Africa is the world’s second-fastest growing economic region, yet United States engagement with the continent is lagging. There’s an opportunity to change that.
The White House has invited some 50 African heads of state to Washington, DC, this week, presenting a historic opportunity to deepen US ties to the continent. But it would be a mistake to assume that the benefits of the US–Africa Leaders Summit will flow primarily to Africa. There is huge economic potential for the United States, too.
Africa is transforming from a continent in need of assistance to a continent of opportunity. Its economic growth is today second only to the East Asia region, which includes China,1 and Africa was home to 8 of the world’s 15 fastest-growing economies between 2000 and 2013. Indeed, the continent’s GDP of more than $2 trillion in 2013 is now larger than India’s.
Investors around the world have taken notice. Private-capital flows to Africa totaled $545 billion from 2003 to 2012, surpassing remittances and official aid. Yet the United States lags well behind Europe, BRIC,2 and the Middle East in terms of the amount of foreign-direct investment (FDI) it sends to Africa. Moreover, the US share of African trade stands at only 4 percent.
This may be a missed opportunity. Africa offers a higher rate of return on FDI than most emerging economies—in sharp contrast to returns that foreign investors earned 20 years ago. But to date, economic engagement between the United States and Africa has been limited relative to its potential, and much smaller than Europe’s and Asia’s economic engagement with Africa.
The rate of return on foreign direct investment in Africa is higher than in most emerging markets.
AUTHORS: Acha Leke is a director in McKinsey’s Johannesburg office; Susan Lund is a partner with the McKinsey Global Institute (MGI) and is based in the Washington, DC, office; James Manyika is a director of MGI and is based in the San Francisco office; Sree Ramaswamy is a senior fellow with MGI and is based in the Washington, DC, office.
The authors wish to acknowledge the contribution of Lohini Moodley and Safroadu Yeboah-Amankwah. This article draws on their work in the McKinsey Global Institute report “Lions go digital: The Internet’s transformative potential in Africa.”