The news about Barclays pulling out of Africa has sparked some anxiety about African markets. SA companies, Clover and fashion retailer Truworths, also recently announced that they will no longer be investing in Nigeria which has increased the uncertainty about Africa being the ‘new economic frontier’. What is then the future for Africa and will the ‘Africa rising’ narrative prevail?
What about Africa?
In the current uncertain economic times much has been said about the commodity super cycle coming to an end and how some of Africa’s oil-producing and metal-rich giants are facing a difficult time ahead. Countries relying on export of commodities and especially oil have been adversely affected by the low oil price and the drop-off in the demand from China of virtually every commodity. Countries such as Nigeria, Angola, Ghana , Zambia and South Africa are seeing a dramatic slowdown in economic growth. According to Amadou Sy, the director and senior fellow at the Brookings Institution’s Africa Growth Initiative, African countries will need to achieve “quality economic growth” and rely more on “engines of growth such as agriculture and manufacturing, than exports of oil and other commodities”.
Deindustrialisation is also hitting Africa hard. According to The Economist (7 November 2015) this is caused mainly due to the following:
- Weak infrastructure drives up the costs of producing and transporting things.
- Africa’s rich natural resources brought about the “Dutch disease” where increased exports of oil and other natural resources tend to drive exchange rates up making it cheaper to import goods and harder to produce and export locally.
- Africa’s geography is problematic. Manufacturing is moving from China to neighbouring countries such as Bangladesh and Vietnam instead of ‘distant’ Africa.
Nonetheless there are some African countries breaking the mould. Ethiopia’s manufacturing industry has seen an average growth of over 10% a year from 2006–2014. Tanzania and Rwanda are another two countries following suit. Again it is imperative that African countries need to shift workers into more productive industries if they want to grow fast. Infrastructure and incentives for manufacturing firms need to be set up to harness the wealth of human capital available in Africa.
Fortunately the continent’s growth is not only commodity driven, and opportunity lies in the continent’s diversity and human capital. In fact, it is human capital that makes the difference. Brian Keeley from the OECD indicates that “Economic success crucially relies on Human Capital – the knowledge, skills, competencies and attributes that allow people to contribute to their personal and social well-being, as well as that of their countries”. Raising human capital does not only refer to education and training, but also to the improvement of health levels, community involvement and employment prospects. Focusing on the consistent development and upgrading of human capital at a national level should be a priority.
Even though the news of international companies pulling out of Africa (Barclays for instance) creates some concern, Africa is still a land of opportunity. The Economist in their The World in 2016 edition, stated that the ‘Africa rising’ narrative still prevails. Although the growth rate is slowing because of the commodity cycle coming to an end, African economies will still outperform most of the rest of the world and investors will still “keenly sniff around”.
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