African sunrise or false dawn?

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.