I am certain that all of us present here (the 2nd Kellogg Africa Business Conference) are familiar with the important and instructive June 2010 report published by the McKinsey Global Institute, entitled Lions on the move: The progress and potential of the African economies.
In their preface, the authors write: “Africa’s collective economy grew very little during the last two decades of the 20th century. But sometime in the late 1990s, the continent began to stir. GDP growth picked up and then bounded ahead, rising faster and faster through 2008. Today, while Asia’s tiger economies continue to expand rapidly, we foresee the potential rise of economic lions in Africa’s future.”
The report says that Africa’s 2008 collective GDP, at $1.6 trillion, was roughly equal to those of Brazil or Russia. Combined consumer spending during the same year was $860 billion. It predicts that by 2020 Africa’s GDP will climb to $2.6 trillion, while consumer spending will reach $1.4 trillion.
All this tells the exciting story that Africa will continue to make the economic advances in the medium term, communicating the message that Africa has entered a new era to which all perceptive investors should pay close attention.
It is also important to note other comments contained in the McKinsey report, especially to make a determination as to whether Africa will be able to maintain its positive growth trajectory. The report says: “The key reasons behind Africa’s growth surge were improved political and macro-economic stability and micro-economic reforms. To start, several African countries halted their deadly hostilities, creating the political stability necessary to foster economic growth. Next, Africa’s economies grew healthier as governments lowered inflation, trimmed their foreign debt, and shrank their budget deficits.
“Finally, Africa governments increasingly adopted policies to energise markets. They privatised state-owned enterprises, reduced trade barriers, cut corporate taxes, and strengthened regulatory and legal systems. Although many governments still have a long way to go, these important first steps enabled a private business sector to emerge.
“Together, these structural changes helped fuel an African productivity revolution by helping companies to achieve greater economies of scale, increase investment, and become more competitive. After declining through the 1980s and 1990s, labour productivity started rising, and it has climbed by a robust 2.7 percent annually since 2000…
“Today, while individual African economies could suffer many setbacks, our analysis suggests that the continent’s long-term growth prospects are strong, propelled by both external trends in the global economy and internal changes in the continent’s societies and economies.”
What this says is that the economic growth and development which Africa has experienced since the 1990s was not accidental. It was the outcome of purposeful actions by the governments and peoples of Africa to change their condition in a positive direction, relating to the issues of governance and peace, as well as the important matters of economic policy and practice. It also reflected Africa’s response to the global economy and its impact on Africa.
All this has laid the basis for Africa’s future advances, towards the realisation of the perspectives projected in the McKinsey report – of African lions on the move.
Will Africa advance to translate this vision into reality? Yes, indeed, this will happen, confirming the central message of this conference: now is the time “to seize opportunities in an exciting new African era”.
I remain convinced that Africa is the Continent of the Future, a future of hope.
I make so bold as to utter these unequivocal statements because the 2010 African Economic Outlook, prepared jointly by the African Development Bank, the OECD and the UN Economic Commission for Africa, reports that: “Overall, the African continent has shown a remarkable resilience to the global crisis. While in many other regions output levels declined in 2009, growth in Africa remained positive and Africa has emerged from the crisis faster and more robustly than in the past and than most other regions. Growth will reach 4.5 percent in 2010 and increase further to 5.2 percent in 2011… All African regions will achieve higher growth, although the recession will leave its mark.”
This positive African response to the recent global financial and economic crisis emanates from what had been happening to the collective African economy in the period preceding the crisis.
The World Bank published a paper in 2008 written by Jorge Arbache, Delfin S Go and John Page, interestingly entitled Is Africa’s Economy at a Turning Point?
The paper says: “There is something decidedly different and new about the economic landscape of sub-Saharan Africa. After stagnating for much of 45 years, economic performance in Africa is markedly improving. In recent years, for example, GDP growth in sub-Saharan Africa is accelerating to its strongest point at about 6 percent a year while inflation registered below the two-digit level, its lowest point…
“During 2000-06, about 26 countries had GDP growth exceeding 4 percent a year, while as many as 14 countries exceeded 5.5 percent. Countries with at least 4 percent GDP growth now constitute a sizeable portion of sub-Saharan Africa – about 70 percent of the region’s population and 80 percent of the region’s GDP. As a group, these countries have been growing consistently at nearly 7 percent a year, whether considered in the more recent period or a longer period since the mid-1990s…
“Is the growth failure in sub-Saharan Africa finally reversing? An upward shift in the recent growth rates suggests that a trend break may have taken place around the mid-1990s. Annual GDP growth was a sluggish 2.9 percent in the 1980s and 1.7 percent during 1990-94. Since 1994, however, the pace of economic expansion has approached a threshold of moderate growth of 5 percent a year… The current growth episode has… lasted 12 years altogether, a period that is neither trivial nor brief…
“There is… evidence that economic growth is accelerating and registering across several types of countries, not just oil-exporting and resource-rich countries, but also oil-importing, landlocked, and – to some extent – fragile countries.”
The paper, Is Africa’s Economy at a Turning Point?,contains more facts and figures which clearly confirm that the African economy had indeed reached a turning point after stagnating for more than four decades, according to the authors. It is therefore logical to conclude that the resilience shown by the African economy in the aftermath of the recent global economic crisis is itself a direct confirmation of the critical point made by Arbache, Go and Page that Africa’s economy has turned in a positive direction.
Even by itself, this important reality underlines the correctness of the view that Africa today offers the possibility to seize opportunities in an exciting new era.
But what about the future? It is clear that one of the driving elements in Africa’s economic growth has been – and will continue to be – the demand for its raw materials. China, and to some extent India, are particularly relevant in this regard. There is no doubt both economies will continue to grow at high rates, fuelling sustained demand for raw materials. This therefore suggests that Africa’s own growth and development will continue to benefit from the further growth and development of these two Asian economies.
I am certain it is common cause among us that China, in particular, has deliberately decided to focus on Africa to address its needs, pursuing two objectives: to meet its current needs; and to ensure that it has access to these resources over the longer term. I am also certain that we are of one mind that Africa’s development must also mean that it changes its relationship with the rest of the world as merely a producer and exporter of raw materials.
Thus, as an obvious step in this regard, it must address the challenge of adding value to what it produces. Among other things, this will mean ending such absurd and exploitative practices as selling back to Africa the minerals it produces, at London Metal Exchange prices.
To return to the matter of China, participants will be familiar with the Forum on China-Africa Cooperation. Through this forum, China has agreed that in return for its access to African raw materials, it will:
l Invest in African infrastructure.
l Invest in the manufacturing sector.
l Open its markets to African consumer goods.
l Assist Africa to develop its human capital.
I know that many in the West share many fears about China’s activities in Africa. However, it should be clear from what I have just said that Africa stands to gain from its co-operation with China. This means that the economic links between China and Africa will continue to grow, to the benefit of both.
In this regard I am certain it can justifiably be argued that perhaps Africa needs to improve its capacity to negotiate with China to achieve the mutual benefit that has been negotiated through the Africa-China Forum.
In this context I should mention that there also exists an Africa-India Forum through which an agreement has been reached which is similar to the one between Africa and China. It would therefore be rational to assume that over time, the co-operation between Africa and the two giant emerging Asian economies will continue to grow.
Rather than continue peeping over the fence to see what China and India are doing in Africa, I would imagine that the West should do exactly what is suggested by the theme of this conference – to seize opportunities in an exciting new African era.
The McKinsey Report I cited says that Africa has 60 percent of the world’s total of uncultivated but arable land.
I mention this because it is obvious and imperative that, as Africans, we focus on the challenge of the development of the rural economy and areas, which still serve as home to the majority of the people of Africa.
Because of the importance of this issue, some years ago we spent a considerable period of time reflecting on what needs to be done to achieve the all-round development of African agriculture.
This resulted in the adoption in 2003, as part of the process of the further elaboration of the New Partnership for Africa’s Development, Nepad, of the Comprehensive African Agricultural Development Programme, CAADP, at a summit meeting of African heads of state and government.
CAADP remains relevant to this day. What is necessary is to ensure its implementation. Once again, it provides many opportunities for profitable engagement by those who appreciate the possibilities which Africa offers.
As aggregate income in Africa increases, the demand for food will increase. This also applies to the rest of the developing world, including the emerging markets.
The importance of this is shown, for instance, by recent trends indicating increasing intervention by the oil-rich Arab Gulf countries to acquire agricultural land in Africa.
African agriculture could therefore play an even more important part as a growth sector of the African economy.
In this regard we must mention the importance of completing the WTO Doha Development Round as the development round it was intended to be.
It is clear that the opening of the agricultural markets of the developed countries to African agricultural products would serve as an important incentive in terms of encouraging the development of African agriculture.
Similar progress in non-agricultural market access, as well as effective implementation of trade facilitation measures, would also encourage the addition of value to both mining and agricultural products, giving an important impetus to the development of the manufacturing sector.
With regard to all this, which emphasises the importance of international trade as a driver of the African economic project – and therefore the ability of African products to access the markets of the developing countries – the conference will of course be aware of the positive impact of the US Agoa (African Growth and Opportunity Act) on the economies of many African countries.
Suffice it to say that in addition to encouraging foreign direct investment, overseas development assistance, concessional financing by the international financial institutions, remittances and the important issue of debt relief, it is vital that as Africans we do more to generate the required capital from within our continent.
In 2007, under the auspices of Nepad, we launched the Pan-African Infrastructure Investment Fund. It was intended to capitalise the fund at $1bn. I do not know where this level of capitalisation stands today, but what was most encouraging, is that within one year of its launch, this pioneer indigenous African fund was actually capitalised at $600m.
Apart from helping to provide the much-needed funds for the critically important infrastructure development, the response by the African pension funds and other institutions in the financial sector demonstrated Africa’s own confidence in its own future.
Let me now make my last observation – though, of course, there is much more we can say to indicate our own view about the future of the African economy, including the need to accelerate African integration through the Regional Economic Communities as well as the imperative to ensure that the G20 adopts a focused programme to support Africa’s development efforts.
The last summit meeting of the Organisation of African Unity, held in 2001, approved the New Partnership for Africa’s Development, Nepad. This remains Africa’s comprehensive programme for its socio-economic development. Nepad set itself the objectives to effect policy reforms and encourage increased investment.
In addition, we must make the important point that Nepad is not only a declaration of aims and objectives but, as a development programme, has dedicated institutions to pursue the realisation of those aims and objectives.
All this makes the statement that Africa remains determined to produce the African lions foreseen by the McKinsey report and ensure the sustenance of the exciting new era identified by this important conference.
n This is an edited speech by Thabo Mbeki at the 2nd Kellogg Africa Business Conference held at Northwestern University in Illinois, US, yesterday.