A clear-eyed view of Africa

The African version of the World Economic Forum opens today in Durban at a sobering time for sub-Saharan Africa. Continental economic growth tumbled in 2016 to the lowest point in more than a decade.

Not only that, growth declined from really extraordinary levels in 2007, when it ran at a continental average of 7.4%, according to formal IMF figures.

What an extraordinary reversal of fortunes. Gone are the days when African countries constituted the majority of the 10 fastest-growing economies in the world. For a moment it seemed as if grand solutions to Africa’s problems were realistically in sight within a generation. Now that ideal seems like a cruel chimera.

The first point to make in response to the underlying pessimism bedevilling African development is that the hope Africa could defy the economic cycle was a delusion in the first place. There is now a slightly more clear-eyed view of African economic growth — past, present and future.

African leaders knew at the time of the boom years that the strong economic growth was based largely on the commodity sector and, consequently, it lacked a broad-based character. It provided a limited window of opportunity to diversify African economies, and some grasped those opportunities better than others.

One of the positive effects of the business cycle is that it exacerbates the process of renewal — sometimes brutally as it happens — by washing the weakest out of the system. In the same way, African leaders now recognise, if they did not before, the frailty of growth, the necessity to diversify their economies and the need to make sure they reap the opportunity of growth when it occurs.

Second, the level of economic growth aside, the underlying currents of economic change remain intact. FTI Consulting released a report this week based on about 100 African opinion makers that shows nearly three-quarters of respondents indicated they believed overall investment in the continent would increase over the next 12 months. The regional breakdown was interesting, too. In East Africa, nearly 90% of respondents said they were “very” or “slightly” positive.

The start of a turnaround in views is also visible from the report. Investment optimism remains barely positive overall in North Africa, but is double what it was a year ago.

Accounting firm EY’s Africa Attractiveness report, based on a much larger sample, also holds out the hope that 2016 could end up being a turning point. It finds that inflation has peaked and is declining for most of the subcontinent, allowing the space for central banks to ease interest rates. This in itself will add stimulus to economic growth, and should interest rates at the very least remain stable, consumer disposable income will support even stronger growth throughout 2017.

The report also reflects big regional differences, with East Africa emerging as the most positive. All four of the key economies (Kenya, Ethiopia, Tanzania and Uganda) are poised for growth of 6% and above for the decade.

At the same time, some of Africa’s big problems remain stubbornly unchanged. Key among these, according to the EY report, are that rising twin fiscal and trade deficits remain at risk of currency devaluation. This becomes all the more evident where national debt levels are either rising too rapidly or are already at high levels.

Over the past decade, Africa has been let down by its three biggest economies — Nigeria, Egypt and SA — which have all underperformed for different reasons. Smaller countries don’t always move the needle, but it is notable how much better they are performing. That will, with any luck, provide impetus to the slumbering elephants.

LEADERS NOW RECOGNISE, IF THEY DID NOT BEFORE, THE FRAILTY OF GROWTH