Share

Testing times for Africa

MUCH has been said about Africa’s impressive growth over the last decade. A favourable turnaround in democratic accountability, better social policy outcomes (education and health) and a streamlined business and entrepreneurial environment have all contributed to the era of “Arise Africa”.   

An optimistic view largely prevails. Retailers are eyeing remarkable rates of return in hitherto untapped consumer markets. Nowhere else does the 80% of unbanked Africans offer the financial services sector the chance to grow at over 15% for the coming year alone. There are already some 600 million mobile phone subscribers eagerly consuming information and utilising application-based services. They are increasingly ready to participate in an expected 40% increase in e-commerce over the next decade.                       

And, while foreign investors seek opportunities to invest, it’s importantly the domestic African investor who is increasingly happy to look at intra-African opportunities – a major vote of confidence rather than the historic clamouring to invest overseas. Cross-border mergers and acquisitions increased by 41% to an impressive $5.4bn in 2014 highlighting this trend. 

So it all looks pretty good. Or does it? The tailwinds have been blowing in the continent’s favour for some time, but there are some signs of headwinds that will require deft management, foresight and political risk in order to navigate towards a more secure growth path. 

Firstly, the volatility of the commodity super-cycle and latterly the oil price has the potential to send shockwaves through particular countries and industries. Rather than affect the continent as a whole, it may be specific industries, jurisdictions, cities, regions or even countries that bear the brunt of this. 

Oil exports account for almost half of the gross domestic product for Angola, Gabon and the Republic of the Congo, and a massive 80% for Equatorial Guinea. Similarly, in Angola, Republic of the Congo and Equatorial Guinea oil accounts for 75% of government revenues. Africa’s top oil producer, Nigeria, derives 95% of export earnings and 70% of total government revenue from the oil and gas sector.  

These African nations are going to be forced to cut their costs according to their cloth. This means adjusting downwards – and substantially so – their budgets which now have to take into account severe revenue reversals. 

Middle class vulnerability

Two issues stand out. Firstly, the last decade has seen a move of perhaps hundreds of millions of people into new nascent middle-classes at the margins of this income category.

Rising expectations can quickly be dampened by government cut-backs, not only frustrating the aspirations of this group (often put at around 300 million across the continent) but also seriously denting the critical need for sustained infrastructure and power projects so essential for the expansion of national economies. A more vulnerable middle class potentially makes for more vulnerable political risk. 

Naturally, marginal exploration along Africa’s coast and resultant transportation corridors may also face an uncertain future. 

Ironically, one country’s problems can be another’s gain. Dampening growth expectations in Nigeria can cause a shift of attention to those oil-importing nations who will derive a benefit from lower oil prices. Nigeria’s stock market has fallen more than 20% since oil prices have plummeted but Tanzania, Uganda and Kenya have all seen impressive gains. A geographic shift in business interest might be a byproduct of the oil decline. 

Although debt levels across the continent have been commendably stable, some countries that have borrowed more heavily on world markets have seen debt-to-GDP rations climb rapidly. In itself, this may well be manageable, but servicing this debt may become more problematic as lower commodity prices put pressure on domestic currencies. 

This certainly applies to countries like Angola and Nigeria but even non-commodity players can be hit by the vagaries of currency depreciation – witness Ghana in the last 12 months. A resurgent US economy, which promotes a stronger US dollar, exacerbates this problem. 

A third factor that threatens the African success story is the performance of the Chinese economy. Ironically, Africa’s sustained spurt of growth in recent times was hardly affected by the credit crunch of late 2008. Africa shrugged off Western economic woes at a time when Chinese growth-induced foreign direct investment was providing the impetus for the re-awakening of the continent. 

But now China itself seems that bit more vulnerable. GDP growth at 7.4% in 2014 represented the slowest growth level in 24 years. Sluggish manufacturing data and a troubled real estate sector are indicative of slower economic activity and potentially a more selective role on the African continent. 

The Chinese may well reduce exposure to problematic markets like Zambia but raise exposure (and investment) in Jacob Zuma’s more welcoming South Africa. An increasingly protectionist Africa is less likely to afford the Chinese the virtually unfettered access Beijing has enjoyed to the continent over the last decade. 

Policing terror now a real challenge

Sentiment drivers will remain a cause for concern. Ebola and terrorism continue to be regional factors that impact upon the broader continent. Nigeria’s coming election will be critical in setting the stage for either the use of political will to curb Boko Haram or the continuation of the use of terrorism for narrow political ends. Clearly, the ability of the continent to collectively police terror is now a priority strategic and security challenge for the African Union. 

Meanwhile, Ebola looks as though it has been contained, but not without a predictable generalisation from many in the West that labels the entire continent a health risk. 

The ascent to the position of African Union chair by President Robert Mugabe runs the risk of once again painting the larger continent with the brush of dictatorship and corruption. 

Finally, two big medium- to longer-term issues remain unresolved. Massive urbanisation continues unabated. Africa’s cities require massive infrastructure attention to offset decades of decay and future strain. This is perhaps one of the core human challenges of our time – to accommodate a 40 million Lagos or 30 million Kinshasa by 2050. Simply put, two out of three Africans will be living in urban areas by 2050. 

Climate change affects the African continent to a much greater degree than anywhere else on the planet. Already 14 African countries are subject to water stress or scarcity, and 11 more nations will join them in the next 25 years. Together with urbanisation, issues surrounding housing, employment and living conditions (both physical and psychological) continue to require urgent attention. 

Africa therefore faces some distinct challenges. A core issue will be the need to diversify economies away from their reliance on extractive industries and simultaneously augment domestic manufacturing – creating a positive regulatory and labour climate to facilitate growth and competitive advantage. 

Time of transition

The Africa of 2015 might see more transition than in previous years. Old industries can give way to the new. Previously anointed nations can disappoint in favour of different regions or jurisdictions. Just as the broader global economy goes through even greater volatility than ever before, don’t think that Africa will be immune to this either. 

Low interest rates in the US and Europe will continue to boost investor confidence (and a quest for returns) in developing and frontier markets. In both the US and Europe, stagnant incomes will send business around the world in search of the new consumers of the future. And, of course, Africa’s dramatic demographic increases will continue unabated, presenting the world with an ever-increasing demand for goods and services. 

This will be a testing year in which African economies are going to need to adjust old beliefs and attitudes if they are to sustain prosperity in a rapidly changing global environment. Somehow, though, the last decade of growth and greater global integration has made Africa a more flexible and pliable business environment where realities receive much more attention than ideology. This bodes well for a continent increasingly ready to adapt and move forward.

*Daniel Silke is director of the Political Futures Consultancy and is a noted keynote speaker and commentator. Views expressed are his own. Follow him on Twitter at@DanielSilke or visit his website.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.0%
Rand - Pound
23.91
-0.0%
Rand - Euro
20.41
+0.1%
Rand - Aus dollar
12.34
+0.0%
Rand - Yen
0.13
-0.1%
Platinum
908.05
+1.2%
Palladium
1,014.94
+1.3%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
+1.0%
All Share
74,536
+0.8%
Resource 10
57,251
+2.8%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders