Felicity Duncan

Felicity Duncan writes a weekly perspective on investment opportunities in Africa.

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Author:  Felicity Duncan|

24 February 2012 03:50

Unexpected reasons to feel positive about Africa

It’s really happening for the continent this time.

It’s easy to be pessimistic about everything these days, with the news headlines full of the crisis in Europe, the brutalities in Syria, unemployment in America, and the growing animosity between Iran and Israel. However, there are still some things that can serve as a source of optimism, and the economic potential of Africa is one of them.

Let’s take a look at some reasons to think that Africa could be a source of tremendous economic growth and wealth creation over the next few years. Some of these may seem strange, but taken together, they add up to a story of major economic potential.

1.      Reasonably good fiscal positions

Unlike many developed countries, African nations are actually generally going OK on the fiscal front. According to data from the IMF, the average ratio of public debt to GDP in Sub-Saharan Africa is around 42%, much better than the 80% debt-to-GDP burden facing the European Union, or the almost 95% debt-to-GDP burden facing the USA (see table below for details).

In addition, fiscal management in many African nations has improved dramatically over the last few decades. Thanks to stern interventions from funders like the International Monetary Fund (IMF), most African countries have become more disciplined about their spending, and much more careful about maintaining a balance between debt and revenue. All in all, most African economies are entering the 21st century in a solid fiscal position, forming a marked contrast to the nations of the rich world.

2.      Less reliance on social safety nets

This may sound a little odd, but Africa is, in a sense, fortunate that it has not yet developed the kinds of comprehensive social safety nets you see in Europe and Japan. The rich world is currently wrestling with how to manage the ballooning costs of their pension and healthcare plans; in Africa, such plans have not yet been implemented. Admittedly, this means that life is a precarious business for many Africans. However, it also means that African governments face little in the way of social spending costs (South Africa is a prominent exception to this), and that as African nations grow wealthier and start to develop safety nets, they can learn from mistakes elsewhere, and when designing their programmes, ensure that they are sustainable and sensible.

3.       Many African economies have grown dramatically over the last two decades, and diversified

A large number of African countries have grown very rapidly over recent years – indeed, Angola was the fastest-growing economy in the world between 2001 and 2011 (thanks to its oil boom). Overall, African countries have grown at an average of close to 5% a year since the 1990s, according to IMF data. This growth, while coming off a low base, represents the fruit of a number of reform efforts and has been sustained even in the face of the global recession. The IMF predicts that growth in Sub-Saharan Africa will stay reasonably strong over the next few years; the organization predicts an average of 5.5% GDP growth in the region this year, and 5.3% next. This is solid, sustainable, and attractive growth, and means that there are plenty of economic opportunities in the continent.

What’s more, the growth in African economies over the last few years has come from multiple sectors, including consumer goods like mobile telephony and clothing, and not just from resources. In other words, African economies are becoming more multi-dimensional, and are no longer just simple commodity plays.

4.      Demographic advantages

As we’ve discussed before, Africa has the potential to reap enormous economic benefits from its demographic profile. With its large youth population, Africa is unique in a world in which most populations are aging rapidly (including the population of China). With good policies, African nations can turn this youth boom into an economic bonanza.

There are a lot of reasons to feel optimistic about Africa’s economic future, although it often seems as if Africans themselves are reluctant to see them. However, if you still have your doubts, consider the activities of China in Africa; for the last fifteen years, China has been investing heavily in the continent, buying mineral rights, farmland, and even building manufacturing plants. Africa has the potential to be the growth story of the new century, and South Africa has the chance to benefit from this growth. Let’s hope that the country doesn’t let the opportunity slip away.


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