How re­al­is­tic are ex­pec­ta­tions about Africa’s eco­nomic prospects? There are sev­eral rea­sons why we should be both op­ti­mistic and cau­tious about the con­ti­nent’s fu­ture eco­nomic per­for­mance,

Financial Mail - Investors Monthly - - Front Page - writes Stephen Onyeiwu

The world’s eyes have turned to Africa, at­tracted by its eco­nomic per­for­mance. Even the most cau­tious an­a­lysts are so san­guine about the con­ti­nent’s eco­nomic prospects that they are will­ing to bet on its rosy fu­ture.

The In­ter­na­tional Mon­e­tary Fund ex­pects sub-Sa­ha­ran Africa to grow at an av­er­age an­nual rate of 5,7% be­tween 2014 and 2019. This would make the sub­con­ti­nent one of the three fastest-grow­ing re­gions in the world over that pe­riod. It would also mark the first time that Africa would have main­tained a ro­bust growth rate con­tin­u­ously for more than a decade.

Are th­ese fore­casts re­al­is­tic? Can Africa’s growth resur­gence be sus­tained? There are sev­eral rea­sons why we should be both op­ti­mistic and cau­tious about the con­ti­nent’s fu­ture eco­nomic per­for­mance.

Rea­sons for op­ti­mism

While mil­i­tary dic­ta­tor­ships, au­toc­ra­cies and one-party sys­tems have over­seen im­pres­sive growth be­fore, th­ese are the same gov­ern­ments whose poli­cies have re­sulted in un­sus­tain­able bud­get deficits, price con­trols, hap­haz­ard trade pro­tec­tion and waste­ful sub­si­dies which harmed sus­tain­able growth.

There is a lot of work still to be done, but there are coun­tries that have made sub­stan­tial im­prove­ments in their pol­icy en­vi­ron­ments.

An era of ac­count­abil­ity

One rea­son that growth stalled in the past was that lead­ers were not held to high stan­dards of per­for­mance. This has changed; there are now higher lev­els of ac­count­abil­ity. The Arab spring has made lead­ers re­alise the era of im­punity and in­sen­si­tiv­ity to cit­i­zens’ plight is over.

Shift from crony­ism to en­trepreneur­ship

The con­ti­nent has wit­nessed the emer­gence of en­trepreneurs will­ing to in­vest in pro­duc­tive sec­tors like man­u­fac­tur­ing, in­for­ma­tion tech­nol­ogy, agribusi­ness, avi­a­tion and ser­vices.

Th­ese en­trepreneurs can in­fuse new dy­namism into African economies.

This contrasts with the post-in­de­pen­dence era’s “com­prador” bour­geoisie, who de­pended es­sen­tially on gov­ern­ment con­tracts and largesse.

Dis­cov­ery of re­sources

Prospects for growth are likely to be en­hanced by re­cent and fu­ture dis­cov­er­ies of new re­sources, par­tic­u­larly oil and gas.

Dur­ing the past five years or so, sig­nif­i­cant oil and gas re­serves have been found in Côte d’Ivoire, Ghana, Mada­gas­car, Mozam­bique, Uganda, Tan­za­nia, Kenya and Ethiopia. Mozam­bique is ex­pected to be­come the third-largest pro­ducer and ex­porter of liq­ue­fied nat­u­ral gas in Africa, af­ter Nige­ria and Al­ge­ria. Vast iron ore re­serves have also been dis­cov­ered in Guinea and Sierra Leone.

200 mil­lion Africans are be­tween the ages of 15 and 24, mak­ing the con­ti­nent’s pop­u­la­tion the youngest in the world

Why cau­tion is war­ranted

Fu­ture eco­nomic growth de­pends on whether wide­spread youth un­em­ploy­ment is ad­dressed. Of Africa’s 1,033bn peo­ple, 200m are be­tween the ages of 15 and 24, mak­ing the con­ti­nent’s pop­u­la­tion the youngest in the world.

Glob­ally, al­most a third of this age group will be African by 2050. Youth un­em­ploy­ment will con­tinue to threaten growth, as job­less young­sters in Africa are drawn into un­pro­duc­tive ac­tiv­i­ties like ter­ror­ism and other forms of vi­o­lence.

Vi­o­lence and in­sta­bil­ity

The level of vi­o­lence is drop­ping in the re­gion but still af­fects a swathe of the con­ti­nent. Be­cause of Africa’s por­ous bor­ders, con­flict and vi­o­lence in one place can eas­ily spill into neigh­bour­ing coun­tries.

Al-Shabaab, Al-Qaeda and Boko Haram con­tinue to be forces of vi­o­lence and in­sta­bil­ity in north­ern, eastern and west­ern Africa. The pro­longed con­flict among var­i­ous mil­i­tant groups in the Demo­cratic Repub­lic of Congo has desta­bilised the economies of Rwanda and the Repub­lic of Congo.

Un­ex­pected shifts in the global econ­omy

Most eco­nomic fore­casts ex­pect growth to be anaemic in de­vel­oped economies in the short to medium term, es­pe­cially in the eu­ro­zone and even the US. Slower growth will af­fect African economies in var­i­ous ways.

Aid-de­pen­dent coun­tries may face de­clin­ing aid flows as de­vel­oped coun­tries grap­ple with do­mes­tic fis­cal prob­lems. De­mand for com­modi­ties and en­ergy will also weaken, lead­ing to de­clin­ing ex­port rev­enues for Africa’s com­mod­ity ex­porters.

Ad­verse en­vi­ron­men­tal and cli­matic con­di­tions

US Sec­re­tary of State John Kerry has de­scribed cli­mate change as per­haps the world’s most fear­some weapon of mass de­struc­tion.

Though most Africans are not aware of this weapon, they do feel the pangs of cli­mate change. One of the ma­jor causes of cli­mate change in Africa is rapid de­for­esta­tion. Other causes in­clude gas flar­ing from oil ex­plo­ration, coal-fed elec­tric­ity plants and un­sus­tain­able agri­cul­tural prac­tices.

Be­cause of its de­pen­dence on agri­cul­ture and nat­u­ral re­source ex­trac­tion, the con­ti­nent suf­fers more from the ef­fects of cli­mate change and en­vi­ron­men­tal degra­da­tion. It also has the least ca­pac­ity to deal with the chal­lenges. Four­teen out of the world’s 20 coun­tries most at risk to cli­mate change are in Africa. Ad­vi­sory firm Maple­croft notes that “cli­mate change may pose a se­ri­ous ob­sta­cle to sus­tain­able eco­nomic growth" in the world’s most com­mer­cially im­por­tant cities.

In­equal­ity and rel­a­tive de­pri­va­tion

Africa is one of the most un­equal re­gions in the world. Al­most one out of ev­ery two Africans lives in ex­treme poverty. Poverty rates have been de­clin­ing, but not as fast as ex­pected.

In the midst of this poverty one finds sprawl­ing man­sions, sev­eral posh cars for one house­hold and elites lead­ing op­u­lent life­styles. This wealth would not be a threat to growth if it was the re­sult of hard work, in­no­va­tion and en­trepreneur­ship. In­stead, it is the fruit of un­abashed graft, crony­ism, crim­i­nal ac­tiv­i­ties and out­right theft of public funds.

Lessons from China

China has man­aged to sus­tain high growth rates of GDP for more than a decade. One rea­son for this is that its growth is driven by ex­ports of man­u­fac­tured goods.

China’s growth has also been sus­tained by an in­vest­ment boom, es­pe­cially in in­fra­struc­ture. But Africa has been do­ing the op­po­site: it ex­ports mainly agri­cul­tural and min­eral prod­ucts; shifts re­sources to­wards con­sump­tion rather than in­vest­ment; and fails to in­vest in in­fra­struc­ture. If the re­gion’s growth mo­men­tum is to be sus­tained, African coun­tries need to re­verse th­ese trends.

Africa suf­fers more from the ef­fects of cli­mate change and en­vi­ron­men­tal degra­da­tion. It also has the least ca­pac­ity to deal with th­ese chal­lenges

This ar­ti­cle is based on Stephen Onyeiwu’s book, Emerg­ing Is­sues in Con­tem­po­rary African Economies — Struc­ture, Pol­icy, and Sus­tain­abil­ity (Pal­grave-Macmil­lan, 2015). Onyeiwu is a pro­fes­sor of eco­nomics at Al­legheny Col­lege, Penn­syl­va­nia, US.



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