A few decades ago the mention of the word ‘Africa’, the so-called ‘dark continent’, evoked images of dire poverty, malnourished children, and endless civil wars. As Africa emerged from colonial rule in the mid-19th century, the continent as a whole witnessed a natural struggle against corruption, instability, despots, and authoritarian rule for almost the three decades leading to the millennium.
During this time the international community largely viewed Africa as a place where it sent aid.
But the 21st century has brought great cheer to Africa. So much so that the same countries that sent money to Africa for aid are now sending money to Africa for investment. Today Africa is no longer just a recipient of aid but is also a land of opportunities. To be sure, things changed for the better in Africa starting from the mid-1990’s but what is more astounding today is the sheer pace of Africa’s growth. Furthermore, economic growth in Africa, which in the past was largely driven by commodities, is more broad-based. No more is Africa tethered to the fickle price of oil and agricultural commodities.
Today, a host of structural factors is laying the foundation for a sustained growth trajectory in the world’s second most populous continent. First of all, Africans across the continent have become less tolerant of despots and autocrats and are demanding more accountability from their leaders. For instance, according to the Economist Intelligence Unit, beginning in the 1990’s, more than 30 ruling parties or leaders were voted out in countries across Africa. That is an astounding fact considering only one of 53 African nations ever conducted a peaceful election in the period between 1960 and 1990.
Secondly, demography is firmly on the side of Africa. Africa’s young population and middle class is fueling an unprecedented consumption-based growth. Africa is the only continent in the world whose population is projected to double to 2 billion from the current 1 billion by the year 2045. And a significant part of the population is expected to join the ranks of the middle class, which already numbers 326 million according to the African Development Bank. Furthermore, the middle class of Africa is not just concentrated in the familiar territories of South Africa, Morocco, and Egypt but also in countries such as Kenya, Ghana, and Nigeria. In fact, investment bank J.P. Morgan upgraded Nigeria to the status of an emerging market.
Moreover, African nations are joining hands to make common ground. Small African nations, which are not large enough to be standalone markets for big corporations and projects, are increasingly integrating their economies to be big enough to attract investments. African nations have also combined these steps with prudent fiscal and monetary policies in the recent past. Nearly 30 African countries instituted reforms and emerged out of debt to tune of $72 billion in the 2000’s. And average inflation in Africa fell from 22% in the 1990’s to 8% in the 2000’s. Needless to say, the 2000’s in Africa were characterized by rising capital flows, declining unemployment, soaring fixed-asset investment, and improving investor and customer sentiment.
All these factors helped fuel a healthy mix of both an investment-led and consumption-led growth on the continent. Some of Africa’s fast-paced expansion is already visible. In the decade between 2001 and 2010, six of the ten fastest growing economies in the world were from Africa. Ghana, with a growth rate of 14.4% in 2011, was the world’s fastest growing economy for that year.
Not surprisingly, showcasing such growth prospects, Africa is attracting all kinds of investors. Private equity firms, state-owned enterprises, consumer durable firms, and staples firms are all lining up billions of dollars to invest in and benefit from Africa’s growth. Foreign direct investment, which rocketed from $9 billion in 2000 to $55 billion in 2010, is projected to follow a similar trajectory.
Africa is also playing the field with major investors to get the best of terms. China, by far the largest trading partner of Africa, has signed bilateral trade treaties with some 30 African countries. The U.S., not to be left behind, has signed six bilateral treaties. The nation has initiated an African growth initiative in an attempt to create export-oriented jobs in the U.S. domestic market by selling things to increasingly wealth Africans. Other companies from India, Brazil and even the crisis-prone European Union economies are looking to increase sales in Africa to make up for slowing growth at home.
These days, even the sceptics who had been disappointed by Africa’s false economic dawn in the earlier decades, are more optimistic about the continent’s prospects. The IMF predicts that Africa’s growth in 2013 will touch 5.7%, a growth rate that will be envied by many developed economies. To be sure, Africa’s growth is measured from a lower base – it is far easier to grow when you are small than when you are big.
Nonetheless, no serious investor these days relegates the mention of “Africa” merely to images of destitution, despite the continent’s numerous problems ranging from corruption to political instability.
Africa is racing ahead and so are investors who want a piece of the pie in the African growth story.
Postcards from Around the World
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