JOHANNESBURG, SOUTH AFRICA
THERE’s little doubt that Africa is making great strides in its development, with six of the world’s top 10 fastest growing economies in Africa. While Europe’s population is expected to decline over the next 40 years, that of Africa will nearly double by 2050. By 2030 one in five people will be African.
The enormous load this will place on Africa’s natural resources alone makes it imperative that we address historic problems that hamstring our development, not least of which are a lack of infrastructure and corruption.
The biggest obstacle to the desperately needed economic growth is the lack of proper infrastructure. Developed road, ports, electricity supply and, latterly, broadband would allow faster economic growth. Solid infrastructure also encourages foreign direct investment to further boost economic growth.
A lack of infrastructure and corruption are not unrelated either. According to 2017 The Corruption Perceptions Index by Transparency International, Africa is the most corrupt region in the world. This corruption can be found both in the private and public sectors. Where corruption is rife, infrastructure financing is very limited as financial resources are being looted.
Growth is further hamstrung by stringent business regulations that make it difficult to start a business on the African continent. As elsewhere in the world, Africa’s prosperity hinges on business growth. Business growth hinges on governments that promote and protect private property rights, and commit to deregulation to encourage economic growth and capital formation.
That said, the combined economic and population growth could lay the foundation for a very productive economy and already some interesting trends are coming to the fore and setting the tone for the next decades.
Trend 1: The future is mobile
In the past 10 years, Africa has adopted mobile technology at a staggering rate. Fundamental to this rapid technological adoption has been mobile banking and in countries like Kenya, Ghana and Nigeria that are leading the front, it has completely altered the culture of transactional banking.
According to GSMA that represents the interests of mobile operators worldwide, Africa has about 420 million unique mobile subscribers with a 43% penetration rate. Within the next two years, this number is expected to hit over half a billion, making Africa the fastest-growing mobile market in the world.
With it comes opportunities in mobile service businesses, and companies like Safaricom in Kenya have already taken advantage of this by introducing the now ubiquitous M-Pesa in the country, making it easy to transfer money via cellphones in a country where many communities don’t have access to banks.
In Africa as a whole, there were 122 million active mobile money accounts at the end of 2017 with users transacting $20 billion per month (63% of the value of all mobile money transactions in the world).
The opportunities for mobile in healthcare, education and e-commerce are equally huge but its application may be hampered by security concerns and unreliable internet connections, but that in itself presents opportunities.
Trend 2: Business is booming, but not at an equal rate
West, East and Southern Africa will be crucial to economic development on the continent in the next 10 to 20 years. Central Africa lags behind, however, and will have to do much more to catch up.
Countries like Sudan, South Sudan, Central African Republic (CAR), are mired in civil conflicts; it remains very risky to invest there. Congo DR, though rich with natural resources, still lacks governance. Many aspects count for a country to be a credible investment destination. Political stability and effective governance are very crucial because investors need to be certain that they will get their money back. In the East, Kenya and Rwanda are the countries to track closely. Kenya, the region’s biggest economy – and well-known for its growing technological innovation – was recently slated by the World Bank to grow by 5.7% in 2019and 5.9% in 2020.
There is a caveat, though. Public officials will have to continue with economic reforms, which include reducing the fiscal deficit and amending interest rate controls.
Rwanda, under President Paul Kagame’s rule since 2000, is determined to maximise on attracting foreign direct investment and become one of Africa’s most business-friendly destinations. As a result, the country is experiencing rapid economic growth and its economy is expected to develop at a rate of 7.8% this year on the back of real GDP growth averaging around 15% between 2001 and 2015.
In West Africa, Ghana continues to do well on economic growth, attaining 6.3% in 2018. Ghana ranks amongst the fastest-growing countries in Africa, and its president, Nana Akufo-Add, who came to office in January 2017, has repeatedly said that private sector development is key to his development plan.
A politically stable destination, and one that acknowledges the importance of the private sector to the economy, Ghana will likely maintain its rapid growth over the next 10 years.
It is Nigeria that has been a disappointment under Muhammadu Buhari. The country’s growth numbers have tumbled under Buhari. The country’s annual economic growth hovered around 8% a few years ago – that number is now around 2%.
Nigeria, Africa’s largest economy, still faces security challenges in relation to Boko Haram and herder-farmer conflict. At this point, it seems Buhari is failing to surmount this security challenge.
Boko Haram’s terrorist activities are in the north, the south and the centre of the country, with its busy big cities like Lagos, Abuja and Ibadan remain safe and will continue to drive the country’s economic growth. Being Africa’s most populous country, Nigeria’s potential high levels of productivity over the next ten years should not be underestimated. It’s upon Buhari’s government to pursue correct, pro-growth policies that will bring back faster economic growth.
In Southern Africa, the continent’s most advanced and developed economy – South Africa – has shown disappointing growth figures during the past 10 years but it remains one of the best investment destinations among developing countries. In the past nine years under Jacob Zuma, South Africa’s economy suffered a contraction and unemployment rose from 21% to 27%, according to Statistics South Africa. Government debt also rose from 31% of 51% of GDP. Economic growth hovered around 1%.
However, because of strong institutions, South Africa’s economy and governance remained relatively trusted amongst African countries.
The new President, Cyril Ramaphosa, is admired by business and investors. And is already embarking on a strong fight against corruption.
The strong institutions and the sophistication and the diversity of the economy will continue to make South Africa a safe investment destination compared to other African countries.
Trend 3: Women’s impact is rising
Historically, women have been marginalised in Africa and denied opportunities to contribute productively. Considering that World Bank figures show that women make up half of the people on the continent, the size of the economy that hasn’t been realised due to gender exclusion in all likelihood is substantial.
But it appears as if things are changing. According to World Economic Forum, women now hold close to a third of parliamentary seats in 11 African countries. That’s more than in Europe.
The number of female entrepreneurs in Africa is growing too and women now own about a third of all businesses.
Serious gaps persist, however. According to Raira Reines of the Africa Internship Academy “the current constraints women face, from the private sphere of the household to the public sphere of politics, are a major detriment to the continent’s economic development and inclusive growth process, and women’s empowerment in this sense goes far beyond income generation”.
These constraints have to be removed and young women have to be given equal access to a good education. Cultural practices that treat women as second-class citizens also have to be addressed by traditional as well as political leaders.
The speed with which women are able to rise to positions of power will have a huge impact on Africa’s economic growth.
Trend 4: Agenda 2063 is a good idea
Achieving the goals set out by the 55 member states African Union (AU) in its Agenda 2063 will be paramount to Africa’s progress. First on the Agenda adopted in 2015 is creating a prosperous Africa based on inclusive growth and sustainable development, and highlights Africa’s determination ‘to eradicate poverty in one generation and build shared prosperity through social and economic transformation of the continent’.
What will make the difference, though, won’t be Agenda 2063 as an idea – it will be the execution of it.
Achieving the desired growth and development in the given time frame (50 years) depends on the degree to which the other six aspirations on the agenda are met. They are, in broad strokes, creating an integrated, politically united continent; good governance, democracy and justice; a peaceful and secure Africa; a strong cultural identity, values and ethics; development that is people-driven and which includes women and children; and creating a strong, resilient and united global player and partner.
Unlike previous similar undertakings, Agenda 2063 consulted the people of Africa, has clearly defined goals and brings together all regional initiatives under one plan. As promising as it sounds, this will require significant and sometimes unpopular reforms. It will also require the right political and economic decisions that are pro-growth and pro-business.
To that end, countries such as Rwanda, Kenya, Botswana, Tanzania, Mauritius, Ghana are reducing the stringent business regulations hampering growth, but there remains a burden of regulatory measures that make it difficult to start a business on the African continent. These regulatory measures must be removed to allow for rapid business growth.
Trend 5: Property and business rights are improving
Africa has been, for decades, been known for its chaotic politics and leaders who cling to power at the expense of civil liberties and often accompanied by hostility to business.
This hostility persists. African countries still rank way at the bottom of The Heritage Foundation’s Index of Economic Freedom. Niger, Sudan, Chad, CAR, Angola, Mozambique, Djibouti, Algeria, Zimbabwe, Equatorial Guinea, Eritrea and the Republic of Congo all are in the Repressed category.
South Africa sits at 102 in The Heritage Foundation’s Index of Economic Freedom; while Nigeria is at 111. This is not good for Africa’s largest economies.
What will hurt, and hurts, South Africa are ludicrous policies such as the proposed expropriation of land without compensation and National Health Insurance. Land expropriation without compensation is a threat to private property – and already negatively affects investor sentiment.
NHI will be disastrous – in a country mired in economic stagnation and corruption. South Africa’s debt continues to rise – now more than 50% as a percentage of GDP. The failure of state-owned companies such as Eskom is proof that the African National Congress’ government will fail dismally on nationalized healthcare.
The worst part is that NHI will place huge limitations on private healthcare – which will be a set-back for South Africa.
The overall impression, though, is promising and right now, the continent is on the right track, though very slowly. Only the political will to implement significant reform will speed up human development. PM
© PHUMLANI M. MAJOZI