The most resilient and diversified markets are going to be the ones that drive Africa’s growth in the future

FrontierStrategyGroup.com - In the last few months, media headlines have been emphasizing that some Western multinationals are struggling in Sub-Saharan Africa. An interview with a Nestlé executive in the Financial Times implied that the opportunity in Africa– in this case, the size of the middle class– may have been overstated. The comments received widespread media attention.

It is likely that Nestlé realized the article could publicly undermine the company’s commitment to Africa, a critical success factor in many markets across the continent. A few days after it had been published, in an open letter titled Nestlé is very positive about Africa’s future, the company refuted the previous article and emphasized that Nestlé still firmly believed in the African consumer opportunity.

By that time, however, it was too late. The media embraced this new narrative, and several more headlines appeared questioning the African growth story. The ‘Africa Rising’ narrative was being challenged by greater pessimism about the continent’s growth path, particularly as other multinationals started to voice concerns over their recent performance in some of the continent’s largest markets.

Without a doubt, as a result of low oil prices, China’s slowdown, and a strengthening US dollar causing currency depreciation across many Sub-Saharan African markets, the past year has seen dramatic volatility in the region. Major African markets have seen economic growth much lower than expected, as well as financial volatility. This has made it difficult for companies to plan, adjust targets and pick the best markets to invest in.

To help our clients accurately assess the future growth potential of Sub-Saharan African markets, we developed an index that gives a better understanding of which markets are likely to weather this challenging global environment better than others. Our Resilience to External Shock Index highlights the markets that are more resilient from within and therefore better positioned to withstand major macroeconomic and financial shocks. In essence, our index highlights markets that are more likely to deliver on Sub-Saharan Africa’s growth promise.

As an example, major Francophone West African economies rank well in the index, while Angola features on the lower end as a result of the country’s poor progress in economic diversification. Nigeria, on the other hand, is far more resilient than commonly assumed.

Our most critical finding is that Sub-Saharan Africa’s growth narrative is changing. Previously, the continent’s fastest growing markets used to be the markets that were expanding from a low base and largely selling commodities. These markets were, however, the least resilient once the external economic environment shifted during the past 14 months.

The markets that will drive Sub-Saharan Africa’s growth in the future and that have the highest expansion potential under current conditions are also the most resilient and diversified markets, which means that their growth will be more sustainable. This has a range of implications for multinational companies including resource allocation, local presence optimization and product localization decisions.