Business

Africa's Multinational 'Gold Rush'

Africa's growing middle class is attracting the attention of multinational companies

By Uri Friedman
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The Wall Street Journal has declared a "new gold rush under way for the African consumer" among multinationals like Vodafone and Wal-Mart, as a burgeoning middle class across the continent increasingly spends money on non-essentials like cell phone services and retail goods.

The Journal cites McKinsey estimates that there are now more middle-income consumers in Africa than India and that consumer spending on the continent will increase from $860 billion in 2008 to $1.4 trillion by 2020. "While Africa's resource wealth continues to lure the bulk of foreign investment," the article explains, "the rise of that new consumer class is beginning to shift the balance."

So, is the African continent on the verge of a major economic shift from resources to retail?

  • Economic Crisis Has Only Fueled Interest in Africa, claims Chris Zambelis in Asia Times Online: "Amid sluggish demand in the West and elsewhere due to the global financial meltdown, Africa is being touted for its unrealized economic potential and business opportunities." Zambelis explains the battle between the U.S. and China in Africa and, more surprisingly, Iran's efforts to spread its influence across the continent.
  • But Africa Won't Become Asia Anytime Soon, cautions the Journal's Peter Wonacott. Yes, "high commodity prices have helped sustain robust expansion in Africa's resource-rich economies," he says, "and with that, better infrastructure, improved governance and the creation of jobs through private investment have helped drive the growth of the middle class." But political turmoil and rampant poverty frustrate economic growth, and "Africa ranks at the bottom of the World Bank's Ease of Doing Business survey, which takes into account such things as taxes, enforcing contracts and protecting investors."
  • Multinationals Should Invest in African Education, states Ndubuisi Ekekwe at Harvard Business Review:

The educational institutions remain underfunded, so it's difficult to to create knowledge and diversify the economies beyond minerals ... The current foreign investment model focuses on accelerating consumption and exploration of minerals. Few investors focus on building capacity. While the tech giants build factories and research centers in Asia, they open offices to sell products in Africa. The most common excuse for this is that African talents are not ready for research; yet, those talents are good enough when new mines are discovered.

This article is from the archive of our partner The Wire.