More than $2,000 billion is the potential over the next decade in the energy, agrifood and consumer goods sectors for Italian firms who will invest in them together with South African companies.
By Lorenzo Tavazzi, Head of Scenarios Area, The European House – Ambrosetti
Sub-Saharan Africa is the major business opportunity over the next 15-20 years.
Following the “lost twenty years” of the 1980s-90s, African nations have registered development progress at a speed and level seen few other times in history. Today, six out of the ten fastest-growing economies in the world (Angola, Nigeria, Ethiopia, Chad, Mozambique and Rwanda) are in this area and the World Bank estimates that between 2020 and 2030, the middle class of these countries will double in size, surpassing that of India.
It is an entire continent “in motion” of nearly one billion people who will require food (the FAO estimates that the demand for food in this area will grow by 3% per year), consumer goods and products (with quality standards higher than current ones), services, housing (as of 2020, over 50% of the population—nearly 700 million—will live in cities), etc.
To respond to this new demand, all major Sub-Saharan countries are promoting broad-ranging investment: infrastructure, energy, construction, communications networks and water systems. According to the African Development Bank, the gap to be bridged is worth 200 trillion dollars a year.
However, the Italian economy is not present in this “race”, except for a limited number of companies regularly active in major infrastructure or energy projects. The reasons include the cultural “distance”, the difficulty in orienting in riskier markets, inadequate organizational structure and lack of coordinated initiatives with others in the supply chain.
The renewed commitment of the Italian government and institutions towards this part of the world (for example, the recent state visit of Prime Minister Renzi) signals a turnaround. However, a further leap in action from Italy is required.
South Africa is a key partner in this process. There are at least three “fundamental aspects”.
Firstly, it is the no. 1 economy in the area (over 30% of Sub-Saharan GDP) and, unlike Nigeria—the other regional economic hub—its economic and productive fabric is diversified, with a manufacturing sector of over 12% of GDP and a legal/regulatory system that guarantees secure operating conditions for businesses (in the World Bank World Business Environment Survey, it ranks 41, while Italy is 65).
In addition, its banking and finance system—the five largest African banks are South African and the Johannesburg Stock Exchange is the largest on the continent—is not only a central sector (producing 10% of GDP and employing over 150,000 people), but is also a fundamental element in supporting companies who can find full coverage for all their needs.
Plus, its infrastructure—South Africa has the most developed network on the continent—guarantees accessibility and connectivity, as well as efficient distribution on a regional scale, starting with the fifteen countries of the Southern African Development Community (SADC), an integrated community of 300 million people with aggregate spending of over 500 billion dollars.
Therefore, South Africa is an ideal platform for being able to plan entry into other African markets, and a preferred economic partner, potentially capable of offering good-quality products at prices in line with local purchasing power.
The Italian economic/industrial system has aspects which are complementary in terms of products, company size and technological specialization to create joint ventures with South African companies and take advantage of the many opportunities offered by the growth of Sub-Saharan Africa:
Italy can be a part of the game in Africa—one of the most promising for the decades to come—with an even more important role than the one played to-date and in this, reinforcing the relationship with South Africa is key to a strategic turn.