Dust is clearing on Africa’s path to middle-income status
AMONG several theories, the name "Africa" is said to have originated from the Phoenician word "afer", meaning dust. Not a very auspicious nominal beginning (circa 1000 BC) for the planet’s second-largest continent.
More recently, in the 19th century, explorers such as Henry Morton Stanley referred to Africa as the "Dark Continent" because of its mysteriousness to Europeans.
Joseph Conrad immortalised the European concept of Africa’s impenetrability in The Heart of Darkness.
Another famous explorer, David Livingstone, "discovered" the Victoria Falls and other landmarks in central Africa in the 1850s, with little credit given to Arab traders and travellers who had arrived centuries before, to say nothing of local residents who dated back to the beginning of human time. Even now people casually talk of "visiting Africa", overlooking that this huge mass of land is home to more than 50 countries of vast diversity, spanning both sides of the equator.
Such characterisations are receding, but slowly. In the past decade, the continent has really started to emerge.
Since 2001, sub-Saharan Africa has shot up global growth charts, averaging real growth in gross domestic product (GDP) expansion of more than 5% a year. As important, inflation, the poor man’s curse, has plummeted from 25% to just 6% last year.
Yet another impressive improvement was the decline in the external debt ratio from 60% to 25% of GDP. African countries issued more than $30bn in sovereign bonds last year, with more to come. Who would have thought that Rwanda, torn apart by civil war in the early 1990s, would issue a eurobond of $400m at a yield of less than 7% last year? At present, there are 10 sub-Saharan Africa countries (apart from SA) listed in JPMorgan’s global emerging markets bond index.
Superior growth in the subcontinent is becoming increasingly self-sustaining.
Over the past decade, the ratio of gross fixed investment to GDP has risen steadily to a high of 24% last year, several points above SA’s. What is more, the savings rate is 21% versus just 15% for SA. The investment-savings gap of about 3% is not excessive for a region in the lift-off phase of economic development. While the sub-Saharan African investment rate may not be as high as some high-flying Asian countries, it matches some of the more successful Latin Americans such as Colombia and Chile, and is several points ahead of Brazil, a serial disappointer.
Some sub-Saharan Africa countries have experienced even more spectacular growth. The Democratic Republic of Congo, Ethiopia, Mozambique and Tanzania are north of 7%, while Nigeria, Uganda and Zambia are above 6%. Nigeria made headlines with its eye-popping recalculation of GDP. With an apparent stroke of a statistical pen, Nigerian output was revised up 89% to $509bn for last year, leaving it far above SA’s about $370bn.
Of course, there are more than three times as many people in Nigeria, but the point is made. In like fashion, Ghana raised its GDP estimate by 60% in 2010.
It’s not that statisticians have miraculously discovered new pockets of economic endeavour. Activity in much of Africa is simply underrecorded: for example in telecommunications, banking, street-trading and agriculture. Most are still desperately poor, but the pie is bigger than previously believed and growing rapidly. Small wonder that an expanding list of South African companies is eyeing future profits beyond our borders.
Before we get too upbeat, a reality check: sub-Saharan Africa is by no means on a flawless path to middle-income status. Its share of global GDP is still only 2.6%, while it accommodates 14% of the planet’s population, most of whom live in poverty. The region’s population is forecast by the Population Reference Bureau to double to 1.8-billion by 2050. The forecast for Nigeria is a staggering 440-million; Congo 182-million and Ethiopia 178-million. If accurate, the sum of these three alone will far exceed Europe’s population, where the numbers will be likely to decline. The forecast for SA is 64-million.
Accompanying this explosion will be rapid urbanisation. Most of sub-Saharan Africa’s countries are well under 50% urbanised, compared to 60% for SA and 80% for the UK. While the population of sub-Saharan Africa may double by 2050, the urban population could treble. This would be on an even greater scale than China’s urbanisation since Deng Xiaoping’s reforms from the late 1970s. It seems the powerful allure of the "bright city lights" alluded to by development economists for the past two generations is undiminished. If you think sub-Saharan Africa’s cities are chaotic now, you ain’t seen nothing yet.
This combination is a mixed blessing.
On the plus side the "demographic dividend" of population growth and urbanisation could be huge. A rapidly growing labour force underpins growth, if blended with sufficient technology, infrastructure and education. This requires sustained high rates of savings and good governance.
The negative take is that sub-Saharan Africa could crumble under the weight of so many mouths to feed. The jury is out as to whether a successful cocktail can be mixed.
Governance has certainly improved across sub-Saharan Africa, but has a long way to go. Unfortunately, many sub-Saharan Africa countries still languish in the bottom half of Transparency International’s Global Corruption Barometer. But a big positive has been the successful power handover through the ballot box in Nigeria, Ghana and Kenya (among other places) in recent years.
There is still some low-hanging fruit.
For example, when it comes to road, rail and airport links, only a tiny handful of sub-Saharan Africa countries even marginally match SA’s capacity. In most, facilities per square kilometre are less than 25% of SA’s, itself by no means a world leader. Ask any South African business person about the logistics of business in sub-Saharan Africa and you will be met with a frown. But this is slowly changing. Nothing exemplifies this better than the recent China-Kenya deal to build a rail link from Mombasa to Nairobi for about $4bn, slated to drop rail freight costs by 60%. If only SA could make such a leap forward in its transport infrastructure.
For equity investing in sub-Saharan Africa, opportunities are limited, but the potential great. Total stock-market capitalisation in the continent is about $850bn. SA alone makes up more than 70%, and Egypt, Morocco and Tunisia another 15%.
In sub-Saharan Africa only Nigeria, Kenya and Zimbabwe offer any kind of size, but liquidity is a real problem. There is a range of JSE-listed stocks with varying degrees of sub-Saharan Africa business, including MTN, Tiger Brands, some banks, Imperial, Barlows, Shoprite, PPC and Nampak. So far the African promise on the JSE is somewhat overhyped, but consumer spending, logistics and mining in sub-Saharan Africa are set to expand exponentially. At 6% growth, output doubles in 12 years, but many good companies operating in Africa could far exceed that as they bring expertise and technology to bear. In addition, sub-Saharan Africa’s share of South African exports has risen sharply in recent years from about 14% in the early 2000s to more than 19%.
The Phoenicians are not the only possible source for the naming of the continent. The Greek "aphrike", meaning "without cold" and Latin "aprica" meaning "sunny" are also in the frame. It seems that for now at least the African dust is clearing and the tempo is warming up.