African athletes have long dominated long- and middle-distance track events – and the continent has led little else. Economically it was way behind the curve, despite a huge endowment of assets under the ground. But, after an unexpected growth surge over the past 10 years, the continent could soon be setting the pace.
And, increasingly, researchers are reporting signs that we are seeing the Ascent of Africa. A number of research reports released over the past few weeks – from the World Bank, the African Development Bank, MasterCard Worldwide Insights and Moody’s Investors Service – have highlighted the opportunities and the challenges facing the continent. And today the UN Conference on Trade and Development will publish another report.
There is good reason for the interest. Growth in sub-Saharan Africa has accelerated from an annual average rate of less than 2 percent from 1978 to 1995 to about 6 percent over 2003 to 2008, according to the World Bank. The MasterCard report says the region was the only one to experience an increase in foreign direct investment during the 2007/08 financial crisis and the global recession that followed.
And Moody’s noted: “This rapid pace of growth has fundamentally altered the region’s economic, political and social prospects.” However, a question mark hangs over Africa’s economic success.
A commodity boom has been responsible for much of the growth – creating a situation that could be inherently unstable. There are two reasons for this. One is the cyclical nature of commodity prices; the other is the political instability that often flows from what has been dubbed “the resource curse”.
Moreover, a strong resource sector often crowds out the manufacturing sector. Because rising commodity prices boost the local currency, a country heavily dependent on resources can struggle to expand its secondary industries. The strong currency makes the manufactured goods more expensive and therefore less competitive in both local and global markets.
This isn’t invariably the case. Many economies around the world have built a substantial secondary industry on the platform of the mining sector – including South Africa. But it is a risk, particularly in the early stages of development.
So is Africa’s recent growth performance sustainable? The answer lies in whether the economies on the continent can diversify out of commodities and the extent to which they can create a domestic market, to reduce their dependency on global demand for exports.
There are encouraging signs that both are moving in the right direction.
The MasterCard report shows growth in the region is not driven solely by resources. It says, between 2002 and 2007, the fastest-growing sectors were hotels and restaurants, which grew an annual average 8.7 percent, followed by financial services at 8 percent, transport and communications with 7.8 percent, construction at 7.5 percent and utilities at 7.3 percent.
It also notes that sub-Saharan Africa is urbanising rapidly, with 52 cities of more than 1 million people, more than double the number in 1990. And it points out that this trend has created a massive demand for infrastructure, goods and services.
There are two obstacles to stronger and sustained growth. One is the poor quality of infrastructure. The second – partly as a result of the first – is that the level of trade between countries is low.
Anything governments on the continent can do to increase integration in the region will drive growth exponentially.
Source: Business Report