Standard & Poor's Sovereign Bond Credit Ratings
(BB+or lower = junk bonds/speculative grade)
There’s been a lot of talk these past few months
about Africa Rising, for whom and what for. But it’s kind of difficult for the
average person to look beyond the sentiment and “promising statistics” to put
that in some sort of perspective.
To my mind, we need to be thinking about Africa’s
prospects in far more pragmatic terms. If you consider that Apple had bigger
cash reserves than the United States Federal Reserve in 2011, and that many
Fortune 500 firms are bigger than entire countries and enjoy better rates of
growth, it becomes apparent that the scale and nature of the issues within the
global economy should be situated in an entirely different rubric – with the
caveat that GDP is a rather poor measure of economic growth.
If Walmart were a country, its GDP (US$443.9bn)
would be greater than that of South Africa’s ($422bn). Visa would be bigger
than Zimbabwe, Wells Fargo dwarfs Angola, and eBay, Amazon, Costco, Proctor
& Gamble would swamp Madagascar, Kenya, Sudan and Libya respectively.
And if Africa were indeed a country, as Sean Jacobs
would have it, its GDP (US$1.184 trillion) would be only around a fifteenth of
the United States’ ($15.776 trillion). That’s a whole continent – the world’s
second largest – and a continent where around 15 percent of the world’s
population share 1.5 percent of the planet’s total gross domestic product of
$78.95 trillion.
This is less astounding if it is considered that the
top 10 poorest countries in the world are all in Africa, and moreover, if we
consider the continuing dependency of the continent on development finance, its
most important shareholders are its foreign investors and aid donors. Hopefully
Chinese demand and the increasing role of the African Development Bank will
change this.
Therefore while Africa is rising, in reality, we’re
talking about a fractional component of the global economy, and for growth to
be meaningful for Africans, development and infrastructure spend needs to be
extremely aggressive, an added difficulty with very few investment grade-rated
sovereign bonds and economic aid expected to slow.
Inequality as measured by Gini co-efficients doesn’t
tell a good story across the continent either – the pressing question for
Africans is how to prevent this from becoming durable inequality? South Africa,
its largest economy, not only contributes almost half of the continent’s GDP,
but the rest of the continent has a long way to go to catch up with it.
The point of the ‘Africa Rising’ narrative of
course, is that there is a lot of opportunity in Africa because it’s starting
from a low base. But if you put these statistics into context, growth rates
need to be at least more than 10 percent consistently for another 10 to 20
years to have meaningful impact on human development and pull people out of
poverty.
Poverty is declining in absolute terms, but not at
the critically required levels. With the exception of a few countries such as
Sierra Leone, Nigeria, Rwanda and Ethiopia, the required growth rates do not
seem likely. Average growth prospects for Sub-Saharan African economies are
estimated at around 5 percent for 2012 (and forecasted to increase to 5.7
percent for 2013, but drop to 5.5 percent for 2014).
So Africa has certainly grown, but it has not grown
much ahead of the global GDP growth average of 3.3 percent for 2012, and pales
in comparison to China or Walmart’s 6 percent, for that matter. Hopefully, for
the African countries that are making economic strides, the growth will prove
sustainable, but a big part of the Africa Rising story has been hot money
seeking new sources of alpha and arbitrage as alternatives to a declining
Eurozone, and then this has only been in a few countries where there has been
investor interest and liquidity.
African countries are on the whole not ranked highly
by the World Economic Forum for their competitiveness. Financial sector depth,
particularly with regard to banking, and bringing other financial services to
the poor and SMEs also remain challenges. Moreover, there are 29, mostly small,
stock exchanges in Africa, and only the Johannesburg stock exchange is a member
of the World Federation of Exchanges.
Africa is certainly rising, irrespective of who
needs it to, but, it still has a very long way to go. Economic data quality is
improving but still insufficient, there is still poor or no economic data for
large swathes of the continent. Capital market regulation and transparency,
while improving, remain enormous challenges for the continent.
The BIG question is whether the second scramble for
Africa can contain capital flight and see corporate social responsibility
distribute profits back to the communities in which companies operate?
The mining and resources scramble currently taking
place also won’t have the best outcome for the environment, people and
long-term sustainability.
These industries are the heaviest polluters and
exploiters of human capital. Green and fair trade economies would be preferable
alternatives for Africans. Excessive financial sector development should also
be approached with caution.
Africa has so far been somewhat insulated from the
financial crisis and its scifi toxic assets due to it relative disembdedness
from the global financial system, but as I previously wrote here, the knock on
effects from a protracted recession for the cash-strapped developed economies
will be felt soon enough.
Further, finance-heavy economies in developed
economies have shown the results of continuing to socialise losses at the
expense of privatising the gains. The outcome of austerity and the financial
crisis will show how sustainable African growth really is. African domestic markets
need to become a source of growth and development when its trading partners and
donors are forced to stem recent exuberant speculative capital flows.
With food insecurity, continuing political
instability in the Sahel and MENA, its largest economy South Africa in a spot
of bother at the moment as I write here today, the challenge will be steep. How
can Africa balance the virtuous cycle of growth and development to rise onwards
and upwards to be bigger and faster than the largest companies on earth, but also
as prosperous and happy as the Northern European social democracies? More
importantly, do its governments have the political will to make Africa Rising a
reality?
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