SPECIAL REPORT

A snapshot of AFRICA IN THE NEXT FIVE YEARS

Tech, sustainability and trade trends

In this special report, Fitch Solutions unpacks the broader medium- to longterm trends in technological adoption, and a stronger push for ESG, as potential drivers of long-term economic and social development on the rapidly expanding continent.

Around 603.5-million people in Africa are urban residents, and by 2030 we estimate that this will rise to 817-million, and further to 1.47-billion by 2050. Sub-Saharan Africa (SSA) is leading the growth, as the share of the urban population is projected to increase from 41.8% in 2021 to 46.8% and 58% by 2030 and 2050 respectively. With this rapid growth in urban clusters, economies across the region will see increased demand for goods and services particularly for consumer facing sectors such as food and drink, retail, autos, agribusiness, healthcare, ICT as well as industries such as power and construction.

We believe that this rapid growth in urban populations will also see increased focus on the use of new technologies and leapfrog innovations as well as sustainability, particularly through growing the renewable power sector, emissions reduction efforts and increasing restrictions on single-use plastics.

Source: UN, Fitch Solutions

Africa: Urban population by sub-region, mn (2000-2035).

The rapid pace of urbanisation in Africa is being driven by three key factors: rural-to-city migration, in-city population growth and the modernisation of previously rural population clusters, where rural areas are transforming themselves into urban spaces because of natural population growth and accumulated density. The establishment of new cities in SSA has seen limited success in alleviating pressure on the more established cities in recent decades, particularly in West Africa.

The fortunes of Yamoussoukro (established in 1983 in Côte d’Ivoire) and Abuja (declared the capital in 1991 in Nigeria) offer important lessons for investors in consumer-facing sectors and current planners of new cities. Abidjan and Lagos are still significantly more populated than the other major and/or capital cities in these countries. Populations continue to prefer migrating to or staying in the larger, more established cities with better infrastructure, more vibrant commercial hubs and proximity to ports and economic opportunities. We believe that across the region, countries will seek to increase investment in infrastructure, particularly through expanding and connecting existing cities and towns, through strengthening public-private partnerships and increased use of technology-driven solutions.

KEY SECTOR TRENDS

Infrastructure. Businesses in the construction, energy and transport space can capitalise on the urgent need for development and expansion of existing cities. The infrastructure gap can be bridged through a significant rise in public-private partnerships (PPPs) for infrastructure in major cities through the development of tolled roads, low-cost housing,

Regional issues about sustainability will remain mainly company-driven to support brand image.

Africa: Urban population, mn (2025). Note: Circled numbers indicate urban clusters of over 500 000 for countries with two or more clusters.

sanitation, electricity, health and education. Governments that prioritise cooperation with the private sector through measures such as PPPs will see the most investment in sustainable electricity generation sources in their respective markets.

South Africa, Morocco and Egypt boast the most diverse and largest industrial bases in Africa and face the most significant pressure to move towards sustainable energy sources for critical value chains. According to the latest available data from ClimateWatch, South Africa accounts for around 1.06% of global greenhouse gas emissions, while Nigeria’s contribution stands at 0.73% and Egypt accounts for around 0.6%.

PRESSURE TO REDUCE EMISSIONS WILL DRIVE GREEN INVESTMENTS

Source: Our World in Data, Fitch Solutions Africa and key markets: CO2 emissions, per capita (1990-2019). Power. Liberalised power generation markets and vast solar power potential will make Egypt and Morocco the renewables generation growth outperformers in Africa over our forecast period to 2030. By investing heavily in the expansion and improvement of their transmission and distribution and generation infrastructure, Angola and Zambia will see the most significant improvements in power grid efficiency over the decade, reducing losses from the grid and improving the reliability of their electricity supplies. Kenya and Morocco will be the most conducive power markets for sustainable investment in 2021, with the most attractive balance between renewables generation, grid efficiency and share of renewables in overall generation. Telecoms, media and technology. The pandemic has enabled new digital-centric opportunities for growth, mainly driven by increased restrictions on movements. In key markets, such as Ethiopia, growth will be driven by new users coming online. In the region’s outperformers, we have highlighted cloud, streaming and manufacturing as key areas where Big Tech will lead. The African telecoms market is poised to provide longterm demand for data centres as it undergoes significant technological development. Data centre investments will propel demand and broaden the range of IT solutions available in the market, supported by global players Microsoft, Huawei and Amazon Web Services investing heavily to bolster their presence in the region.

On the downside, power supply challenges in key markets will increase reliance on costly alternative energy solutions, raising operational costs for investors. In addition, the dearth of adequate, secure IT infrastructure means that many countries will be increasingly vulnerable to data theft and growing cybercrimes, necessitating investment in cybersecurity. Retail. The Covid-19 pandemic resulted in significant disruptions to the retail sector as consumers ability was limited to movement restrictions and restrictions on retail store operations. Consumers adapted to eCommerce as it offers a safe and convenient way to make purchases. We expect eCommerce to remain a part of SSA consumer’s purchasing patterns over

the coming years. This will be supported by the region’s high mobile internet penetration rate and increasing investments in eCommerce services by consumer facing business such Mass Grocery Retailers (MGR) and clothing, footwear and accessories retailers. Video on-demand services are in the early stages of development and adoption in the SSA region as it has historically been dominated by pay-TV services. However, over the coming years, we expect streaming to make up a larger share of entertainment consumption, particularly as players in the industry are making efforts to invest in content that appeals to audiences across the region. Healthcare. Digital health will strengthen healthcare operations, while telemedicine will increase health access in rural areas. Growing mobile phone ownership and internet access will further facilitate growth in digital health after the pandemic, although challenges remain. Environmental sustainability in the medical device industry is still a minor issue considering the health benefits associated with the sector. Complex supply chains due to an over reliance of imports in SSA contribute to greenhouse gas emissions, but a complete ban on plastics in the medical device industry is still very unlikely and sustainable packaging will continue to become increasingly important. Regional issues about sustainability will remain mainly company-driven to support brand image. Autos. Digital logistics start-ups and rising M&A activity will be key in the development of tech-enabled freight and logistics solutions across SSA. This will drive growth in new commercial vehicles sales in the region. Ecommerce proliferation across the region is helping to drive last-mile delivery solutions and this in turn will boost light commercial vehicles and motorcycle sales. The growth of ecommerce and e-logistics will drive sustainable transportation initiatives as firms embrace environmental, social and corporate governance (ESG) initiatives by renewing Africa’s ageing CV fleet that is often more polluting and promote electric vehicles (EVs).

Although the sustainability drive in Africa will lag that of the rest of the world, there are a few pockets of the continent’s automotive industry that offer opportunities to improve sustainability. E-logistics firms will be at the forefront of purchasing EVs as the income gained from transportation services rendered will be used to cover some of the purchasing costs. We note that as businesses in Africa increasingly drive towards a higher degree of sustainability, they will find it easier to source funding for sustainable projects amid the ESG investing boom. Logistics and supply chains. Deeper regional trade integration in the years ahead will allow countries to specialise and exploit economies of scale, thereby improving productivity and growth. However, pandemic-induced logistics bottlenecks have thrown global supply chains out of sync since 2020, causing delays at ports, causing container shortages and recordhigh shipping rates in 2021. On the other hand, economic disruptions due to the pandemic have accelerated plans to boost economic diversification and supply chain resilience all around the world, and Africa is no exception. Increased digitalisation and streamlined customs procedures are key measures that will strengthen economic growth and deepen regional integration over the coming decade. Benefits will be concentrated in a few countries with strong logistics, security stability and those that are increasing efforts to ease trading across borders through strengthening hard and soft infrastructure.

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AFRICA BEYOND THE PANDEMIC: Tech, Sustainability & Regional Trade

Transformation | Fitch Solutions [September 2021]

The Covid-19 pandemic has catalysed stronger progress towards digitalisation across key industries targeting Africa’s rapidly urbanising population. Sustainability will be more of a focus area, though targets will differ by country, and key initiatives will gain traction in varying degrees across industries, with the consumer and retail, autos and technology sectors best placed to lead. Heavy industry will also play a key role, as the region’s population is set to benefit from higher electrification rates and a recovery in domestic and global demand for products as well as stable and strong long-term trade growth, which will support road and port infrastructure construction.

The report reveals: • How Covid-19 has accelerated e-Commerce and digital health uptake in SSA • The outlook for Africa’s data centre market • The acceleration of sustainability initiatives in SSA’s food and drink industry post-Covid-19

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