|The seed of prosperity has not sprouted, after all|
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Saturday, March 05, 2016
The Dream of Africa Rising has Ended
In Kitwe, Zambia, a decade long commodity boom brought sleek shopping malls, tidy brick homes and dozens of private schools to this palm-pocked mining town in the heart of Africa. The population doubled and incomes soared as record copper prices and a flood of Chinese investment and workers transformed a region bordering war-ravaged Congo into a beacon for Africa’s rising middle class.
Now the global forces that propelled Kitwe’s rise have reversed, fomenting an economic and social crisis that has interrupted dreams of greater prosperity across Zambia’s copper belt and exposed the fragility of Africa’s commodity-fueled growth model. Slowing Chinese demand has nearly halved the price of copper in two years, upending an economy reliant on the metal for 70% of its exports. Chinese contractors and restaurateurs that followed state construction companies into the landlocked country are starting to head home. Kitwe is a prime victim of the commodity bust’s outsize impact on Africa. Several mines have closed and some 15,000 workers have been laid off, with thousands more expected. Officials say each miner’s salary supports 15 dependents, exposing the entire town to the ravages of the global rout. Violent crime is rising and blackouts have become commonplace. Hundreds of miners have withdrawn their children from private schools that sprang up to cater to new aspirations. Mining industry subsidies for HIV and malaria medications have been reduced. Double-digit inflation has frozen sales of the refrigerators, televisions and cars coveted here as hallmarks of success. Kitwe’s trauma is reverberating across Zambia. Zambia’s kwacha currency is one of the world’s worst performers, losing half its value last year. In desperation, President Edgar Lungu has asked for divine intervention, decreeing nationwide days of prayer to resurrect the stricken economy.
In other resource-reliant African economies from South Africa to the Sahara, after years of blistering expansion, Nigeria, Angola and South Africa—whose oil, gold and platinum industries have long driven the region’s growth—are mired in crises that are freezing development and testing increasingly cash-strapped governments. Turmoil is also raising the prospect of political change. Angola’s entrenched regime is facing unprecedented public criticism. Local elections in South Africa this year could see the ruling African National Congress lose control of key cities like Johannesburg and Pretoria for the first time.
The dramatic shift has revealed how reliant many African economies remain on commodity riches, prompting some investors to reassess an “Africa Rising” narrative that exaggerated gains in manufacturing, infrastructure and education. Poverty was declining and a new middle class was springing up in Africa. This was the mantra that lured global corporations to African markets. But now the hype is losing its gloss. Western corporate belief in a rising African middle class would appear to be fading. Barclays is leaving the continent. The British banking giant is selling its South African subsidiary Absa, which it acquired in 2005. Last year, food giant Nestle shed 15 percent of its workforce in Africa.
"We thought Africa was the new Asia, but we discovered that the middle class is extremely small and not growing," Cornel Krummenacher, chief executive for Nestle's equatorial Africa region, told theFinancial Times.
Not so long ago, Africa was perceived as a growth market. In 2011, the African Development Bank (AfDB) concluded in a report that 350 million Africans counted as members of the middle class - that's 34 percent of the continent's population. That sounded like a middle class boom. In 2000, the figure was just 27 percent. More recent figures paint a less rosy picture, however. According to the Swiss bank Credit Suisse, just 18 million Africans qualify for membership of the middle class. Mthuli Ncube, professor of public policy at the University of Oxford and the former chief economist at the AfDB who oversaw that 2011 report said being middle class was a question of definition, or rather of location. "A middle class person in Switzerland or Germany is not like a middle class person in Rwanda to be fair, so there will be some differences."
Critics find this unconvincing. Political scientist Henning Melber, professor at Free State and Pretoria Universities in South Africa, said the definition of middle class as used by the AfDB in its report covers everybody in Africa who earns between $2 and $10 a day (1.83 and 9.13 euros).
"When I go into a supermarket in Namibia or South Africa and buy a carton of milk that costs almost as much as it does in Germany, then I realize this idea of what makes you middle class in Africa is pure fantasy."
Those who adhere to the notion of a growing African middle class claim they can see a continent in which affluence is spreading. There are long traffic jams because there are more cars on the roads. Shopping malls are sprouting on every corner, a sign of a growing middle class, they claim. This doesn't convince Robert Kappel, former director of German Institute of Global and Area Studies (GIGA) in Hamburg. "The shopping mall phenomenon has nothing to do with the middle classes in the true sense of word," he said. He says the malls are patronized by wealthy members of an upper class who are just consuming more.
Many analysts consider it unlikely that Africa's middle class will expand any further. "Once economic growth falters and the bottom falls out of commodity prices, then the phenomenon of an African middle class will disappear," said Kappel. That is exactly what is happening. Declining commodity prices and economic difficulties in China - Africa's key trading partner - are driving down African economic growth rates.