Monday, April 25, 2016

Do not pass Go. Do not collect $200

Not so long ago, when investors, shell-shocked from the 2008 financial crisis, were hunting for the next big growth story, the idea of a resurgent Africa took hold. After decades in which the perception of Sub-Saharan Africa had been that of a continent of poverty, disease, civil wars and corruption, from about 2009 a new, more hopeful, narrative began to gain attraction.

In this version, instead of being the “hopeless continent” — the title of an Economist magazine cover story in 2000 — a new narrative replaced it – "Africa Rising". Africa became the next great investment frontier. Most of its multilateral debt had been forgiven, growth rates had improved since the turn of the century and, for the first time, governments were tapping capital markets at low rates.

Overpopulation is no problem for capitalist growth. Thanks to a high birth rate — in many countries 5 or 6 per woman — the population of Sub-Saharan Africa is likely to double to 2bn by 2050, according to Hans Rosling of the Karolinska Institute in Stockholm. By contrast, Europe, and the Americas have stopped growing and Asia’s population is leveling out. African cities were thus said to be brimming with young aspirants ready to buy branded beer (rather than cheap moonshine), toothpaste, mobile phones, motorbikes and, perhaps before too long, cars and houses. That means a newer bigger market. But the conviction that there is a growing African middle class, which has done most to drive business interest in the continent, is fragile.

The boom was fed by China’s voracious appetite for African oil, copper, iron ore, bauxite and sundry other commodities which pushed up the GDP of countries from Angola to Zambia. Similarly, its China began to invest in roads, ports and power stations.

“Africa was about to become the new Asia,” says Richard Dowden, executive director of the Royal African Society in London, and author of The Economist’s “hopeless continent” article. It was, he says, “absolutely ridiculous”.

Moeletsi Mbeki is an academic and younger brother of Thabo Mbeki, the former South African president noted that few countries have a strategy to match Asian economies, such as Taiwan and South Korea, which built prosperity on manufacturing and exports. “Africa is still not yet in the manufacturing age.” [With exception of Ethiopia]

“Africa has always been valued for its commodities, whether it’s gold or diamonds or slaves,” says historian Martin Meredith. “‘Africa Rising’ was based on the Chinese being prepared to trade heavily to get their hands on those raw materials.”
That phase is over.

“You’ve gone from huge over-exuberance to uber-pessimism without anything much in between,” says David Cowan, Africa Economist at Citibank.

Nigeria and South Africa, which together make up more than half of sub-Saharan Africa’s gross domestic product, are in deep trouble. Nigeria’s petroleum-dependent economy will be lucky to notch up GDP growth of 3 percent this year, barely enough to keep up with population expansion. The naira is under pressure, foreign exchange is rationed, the budget is strained and a balance of payments crisis is looming. South Africa is in even worse shape, convulsed politically, battered by deep job losses in its struggling mines and facing the real possibility of a downgrade of its sovereign debt to junk.

Other African states, especially commodity producers, are struggling. Angola, which had been pumping out oil and purring along at double-digit growth rates, has turned to the International Monetary Fund. Mozambique is in dire straits after squandering much of the proceeds of international borrowing. The grotesque use by politicians of windfall profits around the continent is a reminder that corruption is alive and well.

In country after country, growth is slowing, external positions weakening and fiscal deficits widening. In its semi-annual report, the World Bank forecast growth in Sub-Saharan Africa of just 3.3 percent this year, less than half the average of 6.8 per cent recorded between 2003 and 2008. Because of their growing populations, most African states need nearly 3 percent growth just to stand still in per capita terms. Vijay Mahajan helped consolidate optimism with his 2009 book ‘Africa Rising: How 900m African Consumers Offer More Than You Think.’ But Mahajan, built his thesis on less-than-robust advertising classifications of spending power of a “middle class” that were scraping by on a few dollars a day in insecure jobs. (His book title he admits was his publisher’s spin.)

 Many well-paid jobs are in the bloated public sector, funded by governments that may no longer be able to afford such expense. In recent years, consumer goods companies have been forced to chase their customers downmarket, offering them smaller packet sizes (the two-cigarette pack has hit the streets of Harare) or economy brands to keep cash-strapped customers loyal. Perhaps the biggest flaw in the middle-class story is that with a few exceptions, Africa hardly makes anything. For too many countries, the economic model continues to be to dig stuff out of the ground and sell it to foreign companies.

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