“If we weren’t poor, we would not come to you for help.”
In his book, Know the Beginning Well: An Inside Journey Through Five Decades of African Development, AY Amoako, former executive secretary of the Economic Commission for Africa at the UN and the founder president of the continent’s foremost economic think-tank, the African Center for Economic Transformation, recalls a heated exchange between Rwanda’s finance minister Donald P Kaberuka, the International Monetary Fund’s managing director Horst Kohler and the World Bank’s president James Wolfensohn at a meeting in 2000. Frustrated at the conditions dictated by the World Bank and the IMF that he and his peers felt impinged upon the sovereignty of African countries, Kaberuka, reportedly, said his people were not asking for charity, but partnership, and respect.
The world has changed since that conversation, and so has Africa. The African Union’s inclusion into G20 — the intergovernmental forum that accounts for 80 percent of the gross world product and 75 percent of international trade — is a testimony to the continent’s ascension as a partner that the world cannot ignore anymore.
A conglomeration of 55 countries, the AU came into being in 1999 with the stated objective of building a strong, stable and economically robust Africa. In his book, Amoako traces the arduous journey some of the continent’s committed leaders undertook to turn around the paradox of Africa’s vast and wondrous natural richness and its peoples’ destitution. These leaders worked hard to build strong democratic institutions and a good governance framework that helped the AU win the global community’s attention, and financial assistance and that, in turn, aided its economic growth. According to a report by McKinsey, between 2000 and 2010, Africa’s real GDP grew at an average rate of 5.1 percent annually against an average of 2.5 percent in the previous decade. Though the growth slowed to 3.3 percent between 2010 and 2019, and thanks to the pandemic followed by Russia’s invasion of Ukraine that disrupted global trade, it’s unlikely to hasten soon. Yet, global investors are excited about the region.
Their exuberance is understandable.
Africa is India of the 1990s
Africa, today, is at the stage where India was in the early nineties at the onset of economic liberalisation. A large consumer market, young demographics, educated and skilled yet cheap labour force, a conducive political environment and strong democratic institutions made India an attractive destination for global investors. And, they came in hordes. What followed was a fast economic growth that helped India pull out hundreds of millions of its people from extreme poverty (estimates vary from 700-800 million to about a billion since 1990) and bring them into the mainstream consumption fold. Meanwhile, the middle class also expanded, and with it expanded the consumption basket, which, in turn, brought in more businesses and investments into the country.
The India story, however, is changing. The consumer market is nearing saturation, labour is now relatively expensive, and the population growth rate is slowing. All this will, eventually, have a bearing on the country’s economic growth rate. Notwithstanding its larger scale, China is on the same track.
Investors, therefore, are exploring newer horizons, and Africa has emerged as the right answer to their quest.
With more than a billion people, Africa is home to the world’s largest, youngest and fastest-growing population. It’s the only region in the world that is projected to have a higher birth rate than the replacement rate over the next several decades. Estimates suggest that by 2050, over 2.5 billion people will be living in Africa and half of them will be below the age of 25 years. By 2025, household consumption and business spending in the continent are likely to cross $2.1 trillion and $3.5 trillion, respectively, and by 2050, together these are expected to cross $16 trillion.
Vast Natural Resources
Meanwhile, Africa’s big attraction still remains its vast natural resources. Almost 60 percent of the world’s renewable energy assets and 30 percent of the mineral assets, for instance, are in the continent. The region has abundant reserves of gold, diamonds, platinum, nickel, bauxite, and uranium. The Democratic Republic of Congo services almost 70 percent of the world’s demand for cobalt, which has myriad uses across industries. In addition to these, Africa is and will continue to be a large producer of oil. As the African Continental Free Trade Area that allows access to AU as one big single market, the region is set to emerge as a leading manufacturing hub and a crucial link in global supply chains, according to UNCTAD.
For more than a century, these natural resources accounted for most of the foreign direct investment coming into the region. This has changed in the past decade, according to an EY report. Now, services, telecommunications, technology, retailing, media and entertainment are the sectors attracting more, and long-term capital investments. The rise of local entrepreneurship is creating a virtuous economic cycle. A good example of this is m-Pesa, a digital money and financial services platform launched by Kenyan telecommunications service provider Safaricom with Vodafone in 2007. The platform is currently used by close to 60 million customers across the region and has created job opportunities for young locals. More and better jobs outside of traditional farming and mining helping in raising the living standards of people, which, in turn, promises to further bolster consumption, and, thus, attract more investment.
The region, however, still faces many daunting challenges. In his book, Amoaka described large-scale poverty, vestiges of colonialism, civil strife in many countries, high public debt and the absence of committed leadership as factors that held Africa back from realizing its true potential. Many of these, as this World Bank report suggests, still hold true. Besides, competitive geopolitics and expansionist ambitions of wannabe world powers continue to thwart efforts to bring stability and peace to the region.
Against this backdrop, the AU’s inclusion in G20 is a welcome development. It provides Africa with a platform to seek equitable and respectful treatment from the world powers. It is also a recognition of the continent’s rightful place at the table at which stakeholders in the world’s future gather to chart a shared journey.
Archna Shukla is a senior journalist based in Delhi. Views are personal, and do not represent the stand of this publication.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
