Africa is the fastest urbanising region in the world with an average annual urbanisation rate of 3.2%, well ahead of the global average of 2%. 472 million people currently live in African cities and this number is expected to grow to 810 million people by 2035. Comparatively, this translates into adding a city the size of Lagos every year for the next 15 years to the region.

A large proportion of this urban growth will be concentrated in small and medium-sized or secondary cities and towns, alongside primary and capital cities. By 2050, urban populations in Africa will represent 21% of the global urban population.

Rapid urbanisation has important implications on how residents live their day to day life, as well as how businesses operate. Mass rural-urban migration is likely to lead to the establishment of mega cities, where populations will exceed 10 million people. The cities of Lagos, Kinshasa and Dar es Salaam are predicted to reach mega city status by 2035. Most of the urban growth seen in Africa has been poorly planned and has resulted in the proliferation of mega slums or informal settlements in the peripheries surrounding urban centres. To take advantage of these, unique business models and innovative marketing approaches are required.

Inadequate and insufficient infrastructure continues to be a major hindrance to Africa's development. The region faces annual shortfalls of $68 - $108 billion while trying to cover the basic infrastructural gap. Private sector involvement stands to offer solutions to address these challenges.  

Three broad categories of opportunity have been identified: investment in infrastructure; increased consumer access and improved service provision.

1.Investments in infrastructure across major sectors such as energy, water and transportation have the potential to add 2.2% growth on top of Africa’s 2.3% annual GDP growth. This translates into an annual $56 billion revenue injection into the African continent. Opportunities ranging from financing, to construction and services will become more accessible to the private sector in key economies.

2.Service provision is a major issue in most African cities due to a lack of urban density. However, the increased level of private sector involvement in providing improved access to healthcare, sanitation and education opens doors to massive opportunities.

3.As more people migrate to urban centres, a significant opportunity can be realised as there is a greater means of reaching more consumers. Gaining access to rural consumers is challenging because of weak supply chains that service remote areas. This trend will open up a significant market for consumer-focused products and services as well as more efficient last mile delivery business models.

A South African start-up called Pargo is a perfect example of a company taking advantage of the gap in the market in terms of consumer access. Pargo is a smart logistics company that found that up to 75% of sub-Saharan Africa’s population has limited access to goods and services as a result of their place of residence such as within informal settlements or large residential estates. Customers across southern Africa can now easily send and receive parcels and make use of online shopping via convenient retail stores. In terms of healthcare service provision, efficient delivery and access is one of Africa’s greatest challenges where one in five children do not have access to life-saving vaccines. An IoT-enabled cold box serves as a means of bridging this gap since it can store temperature sensitive goods as well as be remotely controlled and tracked. This was made possible by a Nigerian start up called Gricd. Their primary focus is ensuring that vaccines and medicines reach the intended market or consumer without disruption in the cold chain. 

New business models with entrepreneurial vision can create significant opportunities around Africa’s growing urban centres.

By Heléna Costaras - Associate at Frost & Sullivan Africa.