Sub-Saharan Africa’s ‘next 10’ biggest cities hold key to untapped potential, says report

Out-Law News | 13 Aug 2014 | 2:55 pm | 2 min. read

Sub-Saharan Africa (SSA) is expected to see faster economic growth than any other region by 2040 and have the biggest labour force in the world, according to a new report from PwC.

The report, part of PwC's latest 'Global Economy Watch', said chief executive officers are increasingly recognising the “untapped potential” of SSA, as foreign investors will be attracted by the potential investment opportunities offered by the ‘next 10’ biggest cities in the region.

The so-called ‘next 10’ cities are Ibadan and Kano in Nigeria, Addis Ababa in Ethiopia, Ouagadougou in Burkina Faso, Dakar in Senegal, Nairobi in Kenya, Abidjan in Cote d’Ivoire, Khartoum in Sudan, Luanda in Angola and Dar es Salaam in Tanzania.

According to PwC, most Western companies already have some presence in at least one of SSA’s ‘top 3’ populous cities (Lagos, Kinshasa and Johannesburg), “however, we think the real opportunity lies in the ‘next 10’ large cities in SSA, the populations of which are projected to almost double in size by 2030, growing by around 32 million people”. The report quoted UN projections showing that, by 2030, Dar es Salaam and Luanda “could have bigger populations than London has now”.

PwC said: “Cities are the typical entry points for businesses trying to expand in new overseas markets. This is because they enable closer interaction with customers in a relatively small geographic space which in turn helps contain distribution costs.”

However, PwC’s report said there are “three key hurdles which could derail the pace” at which the ‘next 10’ grow. The report said these are issues “that most SSA countries have been trying to tackle for many decades with limited success”. The issues include “low quality of ‘hard’ infrastructure” such as roads, airports and trains, “inadequate ‘soft’ infrastructure such as universities, which could lead to a persistent skills gap that hampers long-term business growth”, and “growing pains stemming from the inability of regulators and policymakers to manage effectively a larger and more complex economic system as growth proceeds”.

The report said: “These problems could, for example, manifest themselves in the form of credit or property bubbles developing as a result of rapid economic growth, or a failure to tackle issues relating to corruption and excessive bureaucracy that deter international investment”.

PwC senior economist Richard Boxshall said: "We estimate that economic activity in the 'next 10' cities could grow by around $140 billion by 2030. This is roughly equivalent to the current annual output of Hungary.”

Boxshall said: “The challenge that policymakers face is to convert Africa’s demographic dividend into economic reality by overcoming these hurdles. History suggests this will not be a quick or easy process. However investors should form their own plans to mitigate these problems by supporting infrastructure skills and development programmes.”

PwC’s report reflected comments made by the managing director of the International Monetary Fund (IMF), Christine Lagarde, earlier this year. Lagarde said: “Sub-Saharan Africa is clearly taking off, growing strongly and steadily for nearly two decades and showing a remarkable resilience in the face of the global financial crisis. Economic stability has paid off. More than two-thirds of the countries in the region have enjoyed 10 or more years of uninterrupted growth.”

The IMF’s Regional Economic Outlook for Sub Saharan Africa (116-page / 2.53 MB PDF), published last spring, said economic activity in the region continued to be underpinned by large investments in infrastructure, mining and maturing investments. The report said weaker commodity prices and slower growth in emerging markets may reduce net inflows of foreign direct investment, but overall growth across sub-Saharan Africa “should remain in the top 30% in the world”.