It would be easy to describe President Obama's trip to Africa earlier this summer as a triumph of symbolism over substance. Much of the news reporting supported this impression, focusing on stage-managed photo ops—in Nelson Mandela's former prison cell, for example—rather than the big picture.
Beyond the cameras' view, however, a very important story has been unfolding in the world's second most-populous continent: that of sweeping economic change and the opportunities these changes have created for American businesses and the U.S. economy.
The future success of the U.S. economy depends on the growth of our private sector: what we call the "growth imperative."
Only growth can generate the jobs and tax revenues the United States needs and the higher living standards Americans have come to expect. And while the developing markets of China, India, Southeast Asia and Latin America certainly provide significant growth opportunities, Africa can no longer be discounted or ignored, as it has in the past, especially with the BRIC economies (Brazil, Russia, India and China) slowing down.
Indeed, both demographics and economics point to Africa as one of the few bright spots in the global economy. For companies, this means Africa could become a major market, rather than a "nice to have" side market.
Hyundai has made such a calculation and it's paying off. Once nearly absent from the African market, Hyundai is investing millions in an effort to become the leading auto brand on the continent. It has already surpassed Toyota in sales in five countries—Algeria, Angola, Egypt, Morocco and South Africa—representing 70 percent of the African market. This should serve as a lesson for U.S. companies.
What's changed in Africa?
For one thing, more than half of all African countries are now working democracies. This has increased transparency, reduced corruption, and improved property-rights protections and the rule of law. Even so, the Wall Street Journal's 2013 "Index of Economic Freedom" ranks the economies of only eight North African countries as moderately free to free, while only nine sub-Saharan countries fall in this range. Competing in Africa is not without significant risks.
Freedom and stability are critical, of course. As President Obama told an audience at the University of Cape Town during his visit, U.S. businesses are "interested in investing not in strongmen, but in strong institutions."
With this transition to more open and accountable societies—a work in progress, to be sure—comes increased prosperity. Admittedly, many African countries start from a very low baseline. Be that as it may, however, nearly half of the twenty countries with the strongest economic growth rates in 2012 were in Africa. Sierra Leone, for example, grew by an extraordinary 21 percent last year.
The rapid growth continues, and appears to be spreading, with as many as a dozen African economies expected to grow in double digits again this year.
This, in turn, has produced a growing middle class, projected to increase from 172 million in 2011 to 233 million by 2017. It also has encouraged private investment, with private sector investment in infrastructure alone up 85 percent from the early 1990s.
While rich in oil and minerals and other natural resources, Africa's greatest resource is its human capital. Africa has a population of more than 1.1 billion—not much smaller than China's (1.3 billion) or India's (1.2 billion). While this is a compelling number, forward-looking businesses also need to take note of the fact that more than 60 percent of Africa's population is under 35 years of age.
These are workers and consumers. My firm’s research indicates that African consumers highly value American products and are among the most brand-loyal customers anywhere in the world. If you win them over today, they might stay with you for life.
The challenges are great to be sure. The African continent's 1.1 billion residents speak more than 2,100 languages, and reside in fifty-four countries in an area larger than China, India, the United States and Europe combined. Yet we estimate that by the year 2020 the African market will be worth well over $1 trillion. That's a market well worth pursuing.
David Michael is a San Francisco-based senior partner of The Boston Consulting Group (BCG), leader of the firm's "Global Advantage" practice, and co-author of The $10 Trillion Prize: Captivating the Newly Affluent in China and India .