It seems not so long ago that Africa seemed a "Lion on the prowl". The explosion of a young, more educated labor force has boosted sharp increases in productivity. Massive urbanization and rapid rise of middle-class consumption have changed Africa's economic landscape. Coupled with a more liberal business environment, Africa's economic rise appeared inexorable.
Much of these bullish sentiments was captured in my PowerPoint presentation A New Era of China-Africa Trade, Investment, and Business Partnership: Lessons and Opportunities at the 2nd Banking and Financial Institutions Conference in Accra, Ghana, in April, 2011.
Following recent collapse of energy prices, an IMF report of May, 2017 Sub-Saharan Africa- Regional Economic Outlook - Re-starting the Growth Engine has done a reality check. It finds that in 2016, two-thirds of Sub-Sahara (83% of Africa's GDP) slowed to just 1½ % growth,with a modest rebound to some 2 ½ % in 2017,thanks only to temporary factors. However, some large West and East African nations still registered 5-7 ½% annual growth.
While improving, commodity prices remain below their 2013 peak. As China's economy begins to re-structure away from commodity dependency, the consequential collapse in global energy prices dealt a heavy blow to Africa's main oil producers e.g. Angola, Nigeria, and some Central African countries. Mineral exporters e.g. Zambia, Ghana, and Zimbabwe are struggling with fiscal deficits.
As the world economy splutters, even non-resource-sensitive African countries e.g. Kenya, Senegal, Cote d’Ivoire, are grappling with debt and non-performing loans.Overall, debt-service-to-revenue ratios are rising, sharply for oil exporters. While a strong greenback boosts dollar -denominated oil proceeds, it is also increasing dollar debt-servicing burdens.
In some parts of Africa, drought, pestilence and security disruption translate into famine and breakdown of order. Adverse repercussions spill over to neighboring countries through transnational businesses and regional banking linkages.
Owing to the above challenges, access to international capital remains tight.
Many African countries appear somewhat clueless, responding only by more government spending and loose monetary policies. The outcome is deepened fiscal deficits and rising inflation risks. Absent strategic reforms, fiscal and monetary tools alone fail to re-start the growth engine. Boom and bust remain recurrent symptoms of a flawed system. Social safety nets are mere palliatives. Opportunity, Equity, Resilience cannot be sustained without systemic re-generation.
The IMF report sets great store on Total Factor Productivity (TFP), of which social and human development are important drivers. Structural transformation and technological adoption are essential. Of paramount importance are strategic diversification and good governance if Africa's huge developmental potential is to be fully unlocked.
Some ideas for sustainable growth in face of what seems a perennial "Resource Curse" or "Paradox of Plenty" are offered in my PowerPoint presentation at an international conference in Zambia in October 2015. Highlighted are imperatives of a top-down promotion of strategic linkage industries, both upstream and downstream, through a package of economic, social, administrative and fiscal policies. This is to be supported by good governance in revenue accountability, environmental safeguards and inclusive growth.
The so-called "Resource Curse" infects not only African commodity producers but confronts developing countries worldwide, including those in Central Asia.
My PowerPoint presentation at an international conference on Beijing Normal University Zhuhai Campus, China, in April 2017 used the five land-locked Central Asian countries of Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, and Turkmenistan as examples. It shows how resource-dependent, land-locked developing countries can capitalize on China's Belt and Road (B&R) Initiative to export commodity riches as well as strategically-promoted linkage industry products and services to far-flung regions.
Economy, however, is not the be-all, end-all. To attain sustainable development, each developing country would need a carefully mapped-out, unique, and vigorously-enforced strategy supported by good governance institutions.
A process of initial self-introspection and self-improvement is inevitable. This may take the form of a 5-S management recipe - Scrutinize, Systematize, Sanitize, Standardize, and Self-discipline - applying them to issues of strategic formulation, Sustainable Development Goals (SDGs), Equator Principles (EP) (green finance), Extractive Industries Transparency Initiative (EITI), Governance and Economic Integration through Free Trade Agreements (GIFTA), and crack-down on corruption.
For the future of Africa and the rest of the world, the stakes are high. The continent is larger than the sizes of the United States, China, and India combined. It is where explosive population growth will make Africans accounting for 40% of world population by end of this century.
A McKinsey Global Institute updating report Lions on the Move II of September 2016 flags up the following developments -
- We are seeing a two-track continent – laggards and sprinters, which can be categorized into “vulnerable”, “stable”, or “slow” economies.
- Yet, the IMF regards Africa as the second fastest-growing region in the world.
- By 2034, the continent will have the world's largest work force of 1.1 billion, more than China or India.
- The continent is witnessing the world's most rapid urbanization, with 24 million urbanites added each year from 2015-45.
- Household consumption is expected to grow by 3.8% p.a. to $2.1 trillion by 2025, with Nigeria, Egypt and S. Africa accounting for 51% of this market.
- Business spending is expected to grow from $2.6 trillion to $3.5 trillion. With household consumption, it adds up to a $4.7 trillion opportunity.
- Nigeria, the largest African economy, represents 15% of Africa's consumption growth now, and is expected to reach 20% by 2025. The biggest spending categories are food and beverages, housing, consumer goods, education, and transportation services.
- Ethiopia, Kenya, Sudan, and Tanzania together account for 14% of Africa's consumption growth, spending largely in food and beverages.
- The most affluent segment (household income more than $50,000) is largely concentrated in North Africa, with 62% in Egypt.
- Per capita consumption in largest cities is 79% higher than average. The top three cities in Ghana and Angola account for 65% of the respective national consumption.
- B2B spending is expected to increase to $3.5 trillion by 2025, with half spent on materials, 16% on capital goods, the rest on services including business and financial services, transportation, and telecommunications.
- The largest spending sector is agri-businesses.
- Technological change is accelerating. Penetration of smart phones is expected to rocket from 18% in 2015 to 50% by 2020. East Africa is now the global leader in mobile payments. E-commerce in Nigeria doubles each year since 2010. E-learning is also taking off (e.g. Mauritius)
- Manufacturing output is to almost double from $500 billion to $930 billion by 2025. This is mainly to meet domestic demand as Africa currently imports 1/3 of food, beverages and processed goods consumed. Domestic demand for vehicles and chemicals is also expanding.
- Africa has a cornucopia of natural resources: 60% of world’s virgin cropland, 10% of global oil and gas exports, 9% of copper, 5% iron ore.
- Potential business opportunities are worth $5.6 trillion, creating 14 million jobs per year over the next decade.
- Africa is home to 400 companies with turnover over $1 billion. Business is growing faster than global peers in many sectors. Nevertheless, none has made it to Fortune 500.
- Large companies, now concentrated in South Africa, are witnessing high potential for growth, particularly in wholesale and retail, food and agri-processing, healthcare, financial services, light manufacturing, and construction. Scale and innovation are key drivers.
- Barriers to overcome include areas of labor productivity, electric power, industrial land, movement of goods, business environment, financial systems, and tariffs.
- Strategies for growth include mobilization of domestic resources, aggressive economic diversification, acceleration of infrastructure development, deepening regional integration, creating tomorrow’s talent, and healthy urbanization.
Jake Bright and Aubrey Hruby's The Next Africa: An Emerging Continent Becomes a Global Powerhouse (St. Martin's Press, New York, 2015), gives a good account of how Africa is witnessing the birth of "Silicon Savanna".
M-PESA becomes the most advanced and fastest growing mobile payment system in the world, capturing financial flows equivalent to a third of Kenya’s GDP. A budding IT ecosystem is being created in 170 innovation spaces, e.g. Ghanna Cyber City, Accra’s Hope City; Nairobi’s accelerator Savanna Fund connected to the Silicon Valley. A Project Lucy by IBM Research Africa is promoting IT access to education, clean water and healthcare, combining machines, big data, and artificial intelligence. Nearly $1 billion has been accumulated in venture capital in African start-ups. Over 100 million Africans are on Facebook, 80% on smart phones.
Bottlenecks remain, including poor internet connectivity, electricity outages and steep electricity costs.
Of all the BRIC countries, China is sui generis in its building of Africa's capacity, in the magnitude of its bilateral trade, and in its influence projection. In exchange for resource extraction, more schools, hospitals, power plants, railways, highways and bridges have served Africa well. The rise of Sub-Sahara Africa in recent decades bears testimony.
However, despite improvements, China's engagement with Africa remains tainted with corporate governance deficits, ecological neglect, decimation of indigenous informal economy, harsh treatment of local employees, and perceived domination. Howard French's "China's Second Continent: How a Million Migrants Are Building a New Empire in Africa" (Vintage Books, New York, 2015) is instructive.
In coming decades, how China succeeds in promoting international goals, principles, and values in Africa would mean as much for Africa's developmental trajectory as for China as a Great Power.
(P.S. The above article was re-published on 30 October, 2017 on The Blog of the Amadeus Institute, a Middle East and African premier think tank.)
