What is in this article?:
"Companies really want to invest in Africa right now," Immelt said during a speech he gave on Jan. 30 at the Stanford Institute for Economic Policy Research Summit 2012. "It's very much top of mind. I think the next two decades are going to offer tremendous opportunities for East Africa and Sub-Saharan Africa."
If Caterpillar Inc. (IW 500/21), considered a bellwether for the U.S. economy, is touting Africa's potential, then manufacturers need to take heed.
"I am more optimistic about Africa than I have ever been in my career," proclaimed Caterpillar CEO Doug Oberhelman on May 4, 2012, during an event at Baroloworld, its distributor in South Africa.
At the event, Oberhelman mentioned a joint venture the company has in Nigeria. "As Africa develops and policy changes and living standards rise, the demand for equipment will also rise," he told reporters.
As far as locating a plant in Africa, Oberhelman said his company will have a facility there in the future, but that it's more than a couple of years out at this point.
What Oberhelman sees is what the rest of the manufacturing world is beginning to see as well. The strongest case the continent presents is its GDP growth. Africa is home to six out of the top 10 countries that are experiencing economic growth, according to an analysis by the Economist. Over the past decade, it has been the second-fasting growing region in the world, averaging growth of 5.1% during that period.
New Home for American Exports?
In 2012, Africa was expected to grow at a rate of 5% to 5.7%, according to the International Monetary Fund.
But while that easily outdistances rates in sluggish Western Europe and the United States, faster growth may be ahead. The World Bank is almost giddy in its prediction that "Africa could be on the brink of an economic take-off much like China was 30 years ago and India 20 years ago."
Such predictions are prompting an active pursuit of investment in Africa by U.S. firms. In February of this year, Anadarko Petroleum, Caterpillar, Chevron, Energy International and General Electric were part of a State Department-led energy trade mission to Mozambique, Tanzania, Nigeria and Ghana.
"The United States is ready to do business in Africa in a much bigger way," Deputy Assistant Secretary of State for African Affairs William Fitzgerald said during that visit. He encouraged both U.S. and international firms to invest in sustainable development across Africa.
A leading Senate Democrat agrees. Illinois Sen. Dick Durbin introduced S.B. 2215,"Increasing American Jobs Through Greater Exports to Africa Act of 2012." The bill notes that "countries in Africa have a collective spending power of almost $9 billion and a gross domestic product of $1.6 trillion, which are projected to double in the next 10 years." The bill is designed to bolster U.S. aid for companies investing in Africa, particularly through the Export-Import Bank, with the objective of increasing exports of U.S. goods and services to Africa by 200% in real dollar value within 10 years, as well as improving the competitiveness of U.S. businesses in Africa.
Paving the way for an increase in exports is the rising level of disposable income by the 40% of the population that now lives in cities. By 2030 that number will rise to 50%, with Africa's top cities having a combined spending power of $1.3 trillion, according to a recent study by McKinsey.
The study also showed that most African households spend 30% of their income on groceries, 10% on clothing and 6% on telecommunications.
That could account for why behemoth retailer Wal-Mart has invested $2.4 billion in Africa. "There are a lot of things to be optimistic about in the region," said Doug McMillon, Wal-Mart International president and CEO.
Many companies are already exporting to Africa, especially in the more well-established countries such as South Africa. The United States exported more than $7 billion to South Africa in 2011, a 30% increase from the previous year. "We've heard the number 600 representing the American businesses that have put down roots in this country, but that is growing and we encourage that growth," the State Department's Fitzgerald said.
In addition to viewing Africa as a new export market, many companies are seeing Africa as a place to grow the bottom line by establishing plants to service the continent. Ford, which has had a long-time presence in Africa (since 1923 in South Africa) is benefitting from the growth and just announced in August that it was adding 800 new jobs at two plants in South Africa to keep up with growing demand.
GE (IW 500/5) currently has projects in Nigeria, Kenya, South Africa, Angola and Ghana. In March of this year, GE signed a deal to build $10 billion worth of power plants in Nigeria over the next decade.
Cummins Power Generation is also exporting products to Africa, as evidenced by its sale of generator sets to provide power for Telecel, the second-largest mobile-phone network in Zimbabwe.
In the cotton market in Zambia, three U.S. companies have investments. Cargill Cotton Ginners Limited, which has been active in the country since 2006, has investments worth over $18 million. Dunavant Cotton's investments total $25 million, while the National Milling Corp. has invested more than $20 million.
The food industry is targeting Africa for expansion as well. In August, Nestle opened its first facility in Angola. It will serve as a finishing center for milk powder. "Angola is not only one of the fastest-growing economies in Africa, but one of the fastest-growing in the world, with a rising middle class," said Nestle CEO Paul Bulcke at the plant opening.