J. SRINIVASAN
Much has happened in Africa since The Economist labelled it “the hopeless continent” a decade ago.
The Economist was
not wrong. Then, Africa was a different place. Poverty and death were
rampant. There was no value for human life as the gun and the machete
ruled. The continent was a battlefield for the US and the Soviet Union.
South Africa — the continent’s largest economy — was labouring under
Apartheid. Foreign funds were reluctant to come in. Different nations,
diverse problems. But Africa has changed since. With the Soviet Union
gone, Mozambique and Ethiopia no longer see red. Dictators such as the
DR Congo’s Mobutu Sese Seko, propped up by one superpower or the other,
have fallen by the wayside. Civil wars and genocides that made Angola
and Rwanda household names are off the front page. At long last
citizenship rights are starting to have some meaning for Africans as
nations hold elections.
Positive outlook
Most
of Africa’s economies are doing well. Many have grown 6 per cent plus.
Even the ever-hungry Ethiopia is expected to clock in 7.5 per cent this
year. The IMF cut its 2012 growth forecast because of a slowdown in the
northern hemisphere, but it still sees sub-Saharan Africa’s economies
growing around 5.75 per cent in 2013. According to African Economic Outlook, some are likely to do 7 plus – Rwanda (7 per cent), Zambia (7.5 per cent), Ghana (8 per cent), Mozambique (8.5 per cent).
A
World Bank report thinks Africa “could be on the brink of an economic
take-off, much like China was 30 years ago and India 20 years ago”. No
wonder the talk of Lion Economies, à la the Asian Tigers.
Africa
is also turning into a story beyond commodities, for long the mainstay
for most economies. After all, the continent is the biggest repository
of gold, diamonds, copper, chromium, uranium and a variety of other
minerals and metals. In the 1960s, mining income sustained economies and
the quirks of dictators, who built palaces and skyscrapers. Western and
southern Africa still rely on the subterranean wealth but eastern
Africa, with little oil or minerals, is expanding rapidly thanks to
revolutions in almost every sphere, from telecommunications to tourism.
Even
nations that rely on commodities no longer look to the West for their
market. They have expanded their customer base. With China, India, and
Brazil emerging the big buyers, they are insulated from the slowdown in
Europe.
As African governments, such as Rwanda,
ended armed conflicts, improved macro-economic conditions, and undertook
micro-economic reforms to create a better business climate, investments
began flowing in. According to an African Development Bank report,
returns on FDI are higher in Africa than anywhere else in the developing
world. Reasoning Africa’s resurgence, a McKinsey report says economies
grew healthier as governments reduced the average inflation rate from 22
per cent in the 1990s to single digit.
They trimmed
their foreign debt by a quarter and pruned budget deficits by
two-thirds. African nations have also made sensible investments,
including in infrastructure.
Global investors
Many
of the global investors are looking keenly at Africa eyeing big returns
from a capital-craving continent. According to a report in The Economist,
“Private-equity firms that a decade ago barely knew sub-Saharan Africa
existed raised $1.5 billion for projects on the continent last year. In
2010, total foreign direct investment was more than $55 billion – five
times what it was a decade earlier, and much more than Africa receives
in aid…”
Foreign investors are also looking beyond
commodities to consumer goods as a burgeoning middle-class emerges.
According to the African Development Bank, one in three Africans is
“middle class, a rising group of consumers to rival those of China and
India. Record numbers of people in Africa own houses and cars, use
mobile phones and the internet and send their children to private
schools and foreign universities.” That represents a significant market.
People
are enjoying the payoffs of business opportunities – a better standard
of living. They realise they can start businesses and get on with
governments’ active help. According to the World Bank's annual ranking
of commercial practices, 36 out of 46 African governments made things
easier for businesses in 2012.
Crucially, Africans
are also discovering one another. Intra-African trade has started to
grow. Just the post-apartheid reintegration of South Africa has provided
a major boost for the continent. South Africa is now the biggest source
of foreign investment for other countries south of the Sahara. At the
recent INDABA 2013, South Africa’s flagship annual tourism show, the
Tourism Minister spoke of plans to go pan-Africa. The event also brought
in participants from various countries such as Botswana, Kenya, and
Mozambique. In 2010, the East African Community was launched as a common
market, while the Southern African Development Community has made the
movement of goods and people across borders much easier.
Insider boost
But
intra-African trade has much headroom to grow. This trade remains low
representing, according to the African Development Bank, on average only
about 10 per cent of total African exports.
Many
factors contribute to the low trade performance including the economic
structure of the countries, poor institutional policies, cumbersome
Customs regulations, poor infrastructure, and weak financial/capital
markets.
Africa also continues to be haunted by many
legacy negatives. Despite the progress in many spheres, poverty is still
rampant. and food is still not a matter of course. Twenty years ago,
165 of 1,000 children born would not last five years. The situation has
only improved to 118 now. The progress towards the Millennium
Development Goals – UN-set milestones to reduce poverty – has been at
best wobbly. Crime rate remains high, especially in the urban areas as
more people move into cities. Some 40 per cent of Africans live in
cities. With few jobs, survival becomes difficult and ugly.
Social issues
World
Bank officials think significant poverty reduction will require higher
growth than what Africa has achieved – a long-term average of 7 per
cent. Also, there is much diversity in performance, even among the
faster growing nations and this distorts the big picture.
Infrastructure
development is happening but not at the pace the World Bank would like.
According to the bank, investment in infrastructure is the key to the
success of Africa’s diversified growth. There are, then, social issues
such as health-care. AIDS remains a big worry.
The
incidence of new infection is dropping in much of the continent, and
many more people are receiving effective treatment. But the epidemic is
yet to abate; in countries with high HIV-infection rates, foreign
investors continue to complain about expensively trained workers dying
in their 30s and 40s.
The other big worry is malaria
which, according to the World Bank, sucks $12 billion out of Africa's
GDP every year. But thanks to more and better bed nets, death rates have
fallen by 20 per cent.
Like Asia, Africa has a
young population. The median age is 20, compared with 30 in Asia. The
demographic dividend that helped Asian economies is now for the African
nations to take. But is it ready to do so? Taking advantage of a young
population means having the funds and the facilities to educate and
train. Without that, far from any dividend, the population’s shape and
size can backfire. In schooling, Africa is far behind Asia. The refrain
of lack of talent is getting louder.
Africa, by
tradition, tends to look West, especially to Europe. The brooding clouds
hanging over the continent could cast their shadow on Africa. But this
is changing with China emerging the big investor in recent times. The
unfolding fortunes of the Middle Kingdom will be another skew factor for
Africa, especially any dip in the demand for commodities.
The sun is rising on Africa, once derisively labelled the Dark Continent. Hopefully this is no false dawn.
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