Many would argue that Africa’s success story is over-hyped given that it is virtually impossible to delink the continent’s economic boom cycles from commodity boom cycles. According to the African Development Bank, the continent has witnessed economic growth that has oscillated around 4.5% year on year post-2005 to 2013.
The continent exhibited remarkable resilience during the global economic crisis that peaked in 2008 due minimal linkages to the crust of the credit crunch. However, this growth has largely been fueled by high global oil prices, hence countries like Angola and Nigeria were at the forefront of driving this growth. The recent slump in global commodity prices reversed this trend post-2014, with Africa economic growth slowing down significantly. There are some bright spots: for example, the East African economies which have continued to ride the growth wave albeit on lower bases as their economies are more diversified and are government expenditure and investment-driven as opposed to export driven.
This gives more credence to the argument that commodity-dependent nations need to diversify their economies in order to insulate themselves from the volatility of global commodity prices. The argument is given more weight given that the long-term global demand for oil consumption is expected to taper down as the world shifts to greener modes of energy generation and consumption. The question is then asked – what next for Africa? The only available options for the continent to sustain its growth trajectory will be two-fold: Africa will have to consume its way to growth or innovate its way to growth.
A Burgeoning Middle Class Will Drive Consumption
Consumption-led growth will have to be driven by increasing the purchasing power of the citizens, and this can only happen if the middle classes grow. The Economist Intelligence Unit expects Africa’s middle class to double by 2050, primarily driven by a better educated and tech-savvy youth population that has started exhibiting sophisticated Western consumption habits. Africa’s fashion industry has started leading the way in terms of innovative designs that are produced and consumed in Africa – in essence, boosting intra-African trade and creating jobs in the textile industry.
On the media and entertainment side, demand for and growing popularity of African content have created a culture that is underpinning the revolution of the music and movies industries in the continent, with significant impact across many value chains. These are just two examples that illustrate the shifts taking root, which can also expected to underpin the growth of the African middle class.
These shifts will go a long way in further deepening the diversification of the African economy, as well as insulating the continent further from global shocks. The integration agenda through the strengthening of the regional economy will also entrench and increase the size of the consumer market while eliminating trade barriers and acting as a spur for more investments into the continent.
Infrastructure to Spur Innovation
Africa still lags the rest of the world in terms of infrastructure development. There is scope for African countries to scale up their infrastructure expenditure given the fact that a large chunk of African countries’ debt-to-GDP ratios is still below the 40% threshold (largely considered as the sustainable threshold).
There is the opportunity to ramp up debt to finance infrastructure projects. Investing in critical infrastructure like roads, airports, sea ports and railway lines to link major trading hubs is critical as without these the cost of doing business in the continent escalates and acts as a disincentive for inbound foreign investment.
World class communication infrastructure, including more modern telecommunication networks like 3G and 4G, is also critical towards building a vibrant ICT base will aid the continent innovate its way to growth. One only needs to look at the impact successful innovations out of Africa like M-Pesa have had in order to picture the boundless upside that exists if these initiatives receive the critical attention ans support they deserve.
Investment in sufficient and sustainable power generation projects is also a critical component that will go a long way in encouraging manufacturing in the continent by lowering costs of production in the continent and boosting the case for more value addition activities in the continent. In this regard, emphasis should be placed on more greener forms of energy generation with the Grand Inga project in DRC, Morocco solar harnessing in Ouarzazate and wind power harnessing in Lake Turkana (Kenya) – all worth mentioning. Agriculture is still key and these investments will go a long way in boosting agricultural productivity which is the surest bet to lift a large chunk of the populace out of poverty.
Infrastructure spending might be considered a risky bet by some but one cannot discount the fact that it is a critical enabler in driving economic growth and boosting innovation and investments. This is also critical in boosting Africa’s case for attracting and retaining world class talent that is necessary to attain these future ambitions.
Other critical elements required to sustain the economic growth momentum include structural reforms that would boost service delivery and ease of conducting business, tough stance and measures on eradicating corruption which has been a cancer on the continent that needs to be dealt with.
A significant chunk of money earned through corruption sits in global financial hubs and tax havens, policy measures and appropriate negotiation tactics need to be put in place to ensure that these funds are repatriated back into the continent to assist in driving the growth agenda. Just to highlight the significance of this matter – a joke has been doing rounds in economic circles that Africa’a national income model needs to be amended to incorporate a corruption multiplier!