A Look into Africa

A recent piece by Daniel Knowles in The Economist titled “Business in Africa: 1.2 Billion Opportunities” discusses how the commodity boom may be over but there are many opportunities. He explores whether Africa is a continent that is “rising at a prodigious pace and creating profitable new markets for multinational firms” or whether it is a continent “crumbling from 1960s and 1970s concrete modernism” buildings that should remind investors of earlier booms gone bust.Africa bigstock

Knowles acknowledges there are plenty of reasons for potential investors to worry.

  • “In Ghana, thousands of government workers have been marching in the streets in the past few months to protest against their rising cost of living. Ghana relies on oil and gold, both of which have fallen in price, as well as cocoa. Ghana is running a budget deficit of 9% of GDP and a current-account deficit of 13%.”
  • “According to the World Bank, in the year to April last year the terms of trade deteriorated in 36 out of 48 sub-Saharan African countries as the price of their commodity exports fell relative to the cost of their imports, mostly manufactured goods. Those 36 countries account for 80% of the continent’s population and 70% of its GDP.”
  • “Eight countries, including two giants, Angola and Nigeria, derive more than 90% of their export revenues from oil, which has recently plummeted far below the price needed to draw in new investors.”
  • “Growth across sub-Saharan Africa dropped to 3.7% in 2015, far below East Asia’s 6.4% and nowhere near enough to create enough jobs for the continent with the world’s youngest and fastest-growing population. The World Bank expects it to tick up again, but only to 4.8% in 2017.”

Yet, he also shares another optimistic side to the story:

  • “Wars still rage in South Sudan, Somalia, Mali and northern Nigeria, and violence bubbles in places like eastern Congo, the Central African Republic and Burundi. But broadly speaking, most of sub-Saharan Africa is now peaceful.”
  • “Elections seem increasingly less likely to result in strife, even if they still generally return incumbents, and more and more often for unconstitutional third terms. The governments that come to power are still often corrupt and inefficient, but far less brazenly so than those of cold war despots such as Mobutu Sese Seko of Congo or Jean-Bedel Bokassa of the Central African Republic.”
  • “Africa’s 1.2 billion people are young: south of the Sahara, their median age is below 25 everywhere except in South Africa. They are better educated than ever before: literacy rates among the young now exceed 70% everywhere other than in a band of desert countries across the Sahara. They are richer: in sub-Saharan Africa, the proportion of people living on less than $1.90 a day fell from 56% in 1990 to 35% in 2015, according to the World Bank.”
  • “Diseases that have ravaged life expectancy and productivity are being defeated–gradually for HIV and AIDS, but spectacularly for malaria. Some of the gains may seem modest, but given that living standards across Africa declined during the 30 years after independence they are sufficiently established to prove lasting.”
  • “For all that oil and metals have come to dominate economies such as Nigeria’s and Congo’s, the boom broadened beyond natural resources. Mobile telephones have transformed commerce across Africa.”

Of course, current turmoil in Chinese markets is also impacting Africa, leading to a decreased demand for commodities and de-valuating African currencies. The longer slow growth persists for the giant Chinese economy, the more necessary it will be for African governments to respond to ensure that China’s economic problems don’t do further harm to African countries.

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