Africa: 10 cities to watch

Everyone is talking up Africa’s potential for growth – but in a continent with more than a billion people, where should foreign companies focus their attention?

According to research by Frontier Strategy Group, Africa will have 73 cities of 1-5m people by 2025.  Matthew Spivack, head of MENA research, picks out five top urban markets across the continent – and five up-and-coming prospects. Some are very well-known; others may surprise you.

First, the ‘Big 5′ – cities which are broadly politically and economically-stable, and already major FDI destinations. They are:

– Accra, Ghana
– Johannesburg, South Africa
– Lagos, Nigeria
– Luanda, Angola
– Nairobi, Kenya

No major surprises here. Johannesburg is the biggest city in sub-Saharan Africa’s leading economy, and, as Frontier notes, is reaching the size of a large European city. Its nominal ‘GDP’ output is $51bn; Munich, in Germany, has a GDP of $64bn.

Lagos has a smaller economy, at $40bn – but that is expected to jump when Nigeria rebases its economic statistics this year. By 2015, Frontier says, “risk-weighted business opportunities in Lagos will far outpace that of  the city’s nearest competitor” (Johannesburg).

It’s the ‘Next 5′ – large cities with rapidly expanding economies, but serious business climate deficiencies – that offer some of the biggest potential rewards – provided multinationals can stomach the risks. They are:

– Addis Ababa, Ethiopia
– Dar es Salaam, Tanzania
– Ibadan, Nigeria
– Kinshasa, Congo-DRC
– Mombasa, Kenya

Some of the world’s largest companies have already made inroads into these economies. Diaego, one of the world’s largest brewing companies, paid $225m for Ethiopia’s state-owned brewer Meta Abo last year, to tap into Addis Ababa’s  growing consumer market. What’s more, the African Union is headquartered in the city, making it the political capital of Africa, Frontier says.  That’s a bit of a stretch, but the business buzz in Addis is undeniable.

Fellow beer group Heineken is spending $325m in Kinshasa, Congo’s capital. Frontier says: “while poverty and an underdeveloped infrastructure reduce market size in Kinshasa, staggering population growth and consistently higheconomic growth means the city of 10 million cannot remain ignored by many MNCs.”

Dar es Salaam, Tanzania’s largest city, arguably offers the best investment prospects of all. Taking into account its size, short-term stability and growth, Frontier ranks it as the third best risk-weighted business opportunity in all of Africa by 2015.

An emerging trade hub in east Africa, it is increasingly handling more cargo than Mombasa, the region’s other sea trade centre. And Japanese carmaker Honda Motor has recently shown an interest, teaming up with a Tanzanian company and preparing to build an assembly plant to expand sales in the city.

There are risks to expanding in all of these markets, of course – Frontier highlights the usual concerns about infrastructure, corruption, and regulation. But Africa is the fastest growing and most rapidly urbanising region in the world. The risks of staying out could be greater still.