CSCMP's Supply Chain Quarterly
October 19, 2018

Winning supply chain strategies for African markets

Africa's economies are growing, but poor infrastructure and difficult business conditions persist. Creative, flexible approaches to supply chain design and execution can help companies overcome these and other challenges.

This article marks the final installment of a three-part series by McKinsey & Company on managing supply chains in emerging markets. Part 1 discussed Latin America, Part 2 looked at Asia, and the current article, Part 3, explores supply chains in Africa. Each article includes an overview of business and logistical conditions, followed by recommendations for successfully navigating the supply chain challenges that are specific to that region.

Perceptions of Africa's business potential have shifted dramatically in recent years. Driven by strong fundamentals, the continent has become a priority for multinationals. In 2013, growth in Africa—which registered at 6 percent—outstripped that of Asia for the first time. Forecasts for the next decade suggest that Africa's growth will continue to rival that of emerging Asia, outpacing other emerging regions like Latin America, the Middle East, and Eastern Europe. Moreover, African economies are expected to expand more than twice as fast as those of the developed world.

Article Figures
[Figure 1] Africa's four distinct zones
[Figure 1] Africa's four distinct zones Enlarge this image
[Figure 2] Current economic alliances
[Figure 2] Current economic alliances Enlarge this image

For companies with goods and services to sell, the size of a region's consuming middle class is of critical importance. With its combination of growing population and rising wealth, Africa has a compelling story to tell here, too. In 2013, 49 percent of the continent's 220 million households had discretionary income. By 2015, that figure is expected to be 64 percent of 303 million households—an additional 86 million consuming households.1

Just as it is fast becoming wealthier, Africa's population also is becoming more urban. Forty percent of the continent's 1.1 billion people now live in cities, and the region has 54 cities of more than 1 million people—beating India's slightly larger population on both measures. 2

Africa's economic development and its extensive natural-resources wealth have together encouraged significant foreign investment in recent years. Between 2006 and 2009, annual private-capital inflows rocketed from around US $30 billion to more than $80 billion, far outstripping both official development aid and remittances from African émigrés around the world.3 Businesses that put money into Africa have enjoyed strong returns on their investments, too. Rates of return on foreign direct investments in Africa have generally been higher than those for other regions over the same period.