For Africa, the good news is that the drivers of the continent’s 21st-century growth story all remain in place: the demographic boost of a young and growing population, increasing urbanisation, improvements in productivity and the growth of financial markets.
However there is no question that current economic events have dealt a quadruple blow to the ‘Africa Rising’ narrative of the last decade: falling demand from China and the Eurozone, crashing oil and commodity prices, major currency weaknesses, and surging dollar strength and the return of conventional monetary policymaking in developed economies.
If these are currently issues for emerging markets everywhere, they flash the hazard lights on Africa’s continental dashboard even more acutely.
Africa’s unique paradoxes also continue: the current era of economic promise and democratic progress is coupled with instances of war, famine, dictatorship, and corruption. The continent holds an estimated 30% of the world’s known minerals and half its uncultivated arable land, yet houses most of the world’s poorest countries and some of the globe’s longest-lasting and richest political leaders.
It is important to state explicitly that Africa is not a single entity but a diverse group of countries, each with individual forces at work. However, common to all of Africa, and a huge trade and investment deterrent, are chronic infrastructural bottlenecks. Transport costs in the continent are reckoned to be 63% higher than in other developing regions and a 2010 World Bank report estimated that $93 billion was needed to bring in basic infrastructure across the continent. Africa is a significant producer of oil and gas, yet only a minority of its countries can supply electricity to more than half their populations; an estimated 600 million Africans lack access to electricity.
The obvious solution—for African sovereigns to spend more on addressing the need for basic infrastructure—has now come with a hefty, perhaps unaffordable, price tag thanks to currency and economic fluctuations. Relying on loans in foreign currencies to fund vital infrastructure made sense in the boom years and in an era of a more modest dollar exchange rate. But that has left a real hangover as borrowing costs rise on the back of yield increases in US bond markets, and many analysts have flagged concern that a new debt crisis may be developing.
The result of all these factors is that the World Bank projects overall African GDP growth in 2015 will slow to 4.2%, down from an average of 6.4% during 2002-2008.
In spite of the considerable headwinds, however, bright spots remain: The DRC is expected to be the continent’s top performer with growth of 9.2% this year, followed closely by Ethiopia at 8%. Neither of these economies is oil dependent.
Notable investors also remain confident about Africa’s prospects. Mark Mobius, the veteran emerging markets investment manager at Franklin Templeton, recently noted: “The growth scenario is still excellent and we do not want to scale back our investments. The problems pale beside the opportunities.”
This sentiment has been endorsed by General Electric, Marriott, Carlyle, and Helios, all of which have indicated no cutback in their investments.
Two of the most positive areas in the African economy at present, private equity and mobile technology, also offer tangible signs of the direction in which the continent will develop.
This year, two funds from a single source, Araaj Group of Dubai, have amassed a war chest of $1.4 billion—a record sum raised in a single year—to focus on African investment. Just behind it is Helios with a $1 billion fundraising. Carlyle and KKR also entered the region in a meaningful way last year.
These funds and their expectations—higher yields in frontier markets away from oversaturated buyout markets in the US and Europe—represent a bet on the continent’s middle class and consumer growth.
Mobile technology has hugely transformed the quality of lives in the remotest regions and provided almost universal access: Ericsson estimates that by 2019, the number of mobiles will rise to 930 million, almost one per African. Smartphones are spreading too as costs decline rapidly and this in turn suggests that internet penetration could reach 50% within the next decade.
While Africa’s serious lack of infrastructure, particularly in electricity supply, remains one of the continent’s biggest development hurdles, it has the potential to be a massive opportunity. Precisely because it is so late to the development game, Africa’s natural but untapped resources—from huge rivers and sunny deserts to windy uplands—could be harnessed via new technologies to produce the energy it needs.
In the arena of politics and governance, this year’s Index of African Governance shows the continent to be “stalling” (as cited recently in The Economist). The ninth such report published by the British-Sudanese billionaire and philanthropist Mo Ibrahim measures a variety of indicators ranging from corruption to the rule of law to infrastructure and sanitation. It shows little change since 2011, though before then the index had been showing steady improvement.
Of the 10 countries ranked best, five have seen a decline in their governance scores since 2011 (Mauritius, Cape Verde, Botswana, Seychelles, and Ghana). The biggest drag factors are those relating to safety and the economy.
However, 2015 has also given democracy in Africa one of its greatest wins, with General Muhammadu Buhari defeating incumbent president Goodluck Jonathan at the polls in Nigeria in April.
As the Financial Times observed at the time: “His resounding victory in the face of bounteous skulduggery is an object lesson in perseverance and arguably one of the most significant events on the continent since the 1994 election in South Africa brought an end to white minority rule. For the first time in Nigeria’s history an incumbent president has been unseated by the electorate . . . for the first time also, a sitting Nigerian president accepted with humility that he was obliged to go.”
It is also worth noting that, since 1991, at least 30 other governments and presidents across Africa have been voted out of office.
So not for the first time, but in better shape than in the past, Africa stands at the crossroads. I believe that its combination of demographics, better education, and integration into the global system of trade, with its disciplines and transformative technology, gives Africa a big chance.
Tony Leon is Senior Advisor to K2 Intelligence and was former leader of the Democratic Alliance in South Africa.