3.15.2012

Asian Tigers, African...Cheetahs?


Source: Afrographique

Hong Kong, Singapore, South Korea and Taiwan (aka the Asian Tigers) are consistently hailed for their rapid economic growth, but they aren’t the only quickly growing economies out there. In fact, now there is a rival continent: Africa.

Many articles have recently been released on the Africa's rapid growth. The IMF predicts that Africa will grow 6% this year, which is almost the same as Asia! Not only is there unprecedented growth, but there is also success in reducing poverty. That’s right; Africa is reducing poverty (so knock those stereotypes aside!). A recent blog post by the World Bank questioned whether the economic growth seen in many African nations was helping to reduce poverty levels, and it determined that, albeit slowly, it is:
“The World Bank's poverty measurement team…estimates that the percentage of poor Africans fell from 58 percent in 1999 to 47.5 percent in 2008. This rate of decline of about one percentage point a year…Between 2005 and 2008, for the first time, the absolute number of poor people also declined, from 395 million to 386 million. Nine million Africans, equivalent to the entire population of Benin, escaped poverty during those three years."

The post went on to note that much of the success can be attributed to Ghana and Uganda (but wait, isn’t Kony pillaging Uganda!? Just kidding), along with 18 other growing economies. There is, however, still work to be done, with some countries reporting negative growth, like Cote d’Ivoire.

A report by the World Bank noted that for the first time, success is being made in all regions of the world, Sub-Saharan Africa being no exception where “For the first time since 1981 we have seen less than half the population of Sub-Saharan Africa (SSA) living below $1.25 a day.”

Why the Success?
The December issue of The Economist included an article, Africa Rising, which attributes the economic growth to several factors:

Higher revenues from natural resources: In 2000-08 around a quarter of Africa’s growth came from higher prices in resources such as iron ore, gold, diamonds…oil. Increased demand for resources by China has driven up prices, leading some African nations seeking to nationalize their mines. Perhaps this is a good move (but then again, I’m not an Economist), but I think something these nations need to keep in mind is that nationalization might look good when revenues are high, but with nationalization comes the responsibility to care for the companies on rainy days as well – which might not be the best idea with such nascent economies.

Population BOOM: The article states that Africa will be responsible for half the world’s increase in population over the next 40 years. I’d argue that this could either be good or bad. Good in that it means more consumers and (hopefully) more educated youth to increase development. Bad in that with constant increases in population comes an increased burden on countries to provide for more people – and with not everyone receiving the education and health care they need - this could possibly be a struggle. However, a decline in infant mortality could help curb birth rates and with Bluestar contraceptive implants (which I worked with in Sierra Leone), women are taking reproduction in their own hands.  


Source: Afrographique
China(?): China’s affect in Africa is greatly debated. I’m among those who believe that China is walking a thin line on being a friend and foe to Africa. However, they have made a decent impact on development if you ignore the somewhat neo-colonial relationship. As The Economist notes:

“China’s arrival has improved Africa’s infrastructure and boosted its manufacturing sector. Other non-Western countries, from Brazil and Turkey to Malaysia and India, are following its lead. Africa could break into the global market for light manufacturing and services such as call centres.”

Democracy: Africa’s progress towards having free and fairer elections (and just having elections in general instead of coups) is also spurring Africa’s growth.

“For three decades after African countries threw off their colonial shackles, not a single one (bar the Indian Ocean island of Mauritius) peacefully ousted a government or president at the ballot box. But since Benin set the mainland trend in 1991, it has happened more than 30 times—far more often than in the Arab world.”

Greater stability throughout the continent attracts investors and businesses and also promotes cross-border trade, which will be increasingly important if Africa wishes to continue on this path. And although President Kagame is no role model for regional stability anymore, you should check out what had to say on the topic of trade. 

Growing middle class: Africa now has the fastest growing middle class according to the Standard Bank, which notes that around 60m Africans have an income of $3,000 a year, and 100m will in 2015. Although that is not at all ‘middle class’ to us living in the West, it is significant growth in both income and numbers for Africa.

Source: Afrographique

Foreign Direct Investment: FDI in Africa has increased tenfold over the last decade, probably due to more political stability. This FDI significantly helps growth, but one thing to remain weary on is whether or not this FDI is causing unemployment. Given the increase in both FDI and overall economic growth, it can be assumed that jobs are not being destroyed – but it will remain important to keep that in mind, so that the progress made is not reversed.

Technology: Technology in Africa is booming. All I needed to do in Sierra Leone was ask to see someone’s cell phone and in response, three were taken out of various pockets. Cell phones are not only on the rise, but so is internet access as well as the social media presence of Africans both on the continent and in the diaspora (Did you see the #WhatIloveAboutAfrica trend that took off on twitter in response to the Invisible Children #Kony2012 campaign?). This increased access to technology is significantly facilitating business dealings, making Africa all the more attractive for businesses and investment.

The Case for Rwanda
Although in some hot water recently, Rwanda is somewhat of a model of successful economic growth. Rwanda is being called the Singapore of Africa. Despite its bloody past, Rwanda is making steady strides towards better business and economic development. Supposedly corruption is being curbed (Transparency International claims Rwanda is less graft-ridden than Greece or Italy), opening a business is quick and cheap, and property rights are strengthening. Another post on the World Bank blogs looks more in-depth at Rwanda's growth.

Rwandan Economic and Social Info. 
Taking one glance at the chart to the right is proof enough of success. In just five years, the poverty rate dropped nearly 6%, the Gini Coefficient is moving in the right direction, GDP per capita rose significantly, and progress in health, sanitation, and education are obvious as well. Although there are still challenges fro Rwanda to tackle, the 7.4% growth in Rwanda’s GDP and the on average doubling income since the genocide shows hope for African economies and should serve as an example for a possible path for its neighboring counterparts to follow.

The Case for Ethiopia
A recent blog post on Baobab took a closer look at Ethiopia’ astonishing growth rate. The African Statistical Yearbook cites Ethiopia’s GDP growth at 12.4% - an alarmingly high rate. The author notes that the statistics coming from Ethiopia can be debated, especially given that the Birr is often devalued and life remains expensive for the average Ethiopian. However, even if Ethiopia’s figures are indeed manipulated, there is undoubted and incontrovertible growth and improvements in sectors such as health, education, and infrastructure. In my opinion, if Ethiopia keeps investing in those areas, their growth rate may soon reach that 12.4% rate, if it has not done so already.

Nb.: Need for Sustainable Growth
It’s not all downhill from here though. The continent has made significant strides in the right direction, but if the growth is to continue (which we obviously all want it to), then a few things need to be considered:

Very true sign in a development office in Sierra Leone

Microfinance: The Africa Rising article that The Economist released completely ignores microfinance, which I believe is also contributing to the economic growth we see. When small entrepreneurs have the ability to start a business, they are keeping profits within the home country which further spurs growth. Microfinance should really be emphasized in the coming years if the growth is to continue on this path, especially microfinance loans to women, who are known to manage their profits better than men and invest in their communities. Kiva, anyone?

Corruption: Economic growth is not in itself sufficient to reduce poverty. Countries could have immense GDP growth, yet if corruption is pervasive, all profits could be diverted to a small ruling elite while the rest of the country languishes. That's why fighting corruption will remain key. It’s also important for countries not to just put on the façade of fighting corruption, like Sierra Leone. Salone puts up billboards stating the progress is being made in combating corruption, yet behind closed doors, President Koroma participates in illegal logging deals, and bribes are still taken roadside to get anywhere. If this keeps up, the road towards alleviating poverty will be very long.

Monitoring elections: The continent has made great progress in freer and fairer elections, but it needs to continue that trend if growth is to continue. If elections are contested it could disrupt the political stability within a country and discourage investors in fear of turmoil and uncertainty.

Sustainable growth: As the article stated, much of the surge in GDP rates is attributed to resource wealth. Yes, resources are great if their profits are used in the right manner, but the resource market is cyclical and can’t be depended upon. That means in hard times, countries still need to have something to fall back on for economic growth. This can be done by strengthening the manufacturing sector. Take note, Africa.


No one can do business on roads like these!
Development: This is a ‘duh!’ criterion, but it's easy to overlook. Improvements in infrastructure will attract businesses and investment, suitable roads (which are nonexistent in Sierra Leone) will facilitate trade between countries, and improvements in health and education will better serve the nation as a whole. If economic growth isn’t stagnant, neither should development. Development, however, should be smart and carefully critiqued. If country-wide development projects are to be undertaken, it should be assured that they will actually development the country and not have unintended side effects, like this Ethiopian dam project (thanks for sharing @tylerpaziuk).

Rock on, Africa
Good press about the continent is so far under-reported or merely overlooked. This is proof that there is good news emerging from Africa and further proves that the stereotypes so often reproduced by mass media are false. I’m hopeful about the future.

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