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Giant concrete structures built for a light rail system changed the face of Addis Ababa, Ethiopia's capital city. Picture: ISTOCK
Giant concrete structures built for a light rail system changed the face of Addis Ababa, Ethiopia's capital city. Picture: ISTOCK

Ethiopia has become an African economic miracle, achieving double-digit growth since 2005, only recently slipping to about 8% a year. Its economy has grown tenfold since 2000, and may soon surpass Kenya as East Africa’s largest economy.

Dollops of Chinese investment, the creation of industrial parks manned by low-cost labour, and an aggressive infrastructure programme have all contributed to this growth.

The capital, Addis Ababa, launched a fully electric light railway system in 2015 and recently completed a 750km-long railway linking the landlocked country of 100m people to the port city of Djibouti. The government is building a hydro-electric dam on the Blue Nile River to provide power for the booming economy. Infrastructure, industrialisation and a light, regulatory touch are the engines powering Ethiopia’s economic success.

Another African success story is Rwanda, which has achieved economic growth rates of 8% a year for the past 14 years. Under the iron hand of President Paul Kagame – who was last year re-elected with an implausible 99% of the popular vote – Rwanda opted for rapid economic expansion as a palliative to the horrors of genocide in 1994 that claimed more than 500,000 lives. As a landlocked country with no significant natural resources, Rwanda has emulated the Singapore economic model, to the extent of employing dozens of advisers from the Asian statelet.

Martyn Davies, managing director of emerging markets and Africa at Deloitte, contrasts these successes with SA’s stubbornly low growth of 1.6%, which is roughly equivalent to the population growth rate.

President of Rwanda Paul Kagame. Picture: BLOOMBERG
President of Rwanda Paul Kagame. Picture: BLOOMBERG

“Many smaller African countries are not economically viable unless they are able to offer something compelling to investors,” he says. “Rwanda has been able to craft an economic comparative advantage and is succeeding because it has an implementable vision and strong leadership. Ethiopia has made itself extremely attractive to Asian investors in particular – both in manufacturing and infrastructure. Its next challenge is to open its market for services.”

The problem is that rather than integrating with the rest of the continent, East Africa is being drawn into Asia’s economic orbit, while Morocco and other North African countries most often look to European markets. Oil-rich Angola and Nigeria are dangerously prone to fickle commodity markets and have been slow to diversify from their dependence on a single-export commodity. The pan-Africanist dream of Robert Sobukwe, founder of the Pan African Congress, and Kwame Nkrumah, Ghana’s first president, is fading in front of our eyes, sundered by the lure of juicier markets elsewhere.

“Until recently, Africa was seen as a consumer play, which explains why global fast-moving consumer goods giants such as Unilever, Nestlé and Procter & Gamble have been so active across the continent,” says Davies. “It’s clear that the next big opportunity in Africa is to provide services that governments would normally offer – such as education, healthcare and infrastructure, and especially access to power. This is a case of the private sector providing public goods and services, which are ordinarily the domain of the state.”

Companies such as Curro and Netcare, offering private education and healthcare, ultimately stand to benefit hugely from the growing need for these services across the continent, says Davies.

South African companies venturing north of the Limpopo have had mixed success. Of the banks, Stanbic has built a formidable African business, but companies such as Woolworths and Tiger Brands have been less fortunate, both choosing to scale back their presence in Nigeria.

But as one door closes, another opens. Davies is heading to Nigeria with the African Association of Automotive Manufacturers, comprising executives from automotive equipment manufacturers, to explore opportunities to expand industry in that country. Just a few years ago, consumer companies would have dominated this kind of investment. Now the industrialists are becoming more interested in Africa’s frontier economies, potentially a sign of things to come.

Volkswagen plant. Picture: REUTERS
Volkswagen plant. Picture: REUTERS

In Rwanda, Volkswagen has launched a $20m (R249m) vehicle assembly plant capable of turning out 5,000 cars a year. Until recently, such as small plant would not have been considered viable. But if it can be done in Rwanda, it can be done almost anywhere, provided there is a market. It is not just about manufacturing; it is also seeking to create a market in “mobility services”.

Davies says foreign capital inevitably flows to the larger, more populated regional anchor economies such as Kenya in East Africa, Ghana and Nigeria in West Africa, and SA in Southern Africa. Kenya, for all its recent political uncertainty, is attracting sizeable financial and technology investment, while Tanzania remains relatively hostile to foreign capital. Ethiopia is positioning itself as an alternative manufacturing destination for Asia, and it remains to be seen whether SA benefits from the wave of “Ramaphoria” sweeping the country. So far, there is little evidence of it.

“The positive news is that we’ve had new presidents in SA, Zimbabwe and Angola in recent months,” says Davies. These political changes are providing political tailwinds to the Southern African Development Community region that may provide renewed impetus to regional growth and integration.

“The ‘Africa rising’ narrative has lost in lustre in recent years; it has been a challenging three or four years compounded by political own goals in key African countries. But we now see green shoots and a more progressive image is being presented. It’s about time.”

This article was paid for by Deloitte.