Saturday, May 25, 2024

Africa’s big chance

Africa remains remarkably resource-rich and its growing population presents opportunities to build markets on a vast scale.

In the first decade of the 21st century when commodity prices were booming, it was common to read about “Africa rising”. But increases in gross domestic product (GDP) and increased profits for oil and minerals producers did not bring much change for the vast majority of Africa’s citizens, nor did they deliver any major structural changes or useful infrastructure.

Africa remains remarkably resource-rich and its growing population presents opportunities to build markets on a vast scale. Meaningful initiatives at regional and continental level suggest that Africa is now better prepared to set itself on a path to development and prosperity.

The African Union (AU), development agencies and banks are pursuing policies and programmes designed to tackle the continent’s great problems, chief among them poverty, energy supply and infrastructure.

Despite the poor performance of the oil and mineral giants (Nigeria, Angola and South Africa), Sub-Saharan Africa is experiencing good growth rates. By 2021 five economies will exceed $100-billion GDP (Angola, Ethiopia, Kenya, Nigeria and South Africa) with a further four topping $50-billion (Democratic Republic of Congo, Ghana, Ivory Coast and Tanzania). Cameroon follows closely behind (IMF).

Africa’s growth rate in 2017 was 3.7%. Ethiopia’s GDP grew 7% for five years to 2018. Four of the fastest-growing economies in the world in 2019 were Ethiopia, Ghana, Ivory Coast and Rwanda (World Bank).

Nairobi, capital city of Kenya. (Image Source: iStock via African Business 2020)

Scoring well on the World Bank’s “Doing Business” list is so important that some countries are reported to have set up “war rooms” to tackle each category and so improve their ranking. In the 12 months to 1 May 2019, 73 reforms to make doing business easier were recorded in Sub-Saharan Africa. Reforms included measures related to getting electricity and construction permits and paying taxes.

Bad politics has often held Africa back and there are still areas on the continent where conflict or selfish elites block progress. There are insistent demands for change in Algeria and South Sudan, Somalia, Cameroon, Burkino Faso and other countries are experiencing armed conflicts.

However, the new Prime Minister of Ethiopia, Abiy Ahmed, was awarded the Nobel Peace Prize in 2019 for his efforts in his region and the newest chairperson of the AU, Cyril Ramaphosa of South Africa, is a good symbol of a clean broom, following as he did a discredited leader who is widely believed to have allowed extensive looting of the state. Two years earlier, two Southern African leaders who collectively were in power for 75 years were ousted: Angola’s Jose Eduardo dos Santos and Zimbabwe’s Robert Mugabe.

Challenges to opportunities

The size of Africa’s population (currently estimated at 1.2-billion) represents both opportunity and challenge. The continent by 2030 will increase the number of children in primary school from 189-million to 251-million and by 2050 Africa will record 42% of all global births (UNICEF).

The upside of this is that huge markets for goods will be created but housing, education and healthcare will have to expand. As things stand, about 120-million Africans are unemployed and about 40% of the population live below the poverty line ($1.25 daily).

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Urbanisation is already happening at a fast pace: this is again an opportunity and a challenge. The fact that Africa is arriving somewhat later in the digital age could be an advantage because there are opportunities to leapfrog technologies. This is happening in mobile banking, where mobile telephones are delivering financial services across the continent.

The AfricArena conference is one of several platforms where African startups and innovators display their wares. Held since 2017 in Cape Town, the conference has helped to cement ties between French tech companies and South African entrepreneurs. At the 2018 conference, 70 startups from 32 countries pitched to more than 600 conference attendees. A speaker noted that the continent has 442 tech hubs and thousands of digital entrepreneurs but there is a need for more Venture Capital (VC) funds. Jake Bright told the conference that there are 51 Africa-focused VC funds globally, 22 of which are locally run (Bizcommunity).

Another scramble

In March 2019, The Economist’s cover story was “The new scramble for Africa. And how Africans could win it.” After laying out the extent to which the familiar giants (US, EU and China) are investing in and finding partners in Africa, the newspaper noted that other nations such as Turkey, India and Russia are also showing interest. A McKinsey report is quoted stating that 10 000 Chinese companies now operate in Africa. In six years to 2016, 320 new embassies opened in Africa and Turkish Airlines now flies to 50 African destinations (The Economist).

The argument that Africans can win the “scramble” is based on individual African nations avoiding bilateral agreements with much more powerful foreign partners. The preferential trade agreement with the US, AGOA, is about to come to an end and the Trump administration does not like multilateral deals. China often offers soft loans or grants to sweeten deals to poor countries. As The Economist editorial says of this power imbalance, “It could be reduced somewhat with a free-trade area or if African regional blocs clubbed together. After all, the benefits of infrastructure projects spill across borders.”

As it happens, Africa has introduced a free trade agreement. In 2018 the African Continental Free Trade Area (AfCFTA) agreement was signed by 49 countries, making it one of the most comprehensive and potentially influential agreements ever signed on the continent. Since then, all but one country has signed the agreement.

Although no-one expects that the agreement will immediately lead to borderless trade with no tariffs, there is great symbolic importance in the signing. Problems remain with the movement of people and certificates of origin among other things, and the more likely trend will be for regional economic communities (RECs) and large countries within RECs to accelerate steps towards integration.

Large infrastructure projects such as rail and energy corridors that traverse the continent could be game-changers.

The African Continental Free Trade Area agreement (AfCFTA) will bring together all 55 member states of the African Union and cover a market of more than 1.2-billion people. (Image Source: iStock via African Business 2020)

Regional corridors are intended to boost intra-African trade. The North-South Corridor in the Southern African region runs through 26 countries and ends at the Port of Durban. Ten corridors are being developed across the continent to make the movement of goods easier and to improve access to ports.

Standard Bank has launched a product to assist African importers in evaluating and choosing Chinese suppliers. Faced with daunting variety, language and cultural differences, the prospect of having to pay cash upfront to unseen suppliers or limiting supply choices to a small group of previously used suppliers, African importers can use the Africa China Export Proposition (ACEP) to validate quality while having sight of the logistics process. Standard Bank is using its partnership with shareholder the Industrial and Commercial Bank of China (ICBC) to create the ACEP, which puts importers in touch with agents and is underpinned by a letter of credit. Standard Bank is Africa’s biggest bank and ICBC is the world’s biggest bank.

Another country showing increased interest in Africa is Japan. To understand the scale of the potential investment from Japan, it is worth noting that there are currently about 13 000 Japanese firms invested in China. In 2017 there were 800 Japanese companies in Africa, but the number is growing. In that year Japan imported African goods to the value of $8.3-billion. Foreign direct investment increased to $10-billion in 2016, from $3.9-billion in 2007.

The Tokyo International Conference on African Development (TICAD) is held annually. Various bodies are promoting ties with Africa, such as the Japan External Trade Organization (JETO) and the Japan Oil, Gas and Metals National Corporation (JOGMEC), which focusses on resources. The Japan International Cooperation Agency (JICA) supports infrastructure projects such as a $140-million bridge over the Nile River in Uganda.

Mount Kilimanjaro is a dormant volcano in Tanzania. (Image Source: iStock via African Business 2020)

Setting worthy goals

The African Union’s Agenda 2063 lays out ambitious goals for the continent. The flagship projects designed to achieve these goals cover infrastructure, education, freedom of trade and movement of people, arts, culture and technology.

The projects are:
  • Integrated high-speed train network
  • Formulation of an African commodities strategy
  • Establishment of the African continental free trade area (AfCFTA)
  • The African passport and free movement of people
  • Silencing the guns by 2020
  • Implementation of the Grand Inga Dam (hydropower) Project
  • Establishment of a single African air-transport market (SAATM)
  • Establishment of an annual African economic forum
  • Establishment of African financial institutions
  • The pan-African e-network
  • Africa outer space strategy
  • Cyber security
  • An African virtual and e-university
  • Great African museum
  • Encyclopaedia Africana

The African Development Bank Group comprises the African Development Bank (AfDB), the African Development Fund (ADF) and the Nigeria Trust Fund (NTF). The AfDB is a key funder of infrastructure projects and has set itself a set of goals known as the High Five: light up and power Africa; feed Africa; industrialise Africa; integrate Africa; and improve the quality of life for the people of Africa.

The bank’s “African Economic Outlook 2019” highlights energy and infrastructure as key areas for investment. If Africa is to prosper, infrastructure has to be improved and built. An agreement between China and the African Union Commission as part of Agenda 2063 aims to link all of Africa’s capital cities by air, rail and road. On the energy front, one of the bank’s projects, the Desert to Power Initiative in the Sahel region, will bring power to 250-million people who were previously unconnected.

Another key conclusion of the AEO 2019 is that Africa should increase agricultural production in order to establish or increase manufacturing capacity. This would in turn lead to industrialization.

To quote the report, “To avoid the informality trap and chronic unemployment, Africa needs to industrialize and add value to its abundant agricultural, mineral and other natural resources.”


Article by John Young
This article first appeared in the African Business 2020 Edition. Find more African business and investment insight here (e-book):


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