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Economics – Surprising results

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Europeans are so busy talking about their ‘global’ crisis that cannot realize how the present economic slump is a Western affair. Certainly Europe and the USA are the main engines of the World economy; and the present crisis is a case in point: its effects are felt everywhere else. Yet, Africa’s growth of the past years does not seem to falter. It might slow down, after all Europe remains the most important commercial partner, but it is also certain that the economic pulse of the continent has quickened. Real GDP rose by 4.9% a year from 2000 through 2008, more than twice its pace in the 1980s and ’90s. It is now a little lower, with the major markets – South Africa, Kenya, and Nigeria – still going strong. Telecommunications, banking, and retailing are flourishing. There is a construction boom, both in the private and public sectors. Technology is also showing innovation and, as in money transferring, African countries are leading the world. Poverty, disease, and high infant mortality have not been stamped out. Yet Africa’s collective GDP, estimated at Euro 1.6 trillion in 2012, has now overcome Brazil’s or Russia’s.

Soaring prices of commodities and raw materials helped lift GDP since 2000. At the same time, improved governance and internal structural changes that have spurred the broader domestic economy. Economic growth accelerated across the continent, in 27 of its 30 largest economies. African governments increasingly adopted policies to energize markets. They privatized state-owned enterprises, increased the openness of trade, lowered corporate taxes, strengthened regulatory and legal systems, and provided critical physical and social infrastructure. Although the policies of many governments have a long way to go, these important first steps enabled a private business sector to emerge.
Although Africa is more than itEco2s natural resources, it will profit from the rising demand of fuel and minerals. The continent is rich in oil (10% of world reserves), gas – with recent discoveries off the Kenyan coast – gold (40%) and the chromium and the platinum metal groups (90%). But it is the internal market that is driving the change. Urbanization creates poverty – see the exponential growth of slums – but also can create riches. By 2030, 50% of the population will live in urban areas, expanding considerably the labour force and the growth of the middle-class African consumer.
The swelling of ranks among consumers is the real good news. In 2000, roughly 59 million African households had Euro 3,000 or more in income. This is the normally accepted limit above which people start spending consistently on non-food items. By 2014, that number will reach 106 million. Africa already has more middle-class households than India. Rising consumption is creating more demand for local products, hence increasing domestic growth.
An empirical proof of this is the growing number of fast-food outlets and the increasing penetration of the market by theme restaurants. While a decade ago it was difficult to find local patrons in restaurants in Nairobi or Kampala, where expatriates were commonplace, today most of the clientele is formed by local people. All major urban areas in Eastern and Southern Africa sport shopping centres and food courts targeting the younger generations. The number of new cinemas in Eastern Africa is another signal that the middle class is expanding, and so are its demands.
Eco4In sub Saharan Africa, many countries do record exceptional growth, but their GDP is small to start with. These are transitional economies: countries where agriculture is still the backbone of the nation and where industrialization and technological revolutions are still to happen. A meaningful change in these countries (for instance, Burkina Faso, Mali, and Central African Republic, among others) will come with the integration of their markets. Larger markets allow for economy of scale, new connectivity means new infrastructures and lower transport costs, new communication skill – see the expanding mobile communication sectors – allow for better management of funds and investment.
Africa is poised to become a major player in the world’s economy. By 2040, it will be home to 20% of the planet’s young people, and the size of its labour force will top China’s. With 60% of the world’s uncultivated arable land and a large share of the natural resources, the continent often hit by famine could be the world’s food basket. The next great steps needed are the improvement of governance, the expansion of infrastructures and the training of entrepreneurs capable of making the transition to the future Africa. It is not by surprise that most governments are now asking local University to design new programs to train managers capable to lead small to medium companies, people who need initiative but also skills to face today’s markets. It is also not by surprise that many NGOs and civil society groups are working to empower the poorest to start small businesses and merge into the mainstream of national economies. Working together, private investors and local administrations will be able to face challenges and lift the living standards of their people.

Alec Bwel

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