12:30 GMT 15th June 2011
Africa is fast shedding its veneer as the dark, deadend region in global business. Transnational corpotions and government organisation worldwide are all clamouring for a slice of what it has to offer. Compared with the rest of the world, the continent's macroeconomic indicators are impressive. For instance, in January, the World Bank raised its growth forecast for sub-Saharan Africa to 5.3 per cent for 2011. If the forecast is met, the region will be the world's second best performer after southeast Asia.
Africa's recovery from the global economic crisis has also been faster than it has in many parts of the world. Indeed, Africa has seen what can be termed as an 'economic resurgence' over the past decade. Between 2001 and 2010, gross domestic product (GDP) on the continent has averaged 5.2 per cent annually. The robust growth over the last decade has swelled the size of its middle class to a third of the continent's billion-strong population, according to a report released in May by the African Development Bank (AfDB). The report said 313 million Africans could now be classified as middle class, compared with 151 million in 1990 and 196 million in 2000. The figures are further evidence of the growing consumer clout of the poorest continent, although the AfDB did qualify its findings by saying that 60 per cent of the middle class 'were barely out of the poor category'.
'Sales of refrigerators, television sets, mobile phones, motors and automobiles have surged in virtually every country in recent years,' the report said. As an example, it cited an 81 per cent increase since 2006 in the possession of cars and motorcycles in Ghana, whose economy may expand as much as 12 per cent this year due to the start of commercial oil production in December. South Africa, far and away the continent's biggest economy, ranked top in terms of vehicle ownership, with 300 vehicles per 1,000 people in 2007, more than twice as many as five years earlier.
Typically, middle class Africans would also own their homes, opt for private rather than state medical care and spend more on food and schooling for their children, the report said.
The North African states of Tunisia, Morocco, Egypt and Algeria fared best in the overall assessment, with more than 75 per cent of their populations ranked as middle class. Gabon and Botswana, both smail, resource-rich states, came top among subSaharan countries. In Nigeria and Ethiopia, Africa's two most-populous nations with 230 million people between them, the middle classes made up 22 per cent of the population, the report said. As its yardstick, the AfDB defined 'middle class' as a person who spends between $2 and $20 a day at 2005 prices.
The main drivers of Africa's performance include its vast natural resources, the astounding resilience the region has shown during the global economic crisis and the continent's improved political and social stability. 'It is interesting to know that seven out of the 10 fastest-growing economies wiJl come from sub-Saharan Africa in the next five years,' Katherine Tweedie, head of the Africa World Economic Forum, said at last month's World Economic Forum for Africa in Cape Town.
China has been Africa's No.1 investor for years and its newly aff1uent business class could soon follow by sending large flows of cash into the quickly emerging continent looking for better returns than in Asia. But any money that comes from private investors in China and other parts of Asia will pale in comparison to the billions of dollars Beijing has sent as it looks to secure the mineral resources it needs to power its hardcharging economy. 'They have big, big industries with great appetites for what Africa has to offer,' Zambian President Rupiah Banda told an African investment summit in South Africa earlier this year. 'In the process, they are making it easier for us to achieve what we want. What we want is to rebuild our countries.'
China forged partnerships with many African states decades ago in their liberation struggles to end colonial rule and later invested in roads, schools, power plants and infrastructure to help the countries growhelping it import more minerals from countries such as Zambia, Africa's biggest cooper producer. As Africa has grown, so has trade with China, which leaped to $126.9bn in 2010 from about $10bn in 2000, China's state news agency Xinhua reported. 'The Chinese have selfish interests, naturally,' Banda said. 'We are prepared to do this with anybody else. It is not that this is reserved for China. It is that they are the only ones who seem to see it the way that we see it.' China, whose biggest African trade partners are its most prominent suppliers of natural resources, has reaped rewards from its largesse, but its success has not been as broad as some planners in Beijing would perhaps have liked.
Leading global political risk research and consulting firm, Eurasia Group, says the resources-for-infrastructure deals have helped Chinese construction, telecom and hydro companies, but its oil and mining companies have often failed to overtake Western firms, which dominate those sectors. 'Chinese companies will begin more systematically to incorporate sovereign risk factors and Western best business practices, but their budgetary constraints will remain looser than those of their Western counterparts for some time to come,' it said in a report.
Chinese aid has also helped prop up African leaders scorned and sanctioned by the west for suspected human rights abuses, such as Zimbabwe's President Robert Mugabe, whose government plans to take majority stakes in all foreign mining firms except those from China. But China has also stood by major democracy South Africa and helped it ascend to the Bric grouping of fast-emerging economies that also includes Brazil, Russia and India. The move was seen as a signal by Beijing that it viewed South Africa, the continent's largest economy, as a politically important state and entryway into Africa even though its economy is less than a quarter the size of the smallest Bric, Russia.
Moscow-based RenCap runs annual road shows in Hong Kong where it tries to marry private-wealth investors with capital-hungry African corporates. Japanese, who park the bulk of about $15 trillion in private savings in domestic bank accounts at just a hair above zero-per cent interest, could also be in line to take a look at Africa, home to some of the world's fastest-growing economies.
Another Bric country and Asia's third largest economy, India, is also keen to get in on the act. During a visit to Ethiopia and Tanzania in May, Indian Prime Minister Manmohan Singh declared that his country was aiming to strike deeper economic ties with the continent, pledging development support in exchange for trade agreements to fuel growth in India's resource-intensive economy. 'The India-Africa partnership rests on three pillars of capacity building and slzill transfer, trade and infrastructure development,' Singh said. 'Africa is emerging as a new growth pole of the world, while India is on a path of sustained and rapid economic development,' he added.
Rival emerging economies India and China are scouring the globe to secure energy resources, minerals and food. Both are keen to stress to African nations that they are more than just trade partners and want to help the continent develop.
Singh announced new lines of credit to African nations totalling around S600m, and unveiled plans to open regional centres of excellence and vocational training centres in countries such as Uganda, Ghana, Botswana and Mozambigue. 'This co-operation will continue to provide dividends that will impact on key sectors of our economies in areas such as infrastructure, scientific research, innovation and technology, as well as medicine and pharmaceuticals,' said John Kayode Shinkaiye, the AU Commission's chief of staff.
Both nations are also trying to extend their influence in Africa as they emerge as economic powers and appear keener to flex their diplomatic muscle. China is around a decade ahead of India in getting into Africa. Beijing's investments in Ghana, for example, topped the total Indian investment in the continent in 2006. Standard Bank, Africa's largest lender, is 20-per cent owned by the Industrial and Commercial Bank of China. Chinese companies are busy building roads across the continent, investing in the energy sector and are active in areas such as telecoms technology.
India is also trying to secure a greater presence as well as get African support for its bid for a permanent place on the UN Security Council, as the body is reformed to include emerging powers and developing nations. 'India is massively playing catch-up to China in Africa, and only in recent years is it trying to engage the continent in a serious way,' Brahma Chellaney, professor at the New Delhi-based Centre for Policy Research, is guoted as saying. 'But they are trying to build political and economic ties, and position itself as different to China, which has acguired the image of being a new imperial power.'
Total bilateral trade between India and African countries stood at S46bn last year, a huge increase on S3bn in 2000-1. According to India's trade minister, Anand Sharma, volumes are estimated to reach $70bn by 2015. China's bilateral trade with Africa already stood at $107bn back in 200S. India is one of the largest investors in Ethiopia with approved investment of $4.7Sbn, of which about $1 bn is already on the ground or in the pipeline - with twothirds of the investment in commercial agriculture. India's state-run oil firms are beginning to invest in countries including Nigeria and Kenya, while China has pumped billions of dollars into Sudanese oil, mineralrich Zimbabwe, and Zambia's mining sector, among other countries.
Against the popular assumption that China only exploits Africa without considering broader development or human rights issues, China's policy has been consistent and visionary in supporting African countries to develop in sustainable ways. China realises that when it helps Africa, the benefits will be felt in China as well. China is interested in a stable supply of energy and minerals which can equally be said for other partners of Africa. African governments, in turn, can use resource revenues to develop their economies. China has also established special trade and cooperation zones that can be used to boost the local economy and create jobs. China encourages Chinese companies to invest in the manufacturing industry and to work hand in hand with African partners in joint ventures. This form of engagement is a win-win situation for both sides.
As the continent enters more bilateral negotiations, African countries need to define exactly what kind of economic goals they pursue. Most importantly, African governments need to provide capacity to achieve good deals in partnership with others. Some countries are not only interested in macro-level reforms but specifically focus on sectors such as agriculture or service sectors. This is the opportunity to promote technology transfers. India claimed, for example, that it assisted subSaharan Africa in bridging the digital divide by installing pan-African satellite systems. A main challenge remains in how partnerships can be created that make development in Africa sustainable.
Propelled by high growth and an expanding middle class, Africa has entered a new chapter in its history but its countries must change the way they relate to the rest of the world and to each other, South African President Jacob Zuma told more than 900 Africa has started a marathon, said Tinubu business, government and civil society leaders from 60 countries in the opening session of the World Economic Forum on Africa in May. 'You can no longer talk about the old Africa,' he declared.
'We need to develop very urgently partnerships that are different from the past, relationships that benefit Africa more. Reckoned Zuma, 'If Africa is one of the fastest-growing regions and has a billion people, then we need to think differently about how we interact with the world. We also need to consider how we interact among ourselves. We need to develop a common approach to the problems of the continent.'
The mounting demands of young Africans, including the youth in Tunisia and Egypt who drove protests that led to recent changes in the political leadership of those countries, are putting even more pressure on the continent's leaders. 'It is an intergenerational power shift,' explained Klaus Schwab, founder and executive chair of the World Economic Forum. 'The young generation is becoming more powerful. They want to be in control and to feel empowered but are very impatient as far as bureaucracy and corruption are concerned.'
Yet, the potential for Africa has never been greater. We have seen real improvement in governance and accountability,' Rajiv J Shah, administrator of the US Agency for International Development (Usaid), acknowledged. 'There is now consensus on USAID's Shah: 'Africa has great potential' the idea of Africa as a meaningful growth opportunity that can be harvested at scale,' argued P Mpho Makwana, chair of South African power utility Eskom. 'We used to deal with Africa as a developmental case but it is now a sizeable market.' Calling for the sustenance of this 'new dawn', Jubril Adewale Tinubu, group chief executive of Nigerian oil company Oando said. 'We have only started the beginning of the marathon'. He hailed efforts to bring peace to Africa, which he observed was once regarded as 'a continent of conflict' Tinubu said, 'Once there is strife, jobs cannot be created and everything grinds to a halt.'
In addition, what Africa needs is strong leadership and a resolve to address critical development impediments such as poor infrastructure, Nlakwana stressed. Countries also have to focus on promoting inclusive growth - 'inclusive of women, youth, civil society and the physically challenged', said Linah K Mohohlo, governor of the Bank of Botswana. In addition she concluded, 'We need to strengthen initiatives to diversify our economies.'
Africa is increasingly attracting investors. It is important to realise the tremendous opportunities for investment in African countries, especially in value addition to commodities but even more so in the agriculture and manufacturing sectors that are major job creators. However, the opportunity lies in integration, which is still a major challenge. 'African governments need to drop trade barriers and duties within Africa, improve infrastructure and allow the private sector to do the rest,' said Peter Attard Montalto, emerging markets economist at Nomura International.
According to the World Bank, the level of intra-continental trade in Africa remains among the lowest in the world. Just 10 per cent of aU African trade takes place within the continent. 'Providing these foundations would help unlock an awful lot of private sector interest, which up until now has shied away from doing business in Africa,' Montalto adds. 'What Africa does not need are new and more regional trade bodies and regulations. The region does not need more talk shops, as it already has those institutions. What the region needs to do is to strengthen them and make them more effective,' he said.
Despite the impressive macro indicators, the picture is not so bright at the micro level. The continent, to a large extent, is still firmly stuck in a chronic state of underdevelopment, poverty, and socioeconomic ineguality. Despite the predicted economic growth, nearly half of the 840 million people living in sub-Saharan Africa live on $1.25 per day or less. This situation translates into other problems, such as hunger. According to the UN Food and Agricultural Organisation (FAO), 240 million people living in African countries south of the Sahara are chronically undernourished.To work towards a better future, African governments have to tackle this problem.
Experts at the Cape Town forum agree on the need for authorities across the region to improve tax collection and to more efficiently and effectively spend these funds. This also counts for donor funds, loans and investment money. Areas that need urgent attention include infrastructure, healthcare, education and job-creation programmes.
Governments are also advised to empower small and medium enterprises, which are the main creators of employment, thus income generators across the continent.
In addition, there is a need for co-operation between governments, and with the private sector, stresses Peter Attard Montalto, emerging markets economist at Nomura International. 'There is the everpresent issue of untapped potential and as such a key priority will have to be the interlinkage of the private and public sectors to drive groWtl1,' he says. 'Individual countries in Africa also need to join hands with each other instead of operating alone when it comes to fighting poverty and generating economic growth. Countries on their own have only so much power. Part of the issue here is infrastructure, and part is politics and foreign economic policy.'
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