Africa’s dawn: Economic emergence on the world stage

INTRODUCTION

Over the past decade, Africa has experienced an accelerated rate of economic growth. It has been reported that Africa’s Gross Domestic Product rose by an estimated 4% to 5% between the years 2000 and 2008. As a result, analysts argue that the spotlight is now shining brightly on Africa and the region’s economic emergence has been given the centre stage. The Boston Consulting Group and the McKinsey Quarterly recently published reports that examine the factors that have propelled Africa’s economic growth and consider the sustainability of this economic development.

THE BOSTON CONSULTING GROUP

The Boston Consulting Group ("BCG") has published a paper titled "The African Challengers: Global Competitors Emerge from the Overlooked Continent" . The paper puts a spotlight on the economic awakening of Africa and has identified forty fast growing companies with global aspirations referred to as the African Challengers. The paper examines the strategies and challenges faced by these companies and the emergence of African capitalism.

The paper suggests that past decade has seen the emergence of the African economy in the expanding global economy. In particular, between 2000 and 2008 Africa’s gross domestic product ("GDP") grew by 5.3% in comparison to the global GDP of 4%; and African equity markets outperformed global indexes. The report stresses that ‘averages are always suspect, but they are especially misleading in Africa.’ This is indeed the case given that only five countries account for 60% of Africa’s GDP. During the past decade, the GDP of many African countries has remained flat. This is indicative of the fact that although Africa has a wealth of natural resources, it is stricken by poverty, health problems, geopolitical risks and the effects of colonialism. Nevertheless, the top African economies ("African Lions") are performing relatively well. The African Lions comprise of the following countries Algeria, Botswana, Egypt, Libya, Mauritius, Morocco, South Africa and Tunisia. It has been reported that their GDP per capita exceeds that of the BRIC nations, namely Brazil, Russia, Indian and China.

Several African companies, referred to as "the African Challengers", have surfaced on to the global market; these companies are competing and rapidly expanding in the global economic sphere. These companies include SAB Miller, Anglo American, Eco Bank, Dangote Group, Banco Africano de Investimentos Sonangol, Maroc Telecom, Cevital, Group Elloumi, MTN Group and Shoprite. The African Challengers range in size from $350 million to $80 billion in annual sales. It is suggested that these companies display strong growth potential and have global aspirations to expand their operations overseas.  The report lays emphasis on several factors considered to have contributed to the success of the African Challengers: First, they benefit from conducting business operations in an environment with several native advantages. In particular, the companies benefit from African natural resources. According to the paper, Africa holds 82% of the world’s platinum reserves, 55% of diamond reserves and more than 50% of phosphate reserves. In addition, the African Challengers benefit from cheap labour costs and a fast-growing population that is unencumbered by legacy assets and business models. Secondly, the African business environment is favourable as it includes market deregulation, national economic-development policies, and commodity prices that have been generally rising in the past ten years. Finally, the African Challengers have adopted the challenger mindset which is required to achieve a global status. This mind set entails a willingness to be assertive and the recognition of the fact that resourcefulness is essential for success in such an economic environment. This distinctive approach could be a vital ingredient in the quest for the attainment of global success.

 The African Challengers could be perceived as potential partners or rivals by western companies that intend to do business, in Africa. For example, on the African mobile telecommunications market MTN is a strong contender against western mobile operators. In addition, some western companies have used their relationships with African companies to their advantage to gain a better understanding of the African markets. For instance, Lafarge acquired Orascom Construction Industries in Egypt, in order to gain access to the Middle East and Mediterranean basin. Nevertheless, it is important to note that these African companies are or will become strong competitors.

THE MCKINSEY QUARTERLY

The McKinsey Quarterly published a report in June 2010, titled "What’s driving Africa’s growth", that analyses several factors that are considered to have propelled Africa’s economic growth. Although, most African individual economies face serious challenges, real GDP rose by 4.9% from between 2000 and 2008. In 2008, Africa’s collective GDP stood at US$1.6 trillion, it now estimated to be equal to Brazil’s or Russia’s GDP. The region is considered to be one of the world’s most rapidly developing economic regions.   Over the past decade economic growth in Africa has been accelerated due to a number of factors: For instance, the increase in commodity prices; natural resources and related government spending is attributed to 32% of GDP growth; and the remaining two — thirds of growth came from sectors such as wholesale and retail, transportation, telecommunication and manufacturing. However, the crucial factors that fuelled this growth included government action to end armed conflicts, improve macroeconomic conditions, and undertake economic reforms to create a better business climate. Together such structural changes have been a catalyst for an African productivity revolution by assisting companies to achieve greater economies of scale, increase investment and become more competitive.

The analysis maintains that Africa has strong long-term growth prospects which are driven by both external trends in the global economy and internal societal and economic changes.  Africa is rich in natural resources as a result it will continue to profit from the rising global demand for oil, natural gas, minerals, arable land and so on. Despite its long standing commercial ties with Europe, Africa now also conducts its trade with developing economic regions in south-south arrangements. This geographic shift has given rise to new forms of economic relationships, in which governments strike multiple long term deals at once. The global race for commodities also gives African governments more bargaining power; this enables the governments to negotiate better deals and to get more value from their resources.  At the same time, Africa is gaining increased access to international capital. The report indicates that the annual flow of foreign direct investment into Africa has increased from $9 billion in 2000 to $62 billion in 2008. Moreover, an increase in urbanisation will play a crucial part in Africa’s long-term economic development. This is given that urbanisation will lead to an expanding labour force and the rise of the African middle-class consumer. Although urbanisation has some negative implications, in most African countries it has boosted productivity, demand and investment.

Africa’s collective long-term prospects are strong; however, the growth trajectories of its individual countries will differ. Traditionally, economists have grouped them by region, language or income level. On the contrary, the Mckinsey Quarterly takes a different approach as it classifies twenty-six of the continent’s largest countries according to their levels of economic diversification and exports per capita:

Diversified Economies: Africa’s growth engines

The continents four most advanced economies are Egypt, Morocco, South Africa and Tunisia. These countries are among Africa’s richest economies and have the most stable GDP rate on the continent. They have economic environments which are susceptible to expansion, as a result these countries would benefit from increased access to the global economy.

Oil Exporting Countries: Enhance growth through diversification

This group is comprised of the following countries Algeria, Angola, Chad, Congo, Equatorial Guinea, Gabon, Libya and Nigeria. According to the report the countries in this category have the highest GDP per capita but are the least diversified economies. These countries could use their petroleum wealth to finance the broader development of their economies.

Transition Economies: Building on current gains

Africa’s transition economies are Cameroon, Ghana, Kenya, Mozambique, Senegal, Tanzania, Uganda and Zambia. Despite the fact that these countries have a lower GDP than the first two groups, their economies are growing at an accelerated pace. Increased intra-African trade on a regional basis will be crucial to the future economic growth of these economies. Moreover, improved infrastructure and regulatory systems could be the means that would enable these countries compete on the global market.

Pre-transition Economies: Strengthening the basics

The countries in this category are very poor and the report indicates that they have an annual GDP per capita of $353; however some economies in this group are growing very rapidly. Although, the individual economies differ they face a common problem of lack of basics, for instance, strong, stable governments and other public institution; good macroeconomic conditions; and sustainable agricultural development. The countries with pre-transition economies are the Democratic Republic of Congo, Ethiopia, Mali and Sierra Leone.

Above all, the report argues that if the recent trends continue; Africa will play an increasingly important role in the global economy. Accordingly, the report stresses that "The rate of return on foreign investment is higher in Africa than in any other developing region. Global executives and investors must pay heed." It is suggested that a strategy for Africa must be part of their long term planning.

CONCLUSION

In conclusion, it is evident from the studies that Africa has experienced a significant rate of economic growth over the past ten years. Traditionally economists have ascertained the growth trajectories of African countries through generic means of classification. The recent reports suggest that the pendulum has swung as both reports deviate from the conventional means of determining economic growth on the continent. Both studies utilise mechanisms that could be perceived to be somewhat Afro-centric for establishing Africa’s economic growth prognosis. For instance, the McKinsey Quarterly takes an approach that classifies twenty-six of Africa’s largest countries according to their levels of economic diversification and exports per capita.  On the contrary, the BCG adopts an approach which analyses forty of Africa’s fast growing companies with global aspirations to identify the factors that had propelled Africa’s economic growth.

The research papers have drawn analogous conclusions regarding the stimulus for the pace of Africa’s economic growth. Despite the positive surge in economic activity both studies highlight the fact that African economies still face serious social, economic and political barriers. Nevertheless, over the past decade, Africa’s economic growth has been driven by both external factors in the global economy and internal socio – economic factors.

Both reports underscore the fact that Africa’s economic long-term prospects are strong. If the trends that have emerged over the past ten years continue, Africa will play an increasingly crucial role in the global economy.