Age is not often associated with speed. But Africa, the world’s
oldest continent, now has more of the world’s fastest-growing
economies than any other. Over 2000-2009, 11 African countries grew at
an annual rate of 7% or more – a rate sufficient to double the economy
in 10 years. This is a big shift from the 1980s and 1990s, when just
three African countries achieved this level of growth. Of these 11
booming economies, nine were in Sub-Saharan Africa (SSA); six
benefited from higher energy prices, and five were not associated with
either energy or metal exports: China’s demand for global commodities
cannot be the only reason for this significant improvement. After a
generation of relative stagnation in the late 20th century, many in
Africa have now begun the long-awaited period of catch-up with the
developed world. The bottom billion is becoming the fastest billion.
Source: IMF World Economic Outlook, April 2011 Catch-up economic
theory suggests all countries will eventually make the leap from
subsistence farming to developed nation status, and that the later
countries make this transition, the quicker the growth when it finally
happens. The technologies to boost productivity get cheaper and easier
to import; Africa’s booming telecoms sector is just one example. The
global markets available to the poorest societies get ever larger: In
the 19th century, the UK had no countries to export to that were
richer on a per-capita GDP basis; today, Africa has richer export
markets to pick from – not just in North America and Europe, but also
across an increasing number of Asian countries. Delivering that export
growth is easier too, as telecoms opens up services as a route for
export growth. Meanwhile, the evidence that effective policymaking can
lead to growth becomes progressively harder to ignore – in recent
years, even North Korea and Cuba have made efforts to bring market
forces into their economic systems, but we find far more to be
inspired by in Rwanda and Mauritius. Just how fast can growth be? The
fact that 11 booming African nations have already achieved at least 7%
annual growth is yesterday’s story. What’s more important is that
three have grown at 10% pa, and we believe more can achieve or better
this. In our view, it would not take much for Nigeria to shift its 9%
growth rate into double digits by widening access to cheaper
electricity. We see scope for improved governance in Côte d’Ivoire, in
turn enabling it to emulate Sierra Leone’s 10% annual growth rate. The
positive examples provided by countries like Rwanda highlight the
success that others across Africa might copy. Higher investment rates
would go a long way towards broadening and accelerating growth across
Africa. This investment might flow from external sources – as it did
in South East Asia. Chinese lending to Africa is one example (see our
China in Africa report, dated 21 April 2011), as is US retail giant
Walmart’s investment in African retail. Foreign portfolio flows can
reduce borrowing costs for companies, and provide equity financing for
businesses to expand. We think such inflows look increasingly likely,
as demographics favour direct investment in Africa. Asia’s young
population is now declining – with East Asia’s dropping 27% this
decade – and only SSA is positioned to experience 15-20% growth in the
crucial 15-24 age range over the coming decades, which will provide
the plentiful labour force the world economy will rely on. Better
still, this workforce is far better educated than a generation or two
ago, after SSA saw nearly a tenfold rise in the gross secondary school
enrolment rate to 29% by 2005 from just 3% in 1960 (the latter was
surely a contributory factor to the weakness of the 1980s). These are
now around the levels of Mexico or Turkey in the 1970s which helped
pave the way to their strong growth performance in subsequent decades.
Africa’s workforce is now well educated enough to support the
take-off. Most positive would be a restoration of trust in the
domestic economic environment from locals themselves, and a
recognition that returns on investment in Africa can far outweigh
those now available in the West. This can already be seen in the
reinvestment of profits by African businesses. We estimate higher
investment could add 2 ppts to GDP growth rates (see pages 29 to 37),
and note that this would have increased the number of African
countries doubling their economies within a decade to 21 over
2000-2009. The challenge for investors will be in accessing the
multiple growth stories that could result from this (see page 38 for
our current stock (recommendations). Even a slight improvement in the
growth rate over the next two decades will produce some remarkable
results. If, instead of nominal dollar growth of 9% annually, we saw
10%, then Nigeria would become a $1trn economy by 2027. Sub-Saharan
Africa – excluding South Africa – alone would rise from $700bn
(similar to Indonesia) to $4.5trn by 2030, assuming 10% growth in
nominal dollar terms. These may well prove to be conservative
estimates. The creation of a virtuous circle of higher growth leading
to better governance – in turn attracting more investment and faster
growth – is under way. Democracies are becoming safer across the
continent. We would not be surprised to see Africa recording some of
the highest growth rates ever achieved in the coming decades.
Thanks and regards,Hlobsile Manana | Consultant | africapractice
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