shares his insights on the opportunities and challenges facing the continent's economic growth in an increasingly multipolar world.
Interviewed by Klara Marie Schroeder
It is true that Africa’s long-term economic growth in the last ten years has slowed down, and productivity across all sectors of the African economy is lower than in comparable regions of the world. Yet, we are still optimistic about the continent’s future. For one thing, there is no “one Africa”. So, while the average growth story is one of a downshift, it’s important to point out that nearly half of the continent’s people live in countries where economies have grown consistently and strongly over the past 20 years. Annual GDP growth in these primarily midsize economies in East and West Africa has averaged more than 4 percent.
In fact, over the past decade, certain countries, cities, and companies across Africa have been beacons of innovation, productivity, and growth. Their successes offer models and innovations that can reinvigorate economies in other African countries that have lacked sufficient growth to propel the 400 million Africans living in extreme poverty, as well as others who are less impoverished but remain vulnerable, across the empowerment line. Another reason for optimism is that Africa’s large companies have proven resilient, and most have considerable unmet potential for growth. In Africa today, at least 345 companies have annual revenues of more than $1 billion.
We’re also witnessing a structural economic shift on the continent that has occurred over the past 20 years, as people have increasingly taken jobs in trade and other services in cities. A shift to services is a pathway to increased prosperity trod by many countries, and Africa’s shift to services closely mirrors what occurred in India. Such a transition provides a productivity boost since service-sector productivity is higher than that of agriculture (though generally less than in the industrial sector). Services create significant opportunities for African countries to boost economic output and job creation—provided that productivity in the sector improves.
Finally, Africa is the fastest-urbanizing place on earth, with more than 500 million people likely to leave the countryside between now and 2040. Urbanization is generally a positive economic force and a crucial driver of economic growth, especially in low-income countries. Cities contribute significantly to overall country GDP and are valuable sites of productive employment opportunities. Burgeoning cities also open up an exciting new market for many companies.
While average GDP per capita growth across these three decades has been low, growth has varied considerably in this time. In the decade between 1990 and 2000, Africa’s GDP grew by only 2.5 percent a year, or a bit slower than its population growth rate. Unlike China, India, and other regions, the continent was not among the first places to benefit from broad corporate moves to offshore operations to lower-cost manufacturing bases. Gaps in infrastructure and skills, along with relatively high hurdles to conducting business, low levels of intra-continental trade, and dependence on natural resources, have also been obstacles to Africa’s growth.
Between 2000 and 2010, African economies experienced a broad-based economic acceleration, with real GDP growing at 5.1 percent a year, roughly double the rate of the 1990s, but in the 2010-2019 decade, this growth slowed again. Fluctuating global commodity demand has had a lot to do with this. A strong global commodity cycle set off a boom in African mining from 2002 to 2007, as metal and oil prices almost tripled and foreign investors looked to Africa to help meet growing demand driven by the rapid growth of emerging economies elsewhere. But from 2010, a decline in commodity demand impacted particularly oil exporters. The continent’s share of global commodity exports declined from 7 percent to 4 percent between 2010 and 2019.
Africa’s growth story is also linked to its political and business climate. Improved political stability, productivity, and business growth in the first decade of the millennium helped enable growth, but increased political instability in parts of the continent since 2010 have created growth challenges. At the same time, declining foreign direct investment (FDI) between 2010 and 2019 has added to economic deceleration on the continent.
Going forward, Africa’s decision-makers in the public and private sectors have an opportunity to rekindle growth and set the continent back on a path of strong, sustainable and inclusive development. This will not be easy, given challenges such as climate change and the energy transition; it will require innovation, investment, and collaboration.
We think that a disciplined focus on productivity could unlock growth across the services, industrial, extraction, and agricultural sectors in particular. For example, from 2000 to 2010, the services sector in Africa increased productivity by 1.8 percent, and simply returning to that level would increase the sector’s gross value added (GVA) by $400 billion by 2030. Additionally, if Africa matched the productivity growth of Asia’s strongest services hubs, it could add $1.4 trillion to the continent’s economy, almost doubling the GVA from services today. This would create 225 million jobs by 2030—a crucial consideration in light of Africa’s rapidly growing workforce.
To unlock productivity across sectors, the continent will need a highly skilled and enabled workforce, so the development of African talent is key. Tackling digital technology bottlenecks is also important because digital infrastructure is necessary to improve productivity and close the competitiveness gap with emerging market peers. There is also an opportunity for African public- and private-sector leaders to work to increase regional connectedness and realize the full potential of the African Continental Free Trade Area (AfCFTA), as well as investing in the rapid development of low-carbon energy supplies for the extractive industries, particularly metals.
Future growth will also likely come from Africa’s vibrant cities, especially its rapidly growing “second” cities. Additionally, large private companies have an important role to play in rekindling economic progress in Africa because such African business champions contribute disproportionately to growth, innovation, employment, exports, productivity, and taxes.
In summary, by acting decisively, governments and businesses across the continent have an opportunity to maximize Africa’s services opportunity, boost trade and industrialization, transform cities, reimagine agriculture, roll back poverty, and build vibrant economies. Each African nation can deploy its particular strengths and capabilities in ways that promote productivity-led growth and improve lives across the continent at large.
The continent’s young and fast-growing workforce—some 796 million people will join the working population by 2050—represents a rich source of talent. Some of this talent will leave the continent to seek work elsewhere, but there is also a substantial opportunity for African talent to meet the growing global talent shortage via services outsourcing. Indeed, African talent could become the continent’s largest export, particularly to countries with ageing demographics that are likely to turn to Africa as a source of talent. And given the shifts we are seeing in how work gets done, this talent may not need to leave the continent to fullfill this demand.
Developing this talent to serve Africa and the rest of the world will be critical. A highly skilled and enabled workforce can drive productivity gains because it can do more with less. This could include creating more relevant educational curricula, training employees to build the skills and knowledge Africa needs, linking talent with job opportunities, and empowering entrepreneurs. Digital skills will be important to develop among the continent’s young talent. The continent can harness this abundant human potential to increase economic growth and prosperity. For the local labor market, these strengths and assets present an opportunity to vastly improve productivity and reverse the marked economic deceleration that it endured between 2010 and 2019.
The most significant economic contribution of the African diaspora comes through personal remittances, which currently surpass foreign direct investment (FDI). According to the United Nations Office of the Special Advisor on Africa, Africa received $100 billion in formal remittances in 2021 (reaching $95 billion in 2021) – almost 6 percent of the continent’s GDP. These remittances provide crucial financial support for millions of households, though primarily focused on daily needs rather than long-term investment.
The use of diaspora bonds – government debt-securitized bonds financed by Africans living in the diaspora who want to contribute to improving their country of origin – are currently an under-utilized source of potential investment into Africa. Rather than supporting the immediate needs of family members as traditional diaspora remittances tend to do, diaspora bonds have the potential to have a wider impact. By allowing local borrowing at below market rates, diaspora bonds can be an innovative source of funding for projects of local and national impact as well as for longer-term and more costly projects such as infrastructure and social security programs. In 2017, Nigeria raised nearly $300 million in its first-ever diaspora bond, which speaks to the strength and size of its expatriate communities. The country now plans to issue a diaspora bond of up to $500 million.
The diaspora's potential impact extends far beyond remittances and bonds, however. Perhaps more significantly, skilled professionals returning to Africa bring valuable education and expertise. A recent survey by the World Bank found that 60% of African professionals in the banking, manufacturing and technology sectors would consider returning to their countries of origin if judicial and regulatory systems were more predictable.
Diaspora communities abroad also play a critical role in advocating for Africa on issues like climate change, trade, investment, regional security, and democracy. The diaspora and their children also represent a potential source of tourism revenue for African countries.
The African Continental Free Trade Area has made great progress towards reducing border constraints and increasing intra-Africa trade as well as supporting economies of scale, boosting competitiveness, and encouraging flows of technology and talent, nevertheless, there is still a lot to be done to realize its ambitions of increasing intra-Africa trade to drive growth. African public- and private-sector leaders can work together to realize the full potential of the AfCFTA by establishing more seamless, frictionless, and tighter connections among countries on the continent to ensure that investments in industrial and manufacturing pay off.
Africa trades much more with economies beyond the continent than within it. Only 10 percent of imports come from another African country, and 17 percent of exports go somewhere else on the continent. Of this, South Africa currently accounts for 32 percent, or more than $35 billion, of the flow of intracontinental goods, the most such trade on the continent. Nigeria comes in second with more than $7 billion in flows across African partners. For some smaller economies like Mali, Rwanda, and Togo, the main trading partner is another nearby African country.
To increase intra-Africa trade volumes, the most critical value chains can be prioritized based on their potential for import substitution, contribution to economic growth, and inclusivity of women, youth, and small and medium-size enterprises, as well as feasibility. Agro-processing, pharmaceuticals, automotive, and logistics could deliver substantial value, but significant investment and bold interventions would be required to realize their potential. For example, improving transportation and logistics would require reducing customers’ delays at borders, increasing the quantity and availability of quality trucks through financing, and scaling cold chain storage and transportation, which are among the priorities of AfCFTA. Coordinating tariffs and regulations across the continent are key enablers of productivity in trade. Having more coordinated and aligned strategies across countries and regions, such as pharmaceutical manufacturing strategies that span countries in East Africa or West Africa, can build resilience and improve productivity.
Research and analysis published in 2024 by the McKinsey Global Institute finds that in terms of existing trade flows, Africa has strong trade flows with countries in Europe as well as China and other countries globally. Furthermore, Africa, particularly some North African economies, are seeing increased investment announcements from across the globe. Announced greenfield investment has surged in Africa by 109% in the past two years compared with pre-pandemic averages.
Although this makes Africa the region with the largest percentage increase in investment relative to pre-pandemic averages, investment has generally been destined for a narrow set of economies, mainly in North Africa, rather than the continent more broadly. Morocco and Egypt have seen the largest gains in dollar terms. Morocco, for example, has experienced a surge in announcements from Chinese companies investing in the EV battery supply chain. Excluding North Africa and South Africa, recently announced investments into the continent have been relatively flat. However, conditions vary widely within sub-Saharan Africa. For example, announced annual investment into the Democratic Republic of the Congo, Kenya, and Uganda collectively reached $15 billion on average in 2022–23, tripling relative to pre-pandemic averages. Over the same period, announced investment into Ethiopia, Ghana, and Nigeria fell by more than 35 percent.
Investment announcements and existing data indicate that China’s trade reorientation toward developing economies may continue and that these economies may grow their global exports. On average, in each year between 2015 and 2019, about $50 billion (or 50 percent) of China’s announced outbound greenfield investment was destined for Africa, ASEAN, Central Asia and the Middle East, and developing economies in Europe. Between 2022 and 2023, this figure was on course to double to more than $100 billion, or more than 70 percent of total announcements annually.
For the future of trade flows, we have looked at two possible types of reconfiguration. The first involves a trade fragmentation driven by heightened trade frictions. The other focuses instead on diversification—that is, reducing import concentration—without a geopolitical lens.
In a fragmentation scenario, which foresees intra-Western trade increasing and China strengthening its ties with mid-aligned economies, including economies in Africa, most ASEAN economies, India, Latin America, and the Middle East. This pattern of change sees trade frictions between Eastern group and Western group economies. With other mid-aligned economies, including Africa, both groups would conduct nearly friction-free trade.
The second, a diversification scenario, which foresees China losing share in concentrated products but gaining in others, could occur through a widespread shift by companies, across sectors, to diversify their supply. The overall geometry of global trade might be broadly unchanged, but substantial shifts would occur within and among sectors. However, mid-aligned economies with less established global supply relationships, such as those in Africa or Latin America, do not experience substantial trade increases. To shift this calculus, which is grounded in existing production capabilities, more mid-aligned economies would need continued differential investment of the sort that our analysis of recent investment announcements suggests may have started. It suggests that India and economies in Africa, Central Asia, and the Middle East may increasingly participate in global production networks. Indeed, the diversification illustration suggests bright spots for mid-aligned economies like Africa gaining share in some sectors.
However, our illustrative paths suggest that increased trade participation and economic upside are not guaranteed for mid-aligned developing economies like Africa in either a fragmented world or the type of diversification we have considered. Additional measures may be needed to achieve improved outcomes for these economies. The measures could include sustained foreign and domestic investment into productive industries, supportive trade policies, infrastructure development, and up-skilling of human capital and capabilities as well as institutional enablers.
Gregor Theisen is the Africa Managing Partner at McKinsey& Company. Before this, he led McKinsey's social, healthcare, and public sector work across Europe.
Gregor has broad experience in banking and insurance and focuses on insurance, asset management, and pension reform. Additionally, he led the European Insurance and Asset Management Practice and was the managing partner of the Frankfurt office. Gregor has nearly 25 years of global experience, having a transformational impact across industries.
Prior to McKinsey, Gregor worked for universal banks in the area of wholesale and retail banking.
