IN PERSPECTIVE : AFRICA RISING

Africa, a continent known for its war torn past and bizarre political history is now beginning to register its mark on the global landscape. Wars and internal conflicts are less frequent as 25 of the 54 African countries now have a democratic setup (compared to three at the end of cold war). At a time when the growth figures in China and India are taking a plunge, several African nations are posting above or near double digit GDP growths. Apparently six of the ten fastest growing economies are from Africa. This “rise” may not have been a part of mainstream tabloids in the west and elsewhere, it certainly has captured the attention of economists and businessmen. Moreover, post Arab Spring, people in the rest of Africa have got a fresh lease of life and they are participating actively in policy building. It appears that the chips are finally falling in place.

While a lot of businesses are localized to oil & natural resources sector, there are other sectors as well which have performed well. Airtel for instance gauged the potential of Telecom sector and is now a major telecom provider in Nigeria. Coleman Wires & Cables, a Nigerian Company, has emerged as the largest cable manufacturer in West Africa and has reportedly registered a growth of above 500 per cent since its inception. Another example is that of the Nigerian Film Industry which now produces more motion pictures in a year than Hollywood does. Foreign Direct Investments in Africa have gone up from $15 billion in 2002 to $46 billion in 2012. A lot of this investment has come from China, which is Africa’s biggest trade partner; bilateral trade between the two has increased from a mere $10 billion a decade ago to above $166 billion now.

It has been suggested that this impressive growth can be attributed to the rise of the middle class. Hence, the large consumer base should catch the attention of global retail brands. Oddly, it hasn’t yet happened. That is because the claims about the burgeoning middle class have been met with skepticism. While African Development Bank (AfDB) calculates the middle class to be around 300 million, OECD thinks it’s not more than 32 million in size. Some other economists and global rating agencies have similarly divergent estimates about the size of this middle class. It is because they have different formulas for defining the middle class. While the UN puts any person earning $10-$100 a day in the middle class category, AfDB uses $2-$20 range as the criteria. Even then, one must understand that it’s not the size that should be of greater concern. Experts suggest that African society is heterogeneous and hence the consumer behavior is very different from what businesses expect it to be. It will take time and effort on the part of businessmen to understand and cater to the needs of this aspirational class.

Africa is also becoming a battle ground, once again, from a geo-political perspective. It is understood that a lot of Chinese aid and investment is not merely restricted to simple business. China has made massive investments in countries like Malawi, which hold no business importance. However, by doing so it has bought a trusting partner and a guaranteed voting point in the UN. There have also been occasions where China has supported regimes regardless of their not so decent human rights records. It is the very same reason for which the West has criticized Chinese interference in Africa. However, there is another aspect of the rising Africa story. GDP figures rarely capture the situation on the ground. Africa has a lot to do in order to develop basic infrastructure. In a BBC broadcast, a businessman from Lagos, the second largest city in Africa, explained how his company has to spend more than 70 per cent of its profits for ensuring continuous power supply via diesel generators. Though large corporations manage to run their businesses profitably by getting subsidies in diesel, it cannot be seen as a long term solution for ensuring industrial growth. This is also a major issue blocking the rise of Small and Medium Scale Industries. Africa has to make massive investments in

education as it will require a skilled human base for supporting its future growth. Healthcare and public amenities also require attention. Additionally, it has to look at agriculture as a business opportunity. An expert form the World Bank emphasized the need for closer cooperation among African nations.

Mismanagement of resources, corruption and tax avoidance are other major issues preventing benefits of Double digit GDP growth from reaching the masses. A study by AfDB and the Global Financial Integrity reveals that between 1980 and 2009 Africa lost $1.2 to $1.4 trillion in illicit financial outflows which is more than thrice the total amount of foreign aid received in the same period. It implies that the massive amount of aid and donations have not reached its intended target group. In fact, Africa is a net creditor through the illicit means. At some point in the near future, it would be expected to put a stop to this mismanagement. Investors in Africa are looking forward to a larger-picture expecting improvements in the formal economy, better regulation with stable policies and responsible governments at the centre. That prospect is brighter than ever. It remains to be seen if the future progress will be in line with these expectations.