Africa's Coming Crash-And How to Avoid It: Africa Is on an Economic, Political and Social High as Never before and the Projections Are for a Better Tomorrow Than Today. but What If Things Turn Topsy-Turvy? What If Commodity Prices Crash or China Goes Down the Pan? Richard Walker Assesses the Black Swans That Could Derail Africa's Growth and Suggests Ways to Avoid It

By Walker, Richard | African Business, June 2013 | Go to article overview

Africa's Coming Crash-And How to Avoid It: Africa Is on an Economic, Political and Social High as Never before and the Projections Are for a Better Tomorrow Than Today. but What If Things Turn Topsy-Turvy? What If Commodity Prices Crash or China Goes Down the Pan? Richard Walker Assesses the Black Swans That Could Derail Africa's Growth and Suggests Ways to Avoid It


Walker, Richard, African Business


Africa is heading for a crash. It might be a few years down the line. It might be just around the corner. The only thing that is sure is that when it comes--if it comes--it will be very, very big. Big enough to wreck Africa's hopes of prosperity and democracy.

But this is a crash that doesn't actually have to happen. If Africa's business leaders and policy makers see the threats that are gathering on the near horizon, and act on them, then this will be the disaster that wasn't. But now is not the time to get complacent. It has happened before, and it can happen again.

But why the talk of crashes and meltdowns, when the majority of Africa's economies are in better shape than they have been for decades? Africa is on a roll, and everyone knows it.

With the global economy recording growth levels that are close to a historic low, with large swathes of the industrialised world at or near recession levels, Africa is now the second--fastest-growing regional economy (after developing Asia) and has the capacity to soon become the fastest-growing region.

If you want growth, dynamism and innovation, Africa is the place to find it. Africa has never had it so good, and sub-Saharan Africa has it best of all. What on earth could go wrong? Unfortunately, the answer is: plenty.

Last year I wrote an analysis of Africa's prospects for the emerging markets investment bank Renaissance Capital, or RenCap. Published as the concluding chapter of RenCap's book The Fastest Billion, it outlined all that was good about Africa's rush for growth and democratisation. Africa's time is now, the book concluded--and it was right.

But readers and critics missed something else that was also in our book. Africa's time is indeed now--the mix of reform and wealth creation, demographics and technology, plus very high commodity prices and very low debt all make Africa the region of choice for investors and businesses looking for the next big global growth story.

But what is true today may not be true tomorrow. We live in a fast-changing world; conditions can change rapidly and perceptions can change even faster. The capital-rich fund managers and business leaders who are knocking urgently on African doors today could be on their planes back home tomorrow.

It all depends on how Africa itself manages the moment. Conditions are looking exceptionally positive--today. But there have been great cycles of hope and expectation before--amid the political reforms of the 1950s and 1960s, amid the commodity boom of the 1970s and early 1980s, as well as the second commodity boom and the technology revolution of the last decade.

Today Africa is experiencing another high point of hope and expectation. And things are changing for the better, in most (although not all) of Africa's states. Incomes and living standards are rising. Healthcare levels have improved out of all recognition. Advanced communications technology is in the pockets of even the poorest. Democracy is spreading, corruption is falling, and while the autocratic old guard have not disappeared, at least they are in retreat. But history suggests that when expectations are running high, the danger of disappointment is also high.

How to identify danger points

And it is not difficult to identify where the African danger points lie. The first thing to say is: they are not primarily political. Politicians may not want to hear it, but the fact is that over the long term, politics dances to the tune the economy plays.

Everywhere in the world, democratisation is linked to per capita income levels. When countries enter the income band that is roughly $6,000 to $10,000 per capita income, they become very likely to turn into real democracies, if they have not done so already.

Once they achieve over $10,000 a year, they are near certain to democratise and stay that way. There has never been a case of a country with per capita income levels permanently over that level that has abandoned democracy. …

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Africa's Coming Crash-And How to Avoid It: Africa Is on an Economic, Political and Social High as Never before and the Projections Are for a Better Tomorrow Than Today. but What If Things Turn Topsy-Turvy? What If Commodity Prices Crash or China Goes Down the Pan? Richard Walker Assesses the Black Swans That Could Derail Africa's Growth and Suggests Ways to Avoid It
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