Various structural factors will drive growth across a range of sectors on the African continent over the coming years. Agriculture is arguably the continent’s most important sector, despite making up a relatively modest share of total output, given that around 60% of the population relies on farming for their livelihood. Yields on a range of crops produced on the continent, although largely below global averages, have risen steadily over the last 15 years as governments, multilateral and non-governmental organisations and the private sector have increasingly directed investment towards the sector. Given relatively achievable further productivity gains (from increased use of fertilizer and irrigation for instance) and the fact that there remain large swathes of unused arable land on the continent, productivity and total output is set to continue growing in the years ahead.
Agriculture Yields Are Broadly Rising And Will Continued To Do So
Africa – Agriculture Yields On Various Crops, rebased 2000=100
Higher productivity in the agriculture sector will contribute to a rise in demand for consumer goods and services as the purchasing power of the many Africans who rely on farming for income increases. The rapid rise in mobile phone penetration across the continent and the proliferation of a range of mobile financial services will help businesses access these largely rural customers. Improving infrastructure (albeit slowly) will also help to increase the reach of consumer businesses to meet this demand. Technology is helping to unleash the potential of human capital on the continent. Vibrant start-up scenes have developed in regional cities such as Lagos and Nairobi (among others), where ventures from e-commerce to low-cost recruitment outsourcing to education have raised close to USD500mn in the last three years.
Agriculture And Manufacturing Likely To Regain Share Lost To Services
Africa – Sectors Contribution To Total Output, %
Source: World Bank
The service sector will continue to grow strongly on the back of rising mobile phone use, which will make consumers of services easier to reach for banks, insurance companies and entertainment providers while increased demand for goods on the back retail models and payment systems based on mobile technology will drive increased wholesale and retail trade. Tourism will also grow steadily in the years ahead as improving political environments and infrastructure coupled with regional efforts to reduce the costs and visa barriers to travel will attract both intra-African visitors and those from abroad.
There is also scope for development of manufacturing industries in certain countries (such as Ethiopia and Kenya). Although technological advances and the gradual re-organisation of global manufacturing value chains to incorporate 'smart factories' will make emerging markets less attractive for manufacturing investment, this is likely to mostly impact higher-tech sectors such as electronics, pharmaceuticals, autos and aerospace. Low-tech manufacturing sectors such as textiles and agricultural processing are less exposed to these shifts and certain countries in Africa, with large pools of cheap labour and improving business environments, will remain well-positioned to attract investment into these sectors, which will have a positive impact on employment, external account stability and government finances.
The improvement in productivity in agriculture combined with the development of labour-intensive light manufacturing and rising mobile phone use will help to ensure that rapid population growth will serve as an asset. Indeed, the region’s population will grow by an average of 2.5% per year over the coming decades with the number of Sub-Saharan Africans set to exceed 1.5bn by 2030. This rapid growth will ensure that the labour market remains well supplied with increasingly productive young workers. The growing number of young Africans with increased purchasing power on the back of rising incomes will boost demand for goods and services.