Africa on the cusp of a colossal opportunity
Experts report that the continent could mirror growth in Asia if it embraces the fourth industrial revolution
Recent political changes in Africa have sparked optimism that the continent, once perceived as a hopeless region, is on the rise again.
Angola’s Jose Eduardo dos Santos and Zimbabwe’s Robert Mugabe vacated office in 2017 after a combined 75 years in power. The new leaders of the two Southern African nations, João Lourenço and Emmerson Mnangagwa, have both promised to root out corruption, open up their economies and create a business-friendly environment to attract investment and create jobs.
In SA, the continent’s economic powerhouse, the election of President Cyril Ramaphosa following the reluctant resignation of scandal-ridden Jacob Zuma, promises to kick-start the country’s struggling economy and avoid a further credit ratings downgrade.
According to the World Bank, growth in sub-Saharan Africa is estimated to have rebounded to 2.4% in 2017, after slowing sharply to 1.3% in 2016. The rise reflects a modest recovery in Angola, Nigeria and SA — some of the region’s largest economies — supported by an improvement in commodity prices, favourable global financing conditions and slowing inflation, which has helped to lift household demand.
Growth in the region is projected to rise to 3.2% in 2018 and to 3.5% in 2019, on the back of firming commodity prices and gradually strengthening domestic demand. However, growth will remain below precrisis averages, partly reflecting a struggle in larger economies to boost private investment, the World Bank notes.
SA is forecast to tick up to 1.4% growth in 2018 from 0.8% in 2017.
The recovery is expected to solidify, as improving business sentiment supports a modest rise in investment. The World Bank says policy uncertainty is likely to remain and could slow needed structural reforms.
THE CONTINENT NOW HAS FEWER CIVIL WARS, STRONGER DEMOCRACIES AND INSTITUTIONS, LIKE THE JUDICIARY.
However, in order for these countries and the broader continent to realise their full potential, diversification, prioritisation of the manufacturing sector and the adoption of technology will be key, according to Dr Grieve Chelwa, senior lecturer in economics at the UCT Graduate School of Business and associate professor Mills Soko, director of the business school.
They co-convened a short course on the political economy of doing business in Africa as part of the March Global Network Week.
Diversification of African economies is essential to drive sustained growth, build market resilience and weather shocks in the face of difficult global economic conditions.
To rise economically, a country has to produce sustained growth well into the future, China being a classic example.
Sustained economic growth improves incomes and thus the livelihoods of the populace, says Chelwa.
But sustained growth on the continent has largely been elusive, in part because of over-reliance on commodities, which are vulnerable to price shocks. For most of the last decade, Africa’s growth has been largely driven by commodities and the export of raw materials.
Yet, according to Soko, economic history reveals that without significant diversification into manufacturing and services away from resource extraction growth prospects are generally bleak.
It is thus a major concern that while many African countries have in recent times enjoyed above-average growth rates (growth across the continent averaged about 5% over the past decade), the growth has taken place in the context of limited economic diversification and structural change.
Africa’s share of global manufacturing fell from 3% in 1970 to less than 2% in 2013. Manufacturing, at 10% of total African economic output, is lower than that of other developing regions, notes Soko. Going forward, it will be imperative for Africa to focus on boosting the manufacturing sector, which is vital, particularly in terms of job creation.
Africa should also harness technology, including artificial intelligence, to boost economic growth. Machine learning has transformed the efficiency of public and private sector organisations alike. However, Africa has generally struggled to harness these cutting-edge technologies to improve public and private sector operations and boost economic growth.
Nouha Abardazzou, an analyst at Infomineo, a business research company focusing on Africa and the Middle East, has argued that many African countries are still battling with issues related to the first, second and third industrial revolutions such as electricity, mechanisation of production and automation.
Thus, questions about Africa’s preparedness for the fourth industrial revolution — a digital revolution fusing the physical, digital and biological worlds — are being raised: is Africa catching up with the continual advancement in technology?
"From cheap, abundant labour to natural resources, Africa’s current strengths seem not to match the fundamental needs of the fourth industrial revolution that consist mainly of colossal investment capital, research and development and highly skilled talent," says Abardazzou. "However, the ongoing industrial revolution represents an opportunity that, if used well, will enable Africa to become a main player in the world economy."
According to a PwC report, there is evidence that Africa is embracing new technologies in a way that sets it apart and offers the potential to transform the continent’s economic prospects, create new target markets and bring unprecedented consumer choice. Africa is also less constrained by legacy than other regions, creating a clean sheet upon which innovators can develop new business models and blur industry boundaries.
With agriculture being the largest employer in Africa, innovative technology is increasingly important to modernise the sector and improve the livelihoods of large farming communities. Innovation in education, healthcare, energy and finance offer significant opportunities. Some of this is already unfolding.
In the past two decades financial innovation has increased exponentially and is now radically changing the very concept of a banking-centred financial system. African innovation has been at the forefront of some of these advances — for example, M-Pesa in Kenya.
Thus, despite various concerns about the hurdles impeding Africa’s economic growth, there are encouraging signs that the continent could establish itself as a major economic player. The political environment looks stable, there is growing appetite in the investment community to venture into the continent, and a young and rapidly expanding population and middle class means Africa has an opportunity to reap the demographic dividend and become a new powerhouse of production and consumption in the 21st century, just as Asia did in the late 20th, says Chelwa.
He says most countries on the continent now have stronger democracies; there are fewer civil wars and stronger institutions such as central banks and the judiciary, which could explain why most African countries have recorded single-digit inflation rates in recent times.
Constraints that have held Africa back have largely been loosened. The continent now has all the preconditions for catching up with the rest of the world, Chelwa points out.
It is thus imperative for business schools on the continent to drive this message home: Africa is rising once again and is an ideal place for business. Higher education can be a key driver to narrow the gap between African countries and developed nations via targeted skills development.
As the renowned Prof William Gumede once said: African higher education institutions will actively have to research what needs to be done to make today’s African industries globally competitive, develop new production chains around them, develop new strategic sectors, introduce value-added services and find avenues for beneficiation.
To capitalise on the opportunities, the continent’s new leadership must meanwhile continue to drive reforms that create the conditions for growth and prosperity and embrace change and technical disruption as opportunities. Africa is on the cusp of something great. Working together, there is a chance that growth will be realised.