A NOTE OF CAUTION

Africa may be big and some of its countries growing rapidly, but sustaining that growth will be difficult in the absence of structural reform and investment in infrastructure

The recent resurgence of growth in many African economies, including SA and Nigeria, has revived some of the optimism that surrounded the continent in the early 2000s, when it was hoped that it might become a driver of global economic growth.

However, while Africa will likely outperform consensus expectations in the short term, the continent’s long-term outlook is less rosy. Talk of the region as the “next China” is wide of the mark, says a new research report by Capital Economics’ Africa economist, John Ashbourne.

The report is particularly bearish on SA, noting that it may be a significant underperformer once the initial confidence spurt related to Cyril Ramaphosa’s presidency subsides and the country’s deep-seated structural flaws resurface.

One of the arguments Afro-optimists advance in support of the view that the continent could become a key driver of global growth is its scale. Africa is the only emerging market region nearly as populous as China or India, and it’s the last place where populations are still rising rapidly.

By 2050, there will be almost as many people in Africa as there are in China and the developed world combined, according to the report.

But in reality, the notion of an “African” labour force is a mirage, the report points out, as trade barriers mean that most African economies have few links to one another. Individually, most African countries have fewer than 15m people.

Martyn Davies, MD for emerging markets & Africa at Deloitte, agrees that the geographical construct of Africa as one big continent is less than useful. In reality, East and West Africa have nothing in common and it makes more sense that East Africa is integrating with East Asian and Middle Eastern economies, with Dubai as the hub, than it does for the region to look west.

“We need to rethink this totally flawed notion of an ‘Africa report’,” he says. “These countries don’t have the same interests and shouldn’t be lumped together superficially.”

It is also “absolute nonsense” to think that Africa is ever going to be another China, he adds. “What China achieved in terms of private sector creation is unprecedented in any period in history. Africa, India and Latin America together probably couldn’t achieve what China did.”

China’s 20th-century miracle was powered by moving farmers into factories, but the report cautions that the growth stories of the 21st century might rely more on automation. This suggests that in a world in which low-skilled work can be more easily automated, rapid population growth may not be the economic boon it once was.

This is not to say that Capital Economics has any doubt as to whether African economies can achieve rapid growth. The real question, it argues, is whether rapid growth can be sustained.

While China sustained rapid growth for many decades, rapid growth in Africa has almost always been the result of strong commodity prices — and has lasted only as long as the upturn in the commodity cycle.

So why has Africa been so bad at consolidating rapid growth? One reason advanced by the report is that structural change tends to happen more slowly in this part of the world.

Asia’s growth was underpinned by the fact that it managed to shift hundreds of millions of workers out of agriculture into higher-productivity sectors, including export-orientated manufacturing, the report explains. As a result, productivity growth has averaged 3.2% in Southeast Asia, 5.1% in

India and an impressive 8.4% in China over the past 15 years. In Africa, by contrast, the share of workers in agriculture has fallen by just 10 percentage points a year and the share of manufacturing exports has remained low or declined. Productivity growth has averaged a paltry 2.6%/year.

It turns out that Africa’s growth has been much more dependent on an increase in the size of the labour force than an increase in its productivity.

Poor governance, a difficult business environment, the resource curse and skills shortages have all been blamed for this.

But the report suggests the lack of quality

What it means: Low productivity and investment mean Africa isn’t going to be another China