12:13 GMT 25th January 2012
While strong demand from emerging economies for raw materials combined with a fast expanding domestic consumer base has strengthened claims that Africa has a firm platform to launch a sustained economic turnaround.
Africa's transformation appears remarkable in the context of the worst global economic crisis of recent times. The resilience of the African economy in the face of collapsing export markets to traditional markets in the EU and US, has confounded critics.
Since the onset of the financial crisis, predictions of Africa's economic decline have failed to materialise. Africa was argued to be most vulnerable to a deterioration in the global economy which would inevitably contribute to rapid declines in government revenue, spiralling into cuts to poverty reduction programmes exacerbated by falling aid flows.
The African Development Bank forecast that the region's growth outlook would sharply deteriorate, with an expected shortfall in export revenues of nearly a third of a trillion dollars triggering 'a fully blown development crisis.'
On the contrary, the region has out-performed dire market forecasts . Although African economies slowed in 2009 at the peak of the crisis, regional GDP remained well clear of rates of recession experienced in Europe and the United States. Furthermore African economies pulled off an impressive turnaround just a year after the downturn pushed international markets into turmoil.
Africa's GDP growth doubled to 5.4 per cent in 2010, shortly following the peak of the financial crisis. Currently African GDP is robust and expected to increase further into 2012 to 5.8 per cent as a result of a combination of high oil prices, strong demand from emerging economies for raw materials, matched by strong domestic demand from consumers driving the expansion of the service and manufacturing sector. While growth is an unreliable indicator for development, the expansion of African economies is felt to be largely inclusive particularly in high growth countries Ghana, Tanzania and Uganda.
Improved political leadership is integral to Africa's renewal working as the catalyst in driving national investment. Case studies of increased government spending reveal more than the trickle down from kickbacks, pointing to the potential role of government intervention in leading economic development.
State commitment to development is underlined by expanding government spending. During the 1990s African government expenditure grew at 4.8 per cent a year. In Botswana this reached 1 0 per cent between 1980-2002. Spending on infrastructure projects accounted for 6-12 per cent of GDP while investment in education has been consistent, on average growing by 6 per cent a year.
Africa's governments are placing themselves in the driving seat behind ambitious policy responses to the revival of critical economic sectors. Rwanda has emerged as a model for best practice in economic governance, placing itself as a regional leader in economic growth and improved income per capita. While Nigeria's political woes have been well documented, progress on industrialisation has received less publicity. Its manufacturing sector boosted by strides in agro processing and microenterprise for Africa's large national consumer market.
An improved policy climate for government intervention has further boosted Africa's efforts to increase state spending for development, altering the dynamics of Africa's economic governance. In a shift towards the development model for the emerging countries of the South, African governments have been less constrained by donor criticism in the face of a financial crisis, which has seen declining ODA ( official development assistance) flows and a steep reduction of western imports.
The challenge from the emerging South to the established economic order is being reasserted by the effects of a seismic economic downturn. Emerging economies, led by China, India and Brazil, are already widening the parameters for what could be achieved by countries of the South marking the contribution of a dynamic developmental state in delivering key outcomes towards employment and income generation.
However similar demands for raw materials, particularly oil, timber, copper and rubber from Nigeria, Tanzania, Angola and Mozambique to countries including China and India have prompted accusations of a repetition of patterns of imperial exploitation. But while comparisons of a new era of colonial style exploitation are floated, the dynamics of the relationship are markedly different as African governments are demanding not only precious foreign exchange but infrastructural investment and capacity building in contributing to the delivery of national development.
Diversification of FDI (foreign direct investment) in Africa is driven by a shift in flows from natural resources such as oil and minerals to non-traditional sectors. Capital investment in manufacturing, fmancial services, agriculture and tourism make up two thirds of FDI to Africa, contributing to increasing foreign exchange reserves and higher tax revenues. Considerable investment from emerging countries in the African economy has facilitated upward growth, with a signification portion ofFDI sourced from China accounting for 16 per cent of total FDI to the region.
Africa's poor integration into the global market has continued despite an increase in its share of global trade to $30 trillion in 2010, reinforcing claims that Africa's future will depend on its ability to forge new economic alliances alongside the development of a robust regional market. According to IMF forecasts, the majority of countries in sub-Saharan Africa will be trading predominantly with non DAC (Development Assistant Committee) countries by the end of the decade. While a marked reduction in imports for traditional DAC partners has been facilitated by increased Chinese and intra regional import flows.
The development of domestic and regional consumer markets has reinforced the impact of growing intra-regional trade reflected by growing trade volumes particularly between the regional giants of South Africa and Nigeria. Business outsourcing is a key source of export earnings for Kenya and Ghana, both regional leaders in professional services including call centre services and high end technology transfers.
Economic stagnation in other parts of the world has made Africa attractive to skilled professionals presenting an alternative to traditional migrant destinations to Europe and the US.
Furthermore, migration flows towards high performing economies such as Gabon, Botswana and South Africa has countered the negative effects of the brain drain, which saw the loss of millions of skilled workers from Africa's labour market.
High rates of economic growth, increased income-generation and booming investor confidence all suggest a turning point for African development. But, the depth of its transformation will largely rely on the transition from commodity dependence to high value exports, representing the difficult shift to industrialisation. The continued colonial legacy has seen the majority of African economies dependent on a single commodity restricting the capacity for sector development outside of traditional markets for raw materials.
Africa's predominantly young population, while regarded as critical components in its future economic success, is also likely to intensify demand for jobs in an economy already constrained by high unemployment. In sub-Saharan Africa, three in five of the total unemployed are youth (ILO 2006) and on average 72 per cent of the youth population live on less than $2 a day World Bank 2009.
Rampant youth unemployment highlights the most critical economic challenge for Africa. Left out of the jobs market and reliant on social networks rather than qualification for employment, many youths are disillusioned with the lack of opportunities at home and are still the most likely age group for migration to the West. Without addressing how to tap into the region's most valuable resource, governments will continue to struggle with deficits in human capital and risk failing in competition with emerging economies.
In addition, the urban nature of Africa's economic renaissance raises questions of how to de-urbanise centres of wealth towards deprived rural areas. Reliance on traditional systems of agriculture for subsistence and production, without meaningful diversification into modernised agroprocessing, has undermined the potential of the rural economy to make a significant contribution to national development.
What distinguishes Africa's present economic phase from its troubled past is the degree of confidence in the region to overcome its many challenges. Rapid investment across the region is a clear indicator of a buoyant market mood, with increased recognition of Africa's new economic trajectory among its political class.
Critically the integration of Africa into a hostile global economy through the path of market liberalisation is no longer regarded as the single channel for growth. On the contrary Africa's strengthening economic ties to emerging economies led by soaring Chinese expansion are central to perceptions of a continent in the driving seat.
Whether Africa can achieve sustainable and meaningful development to a population expectantly waiting for change is reliant on a plethora of factors, several out of the region's control. Nevertheless, overall the strength of the region's political leadership is likely to be paramount in securing continued economic success.
no comments
