Over the past few years there has been increased mention of an ‘African century’. Much of the renewed optimism for the continent has been based on Africa’s average growth rate of over 5% during the 2000s. According to a recent World Bank report, 25% of African countries experienced economic growth of 7% or higher, which puts them among the fastest growing economies in the world. Admittedly many African countries are experiencing accelerated growth from a low base, but there are other positive signs that may auger well for Africa’s future generations.
Although foreign direct investment (FDI) slowed down from a high of $72 billion in 2008, due to the global economic crisis, forecasts by Ernst & Young predict that FDI will more than triple to $150 billion in 2015. Encouragingly intra-African investment made up 17% of all new FDI in 2011.
The establishment of a Continental Free Trade Area was endorsed by African Heads of State and Government in January 2012. If the political will is there it could be a catalyst to improve the current low levels of intra African trade. Weak regional infrastructure, high tariffs and inefficient customs processes have all held back potential growth. A particular disadvantage is the colonial heritage of outbound focused transport infrastructure in most African countries. The roads and railways built in colonial times were primarily designed to transport minerals and other raw materials from the African interior to the continent’s ports for shipping to Europe. They were not designed to connect different parts of countries and regions. Currently several major transport infrastructure projects are either in the assessment, planning or initiating phase across the continent, with South Africa’s $440 billion National Infrastructure Plan topping the bill.
Much has been made of the commodities boom that has been fueling many African countries’ growth over the past ten years, however research by the McKinsey Global Institute showed that commodities and related spending only accounted for a third of growth, while other sectors, especially the burgeoning wholesale and retail, transportation, telecommunications, and manufacturing sectors accounted for the other two-thirds.
The diversification of growth is associated with greater domestic demand due to rising incomes and urbanization, increased infrastructure spending, favourable agricultural conditions in some regions, increased trade and investment ties with emerging economies, and economic recovery in countries previously disrupted by conflict.
Africa has the world’s fastest growing middle class – defined as those spending between $2 and $20 per day (based on Purchasing Power Parity). It tripled over the last three decades to 313 million people, which makes it roughly the same size as the middle class populations of India and China. The growing middle class’s increased spend on consumer goods and services has had a big impact on economic growth.
Challenges and opportunities:
Remittances from Africans working in countries other than their own was estimated to be $60 billion in 2012 – that is $10 billion more than the $50 billion aid that was provided in 2011. With transaction costs the most expensive in the world (11 -12% average) there is an opportunity to even the playing field for remittance service providers and in the process fuel consumer growth. An innovative solution using mobile phone money transfers has been used in Kenya to bring down transaction costs.
Many African governments struggle with the broadening of their tax base and running an efficient tax administration – the widespread informal economy, lack of administrative capacity, as well as tax fraud and avoidance prevent governments from investing in public infrastructure and social services, which in turn hampers growth. The African Tax Administration Forum was established in 2009 to promote more efficient tax administration in order to foster economic growth and improved service delivery.
The double edged sword of Africa’s youthful population could be a boon, similar to Asia’s experience over the past 3 decades, or it could become a threat to social cohesion and political stability. Jobless growth is the most immediate threat with 15 to 25 year olds making up 60% of the continent’s unemployed. Countries that rely heavily on commodities export, with its attendant low employment intensity, need to invest in high job creating sectors like light manufacturing, agriculture, retail and ICT. This may just happen since 6 African countries have recently elected qualified engineers as heads of state or government, a welcome move from autocratic to technocratic leadership.
The growing population also poses challenges for education. Although primary school enrolment in Africa rose from 64% in 2000 to 84% in 2009, the quality of education is often poor, with very high drop-out rates and much slower progress in secondary and tertiary enrolment. According to UNESCO, secondary school enrolment in Africa was only 33% in 2011 compared to the global average of 70%. At the same time only 6.8% were enrolled in tertiary education, much lower than the global average of 29.1%.
With more than 650 million Africans owning a mobile phone there is a huge opportunity to use new technology to facilitate access to education and information via the internet. Current internet use is relatively low at 120 million users, but growth between 2000 and 2011 was 2,527%, compared to a world average of 480%. Limited bandwith and high costs are being addressed by infrastructure development – the laying of several new undersea cables to east and west Africa and expansion of satellite and Broadband Wireless Access technologies.
Africa has the world’s highest income inequality after Latin America. In 2010, six out of the 10 most unequal countries worldwide were in Sub-Saharan Africa. Rising income inequality is a source of social and political unrest as seen during the recent revolutions in countries like Tunisia and Egypt. Income distribution has become more uneven as the benefits of rapid economic growth are unequally distributed, especially in commodity rich countries where export revenues are controlled by a small and often corrupt elite. A fact that often goes unmentioned is the complicity of Western governments and companies in facilitating the illicit channelling of funds. Strategic resources like oil are often extracted in and purchased from undemocratic and corrupt governments like Angola. Recent EU and US legislation that forces oil, gas, mining and logging companies to publish payments they make to governments and release information on how much they earn in each country, may go some way to ensuring a more equitable distribution of income.
Despite a marked decrease in AIDS and malaria related deaths over the past decade (see graphic above), the two diseases caused an estimated 1.2 million and 600,000 deaths respectively in 2011 – more than 50% of all deaths in Africa. Add diarrhoeal diseases which caused 24% of all deaths, then it is very clear that preventable diseases are a major cause of low quality of life in many African countries. Fragile healthcare systems, poverty and lack of education are considered the underlying contributing factors to high mortality rates.
The RBM Partnership, a global framework to implement coordinated action against malaria, was initiated by the WHO, UNICEF, UNDP and the World Bank in 1998. According to RBM the total cost of a global strategy to eliminate malaria would average US$ 5.9 billion per year from 2011 to 2020. Compare that to the $10 billion per year spent by Americans alone on cosmetic surgery…
Although 60% of the world’s uncultivated arable land resides in Africa, that does not mean that the land is not being used for grazing or occupied by people. According to the Food and Agriculture Organization of the UN, Sub-Saharan Africa has become a hotspot for international land acquisition. In fact almost 5% of Africa’s agricultural land has been bought or leased by investors since 2000. This has lead to food and water security concerns in several African countries when in some cases local people have lost access to resources upon which they depend for their food security.
For instance, a Swedish company is in the process of securing 400,000 ha for sugar cane production in the Wami River basin in Tanzania. It has been alleged that about 1000 small-scale rice farmers on these lands will need to move, and are not eligible for compensation. Existing land use and claims are often unrecognised, with users marginalised from formal land rights and access to law and institutions. The World Bank estimates that, across Africa, less than 10% of the land is held under formal land tenure.
Many countries also do not have legal and procedural mechanisms in place to protect local rights. Lack of transparency and checks and balances in negotiations with potential investors often open the doors to corruption. Land fees are often not charged, or charged at nominal rates. In stead job creation and infrastructure development are often touted as the main benefits, but effective mechanisms to monitor and enforce compliance with investor commitments are often limited or non-existent.
For example: South Sudan has reportedly granted a Norwegian plantation and carbon offset company a 99 year lease for 179,000 ha at an annual cost of $0.07 per hectare. South Sudan’s Ministry of Agriculture and Forestry is new and presently there are virtually no laws, detailed policies, or operational plans governing the forest resources of the region.
The buying of arable land for carbon credits is a contentious issue with accusations of speculation at the expense of local populations levied at investors. Carbon offset projects often result in land grabs, local environmental and social conflicts, as well as the repression of local communities and movements.
Africa is a huge geographical space filled with abundant natural and human resources. Despite some serious challenges to the development of those resources in an equitable manner, it is time that skewed perceptions of the continent are eschewed in favour of a more realistic optimism.
In closing, even maps tend to distort the image of the continent. Kai Krause has created an insightful info-graphic illustrating both the distorting effect of modern maps and the prevalence of geographical illiteracy (what he calls ‘immappancy’). Click to enlarge the image below.