At A Crossroads
Gregson, Jonathan, Global Finance
Africa is at the cusp of major change. Whether that change involves greater economic growth and an improved standard of living depends on both internal and external events over the next few years.
The world's population recendy passed seven billion and is still rising fast. According to UN forecasts, subSaharan Africa is expected to account for more than half of all population growth through 2050.Whether that converts into a demographic dividend - a fast-growing and youthful workforce powering economic growth-or a plunge into deeper poverty and subsistence living depends as much on external events as on Africa's inherent strengths.
Those strengths are highlighted by French development workers Jean-Michel Severino and Olivier Ray in their recently published book, Africa's Moment, which goes so far as to claim that this will be Africa's century.
True, Africa is enormously rich in natural resources. It holds 10% of the world's proven oil reserves, has more gold, copper and cobalt than any other continent and is second only to Asia in reserves of rare earth metals. And over the past decade, Africa has been economically the fastest-growing continent. GDP has risen by around 5% a year, and its fast-expanding middle class strengthens both consumption and democratic institutions.
Among the emerging middle classes, especially in South Africa and Nigeria, rapid urbanization is fueling growth. As Andrew Dawson of PricewaterhouseCoopers' global financial services strategy team, points out: "According to the UN, two billion people are expected to move into cities over the next 30 years, of which 27% will be in Affica."This will lead to "a huge demand for foreign investment in infrastructure."
In some African countries, poor governance and endemic corruption remain a brake on progress. But regional cooperation is improving, and with more privatizations, markets are increasingly aligned with private sector priorities.
Foreign direct investment in Africa and South-South trade have risen dramatically, led by new players like China and India.Those trends are likely to continue. "Trade and financial flows between emerging markets are growing much more rapidly than those with developed economies," observes Dawson.
Another potential source of inward investment is the sovereign wealth funds of Asia and the Middle East. These, as PwC partner Andrew Jurczynski points out, "typically take a longer-term view than private equity investors, with a focus on infrastructure and real estate development, among other sectors." On the issue of food security, countries in Asia and the Middle East, in particular, also have shown interest in buying up agricultural land in Africa. Sovereign funds are beginning to focus on this sector.
Long term, the outlook is positive. "We are structurally bullish about Africa on a multidecade basis, not least because the rapid urbanization across emerging economies is underpinning growing demand for Africa's abundant raw materials," says Stephen Bailey-Smith, head of research strategy at South Africa's Standard Bank.
"In terms of most African economies and how companies are doing, things are looking pretty good," says Roelof Home, portfolio manager for the Africa Fund at Investec Asset Management.
But Africa is in danger of being blown off course by external events. The slowdown in global growth, the ongoing eurozone crisis and the possibility of a hard landing for the Chinese economy are all having an impact on Africa.
"The slowdown in OECD economies is most directly transmitted to Africa's economies through less demand for the continent's natural resources and therefore lower commodity prices," observes Bailey-Smith. Energy exporters like Angola and Nigeria and producers of industrial metals are most vulnerable to these trends.
Although most African economies are fairly immune to OECD crises- as was proved in 2008-09- those like South Africa that are more closely integrated into the global financial system are proportionately more at risk. …