Markets & Finance

Africa's Biggest Score: A Thriving Economy


In addition to the World Cup, Africa is home to some of the world's fastest-growing economies. Businessweek.com's Frank Aquila explains their ascent

Was Ghana's extended-time victory over the U.S. in the World Cup elimination round on June 26 a precursor of what is to come in the broader global economy? Almost unnoticed, signs of economic life have begun to stir in that most unlikely of places—Africa. Despite its riches in natural resources and geographic proximity to Europe, Africa has been a perennial laggard on the global economic scene. Mention the phrase "emerging economies," and most people rightly think of Asia and Latin America. Few look to Africa as an economy of the future. That view might be changing. As then U.N. Secretary General Kofi Annan declared in 1999, "Africa's profitability is one of the best-kept secrets in today's world economy." Wide Differences

To be clear, Africa faces many daunting political and economic challenges. Parts of the continent continue to struggle with an AIDS epidemic or sectarian strife. But in the same way that we easily distinguish between Germany and Greece when we think of the European market, we must also understand that Africa is a vast continent with numerous religious, ethnic, and cultural differences. Those differences often divide the continent and restrict economic cooperation, but some of those differences can also be the basis for dynamic economic development. A quick look at some statistics might be surprising. According to a report by consulting firm McKinsey, Africa had a compound annual economic growth rate of 4.9 percent from 2000 to 2008. While that's not as robust as the 8.3 percent pace in emerging Asia during the period, it actually exceeded the growth of both Latin America and Central and Eastern Europe. Even Sub-Saharan Africa, the poorest region of the poorest continent, had average GDP growth of 4.8 percent between 2004 and 2008. While the global economy shrank in 2008, the African economy still managed to grow another 2 percent, and growth rates this year are almost back to 5 percent. The Boston Consulting Group has coined the term "African Lions", to refer to Africa's strongest economies: Algeria, Botswana, Egypt, Libya, Mauritius, Morocco, South Africa, and Tunisia. What is most stunning about the African Lions is that their average per capita GDP of $10,000 actually exceeds the combined per capita GDP of the so-called BRIC nations—Brazil, Russia, India, and China—of $8,000. While averages such as these mask many anomalies, and certainly the African Lions are far behind the BRIC nations on almost all broad indices, the number is nevertheless startling and encouraging. One might guess that rising prices of commodities, particularly petroleum, account for much of the recent increase in African economic growth. While commodities are an important contributing factor, the McKinsey report indicates that their price increases account for only about a quarter of this decade's economic growth in Africa. India and China Take the Lead

While we in the U.S. and Western Europe might be surprised by the economic development in Africa, it probably comes as no surprise to business and political leaders in China and India, which are rapidly developing countries themselves. Looking for oil and other natural resources, both China and India took a keen interest in Africa as far back as the late 1980s. With 16 billion metric tons of proven oil reserves and 500 trillion cubic feet of gas reserves, Africa can be energy self-sufficient while it exports energy to fund further growth. Unburdened by a colonialist past in the region, China and India have found a warm welcome for their investments.

Not only did the Chinese government make direct financial investments in the region; it also provided educational, health, and cultural support, as well as military aid, to a number of governments. China's investments have indeed paid enviable returns; it has been estimated that Chinese trade with Africa could exceed US$100 billion this year. Indian corporations from a range of industries have also established significant operations throughout the continent. As the world seeks both natural resources and economic growth, the Chinese and Indians will certainly enjoy their early-mover status but will no doubt experience far greater competition from their rivals in Europe and the Americas. While foreign direct investment from China, India, and elsewhere are key factors in Africa's economic growth, local entrepreneurs can rightfully claim at least part of the credit for recent success. Vijay Mahajan, author of Africa Rising: How 900 Million Consumers Offer More Than You Think, sees emerging entrepreneurship as a crucial ingredient of African success. Mahajan believes the poor and emerging middle class in Africa are key drivers behind the economic expansion. These groups seek improved living conditions and a more comfortable life. This leads them to form small businesses as they begin to consume a whole range of products, from cosmetics to cell phones, that were out of their reach just a few years ago. Mahajan even points to the Nigerian film industry, often dubbed Nollywood, which produces more films annually than either the U.S. or India, as a sign of homegrown development. While these Nollywood productions are low budget films by any measure, it does point to a media business not often associated with the African continent. Key Political Stability

So how did Africa manage finally to move forward and begin to achieve significant rates of economic growth? While Darfur and other conflicts continue, the past decade has actually been a period of relative stability across most of the continent. Governments from north to south have improved, leaving politically unstable countries, such as Zimbabwe, as the exception rather than the rule. In speaking of the development model that has allowed their African Lions to achieve significant economic success, Boston Consulting Group points to a few key factors: "political stability, rule of law, property rights, access to capital, and public investment in education, health, and social services." To be sure, most Africans continue to live in poverty, and 60 percent still engage in agriculture as their primary source of income. There are and will be many challenges ahead, but along with those will come high rates of return and growth opportunities for those who choose to invest. As Nelson Mandela once noted, the "greatest glory in living lies not in falling, but in rising every time we fall." Africa has had its share of falls over the centuries, some imposed by colonial powers while others have been self-inflicted, but today we see a continent that does indeed rise after every fall. So when World Cup fans depart Cape Town after the final match and the buzzing sound of the vuvuzela mercifully fades from memory, it is likely that the people of Africa will continue their long march to further development and growth.


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