Cause for hope
Another sanguine feature story came out about Africa’s economic growth. The Economist ran a cover story in 2000 headlined, “The Hopeless Continent”, reversed course in December 2011, dubbing Africa, “The Hopeful Continent”. A new African narrative is emerging, finally.
In the last decade, six of the world’s 10 fastest growing nations have been in the Sub-Sahara, and that trend is expected to continue into the foreseeable future. The continent rebounded quickly from the global recession reaching 6% growth last year, surpassing East Asia.
Africa is too vast and diverse to be handled in a broad brush treatment. Each of its economies is affected by a unique and dynamic set of drivers.
However, on the whole, the Sub-Sahara is being shaped by converging forces: global demand for resources, burgeoning consumer markets and government reforms are placing the continent on a path toward sustainable growth. Regional trade and foreign investment are increasingly important. There’s cause for optimism and for a closer look at Africa’s Great Boom.
New seeds of growth
Historically, Africa experienced cyclical growth based on fluctuating prices of oil and other commodities. In recent years, steady demand for oil and other mineral resources has boosted growth. Today’s new sources of growth are more diverse and consumer-based.
Half of the continent’s new growth now comes from consumer services, namely mobile phones, banking (including m-banking) and insurance. Consumer-led growth not only provides diversity to African economies, it accelerates cross-sector growth.
Africa, the world’s fastest growing mobile market with over 600 million mobile users, is second only to Asia in its number of subscribers. In each of the last five years, mobile penetration increased by 20% annually which has stimulated economic growth supporting a range of sectors that benefit from connectivity.
The London Business School found that an increase of 10 percentage points in mobile penetration boosts GDP by 0.6% in developing markets.
Indeed, mobile services encourage a more efficient mix of activities than would be undertaken in the absence of mobile services. Further analysis is needed to measure mobile’s contribution to regional growth, but arguably, it’s a game-changer throughout the Sub-Sahara.
More trade and investment
Another new source of growth is intra-regional trade which has been historically insignificant. African governments are removing longstanding trade barriers and consolidating cross-border ties creating new trading partners and patterns. Intra-regional trade, still in its infancy, accounts for only 12% of commerce, but it’s poised to play a larger role in the future.
Foreign investment is also having an effect. Western firms are joining the influx of Chinese and a growing number of Indian companies competing in Africa. Local governments are making it easier for foreign firms to do business there. The World Bank and IFC’s annual assessment of commercial practices shows that 36 out of 46 African countries have reformed their foreign investment policies in the past year.
Challenges remain at the intersection of the government and the private sector where the pace of reform has been brisk but uneven. Although political patronage persists in some quarters, many governments have made strides in encouraging private investment, decentralizing service delivery and achieving greater transparency.
Despite its challenges, Africa’s prospects, on balance, are promising. Demand for natural resources, consumer-led growth and widespread institutional reforms are remodeling the continent. Foreign investment is increasingly important and will have a far greater impact in the future.
Foreign entrepreneurs and investors tend to over estimate risk, underestimate opportunity and see the Sub-Sahara through a parochial prism. Those that are well-informed and prepared to roll up their sleeves will encounter confident, energized African business leaders who are convinced that this is, after all, Africa’s time.
Image courtesy of Martin Power
Helpful analysis and perspectives on this topic can be found at the following:
- The World Bank – Africa Blogs
- Africa Development Bank
- Center for Strategic & International Studies – Africa.