Turning the pyramid upside down

Africa is being seen in a different light. The business community, governments, investors are starting to realize the vast potential of the continent, and equally as important, some African leaders are doing their bit to not only attract investment (for instance through improving regulation), but also to retain them. Mindsets are starting to shift.

Although the continent’s GDP growth and forecast is impressive (see APR 2011 infographics), so far, growth has mostly been of low quality and many challenges remain blatant. Infrastructure deficits (roads, energy, and water), lack of economic diversification, market size, imbalanced trade are some of the obstacles that need to be addressed.

With close to 1 billion people, the continent is simmering with consumers, entrepreneurs and an entrepreneurial spirit. Although the precise definition of who is included in Africa’s middle class is debatable (see AfDB report), this segment of the population is growing. There is the economic (and in many cases, political) elite, and there is what has commonly been referred to as the bottom of the pyramid (BoP) or the poor.

Many prominent consultancy firms like McKinsey and Boston Consulting Group are turning attention to Africa as an investment destination. Last week, the Monitor Group did the same as it launched a new report that systematically looks at the BoP and market based solutions in Africa. This segment has been the focus of much attention over the years, not only because of their economic marginalization and myriad of vulnerabilities, but also increasingly as a growing group of consumers that are gaining access and creating new markets through their purchasing power, engagement in the supply and value chain and active agents.

According to the Monitor report, SSA is home to 550 million people living on less than $2/day. They collectively spend an estimated $430 billion annually on food, mobile telephony, healthcare and microfinance. Providing goods and services as well as innovative products to this population has the potential of accelerating development, contributing to sustainable economic growth, and closing service and infrastructure gaps. There are proven examples, such as mobile money and micro-insurance (i.e. M-Pesa and MicroEnsure), pay-per-use clean water/sanitation (i.e. WaterHealth, Nanyuko or Iko Toilet), or private pay-per-use healthcare and schooling (i.e. LiveWell Clinics and Omega Schools). In many instances Africa is pioneering how such goods and services can be rolled out, accessed and scaled up.

Market based solutions will continue to revolutionize Africa’s private sector and bring in millions of people into the market.  This year’s Africa Progress Report stressed the importance of partnerships in promoting development and while speaking to policy makers and governments, made the case to enable the private sector to play a greater role. We welcome the synergy with the Monitor Group’s report that reinforces our argument while providing concrete examples of what works and what doesn’t for business. There are large private equity and venture capital funds looking to invest in Africa, and it certainly is an interesting space to watch.  There are models that work better than others, and it will be exciting to see which countries harness this potential. As we have been saying lately: progress depends on partnerships...