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Africa’s Economic Future – How bright?
WORDS: BRUCE GERMAINE | 22 OCTOBER, 2015 02:14
Today, Africa has become increasingly attractive and shines in the global limelight as a promising investment destination – the fruits of effective governance and rule is, of course, key to sustainable and long lasting economic development – where responsible politicians actually serve the people while in office – thereby continuing the flow of foreign direct investment (FDI).
The world is not naïve though, and many politicians falter eventually having started off with noble aims, but being kick started on the road to economic prosperity is very much a reality in Africa. Domestic investments are the oils in which national economies operate in, thereby stimulating and growing international and regional trade with other countries inside and outside of Africa.
There are certain factors that contribute to Africa being one of the fastest growing economies in the world today. With competitive commodity pricing along with the emerging markets thirst for natural resources that have literally fuelled the economies of Nigeria, Angola and lately Ghana, and the not so sleeping giant of China constantly stomping its footprint, Africa remains a continent in demand.
China has become one of the single, if not biggest, trading partner for Africa with countless foreign direct investments dotted all over, and still expanding. The figures are astounding with over 2000 Chinese business groups among 54 African states investing, South Africa being at the forefront of Chinese foreign direct investment. Since 1994 when South Africa realized true democracy with the abolition of Apartheid and the election of the first black president Nelson Mandela, Taiwan was quickly replaced by China in terms of diplomatic relations, opening the floodgates to a gradual influx of Chinese business people who came to South Africa seeking opportunity.
Africa so rapidly?
The speedy delivery of projects puts China at a big advantage, they are able to deliver quickly and work in close coordination with national and financial partners. With political leaders and policy makers under pressure to perform and deliver to their people, some for example, are more readily prone to agree to accept a coal generated power plant at the expense of the environment. But what is it about Chinese companies that seem to have the ability to entrench themselves in or other less polluting projects.
With the changed global conditions of the 21st century, African countries must transform their economies to effectively compete in the global marketplace and deliver development dividends to their populace. The speed of scientific and technological progress on various fronts could make it difficult for Africa to continue to benefit significantly from its primary resources even a generation from now. The advent of new technologies and environmental conventions may also close the door on Africa’s ability to follow other countries’ paths to industrialisation (i.e. using low-tech manufacturing as a launch-pad).
The current growth spurt can only be sustained through the expansion of productive capacities and capabilities, ensuring that Africa possesses the set of competencies that are increasingly acknowledged as prerequisites for development in the so-called “knowledge economy.” This transformational approach can only be pursued if African societies and economies are driven by innovation and creativity.
In addition, the continuation of good medium-term policies and structural reforms bodes well for future growth in the region. Africa has “democratized” to some extent, and violence and armed conflicts have decreased in spite of a few hot spots. Half of the world’s future population growth will be driven by Africa (not because of higher fertility, which is declining, but because of longer life expectancy). This trend could lead to a “demographic dividend” of an adult population of 800 million by 2030 (compared to 460 million in 2010).
The good news is that Africa has indeed been innovating, from Nigeria’s multi-billion naira “Nollywood” movie industry to M-Pesa, the Kenyan mobile phone-based money transfer and micro-financing service that has grown so rapidly that its transactions now represent over 25 percent of Kenya’s gross domestic product (GDP). Knowledge intensive start-ups are emerging and we also have many examples of social innovations, with technology being applied to everything from monitoring elections and fighting corruption to protecting people from counterfeit pharmaceuticals.
The good news is that Africa has indeed been innovating, from Nigeria’s multi-billion naira “Nollywood” movie industry to M-Pesa, the Kenyan mobile phone-based money transfer and
micro-financing service that has grown so rapidly that its transactions now represent over 25 percent of Kenya’s gross domestic product (GDP).
What then?
To sustain its growth, however, Africa will need to continue reducing poverty and inequality, and step up the transformation of its economy. African countries, unlike East Asian countries, have not yet been able to turn their farmers into manufacturing workers, diversify their economies, and export a range of increasingly sophisticated goods. Moreover, many African countries are joining the resource-rich country club and with it come not only opportunities but also challenges. Good governance will be needed to enable future generations of Africans to benefit from this new wealth. Low global interest rates and high commodity prices have opened a window of opportunity for African countries to reform. This window will not always remain opened, and reform is needed now.
In terms of key areas of investment in Africa, large infrastructure projects almost always need foreign partners. The Information & Communications technology sector’s needs are high despite the gigantic growth spurt within the mobile sphere. Big international conglomerates such as Microsoft, Huawei and GE are investing in research and development in Africa.
Super store companies such as Walmart and the French supermarket chain Carrefour are expanding their presence into Africa. Add to that the untapped wealth of agricultural land that is still yet to be tapped in Africa since Africa has about half the world’s arable land.
We are experiencing Africa’s moment but policy makers and politicians will need to steer their ships in unison towards a common goal in terms of uplifting the wealth and welfare of its people across the whole continent – a task easier said than done – but with the increasing international interest, the journey has already begun with China at the forefront.
China has become one of the single, if not biggest, trading partner for Africa with countless foreign direct investments dotted all over, and still expanding. The figures are astounding with over 2000 Chinese business groups among 54 African states investing, South Africa being at the forefront of Chinese foreign direct investment.
