There has been a lot of good news around Africa recently, and many countries are achieving high economic growth rates – Senegal, Ivory Coast, Kenya, and Ethiopia come to mind. And this is not happening by accident – over the last decade there has been an incredible paradigm shift in most countries, with a recognition that:
- a country can only be prosperous with a strong private sector – that is, a model of state-led growth cannot succeed
- countries need to compete globally to build their private sectors, including creating a conducive business environment
This evolution in thinking has been supported with progress on many key measures, including the World Bank Ease of Doing Business rankings of African countries. Rwanda in particular needs to be cited for its outstanding performance, jumping from 41stin the world to 29th, ahead of countries like France, Netherlands, and Switzerland– remarkable (Mauritius remains the top African country at 20th).
However, despite the considerable progress Africa has made, the reality is that we are not growing fast enough.
According to the AfDB’s 2019 African Economic Output report, 2018 growth rate was 3.5% and the projected growth rate for 2019 is 4.0%. This is still below the growth rate required to keep unemployment stable on the continent.
The reason we continue to struggle to reduce unemployment despite the progress in approach to the continent’s economy and the bright spots across the continent in the last decade is because the giants on Africa ; Nigeria and South Africa continue to slow down the continent’s economy.
In the case of both Nigeria and South Africa, 2018 growth was only 1.9%, dragging down the continent’s performance. We will have ample time during the year to examine the country specific issues holding back Nigeria, South Africa, and others.
For now, let’s examine the overall economic issues for Africa. Here are the 2 biggest issues:
- The global economic headwinds, their impact and implications for Africa
- The incredible achievement-in-making that is the Africa Continental Free Trade Agreement (AfCFTA)
Let’s discuss each of these in turn.
In 2017, there was the concept of globally synchronized growth – that is, strong economic growth occurring in all the major markets – USA, EU, and China – lifting economies around the world. There was an optimism that after 9 years of anemic growth following the Great Financial Crisis (GFC) of 2018, global growth was going to take off. This optimism proved to be short-lived.
As we enter 2019, we face a barrage of global negative economic news that has been building for some time. Some of the issues include:
- Slowing growth in Europe; this was inevitable given Europe’s rapidlyageing population which seems to have taken leaders by surprise. Slowing growth is a particular problem when combined with high indebtedness, which is a problem in the Eurozone, most acutely in Italy.
- Fiscal challenges in the US, where the structural deficit at the Federal level has been exacerbated by recent tax cuts, cuts which are unlikely to lead to higher growth, basically because wealthier people don’t spend much more as they earn more
- High and opaque levels of indebtedness in China. China’s economic miracle for the last decade has relied on ever increasing amounts of debt, often concealed in opaque structures. Recent economic data show this construct is coming to an end, and China’s mal-investment (particularly in real estate) may finally be catching up.
Of course, we all know 3 economists have 10 opinions about the future and it is not our purpose here to predict economic developments in 2019-2020.
The implication for Africa, however, is that Africa cannot rely on the rest of the world to drive our economic development. We need to build a resilient economy that will allow Africa to increasingly proposer, independently of what happens in the rest of the world.
In fact, if we look a little further in the future, by 2050 there will be 3 major poles of population in the world – Indian sub-continent, East Asia (China, Japan, Korea, Vietnam primarily), and Africa. Each of these poles will have 2 billion people. The population in the rest of the world will be shrinking (and shrinking in East Asia as well).
In this world, how can Africa prosper? Well, if we sell raw materials to others – with little or no value added – we will continue to be poor. So we need to sell higher value goods and services. Who will we sell these to? It is unlikely we will sell into Europe and North America because with aging and shrinking populations, it is challenging to sell into these markets (which would require displacing existing suppliers in a shrinking market). Would we be able to sell to China? Unlikely. India? Perhaps some things but not enough.
The market that is most critical for our prosperity is in fact Africa. Africa can only become richer if Africans sell to Africans. There is no other path.
This brings us to the African Continental Free Trade Agreement (AfCFTA). We believe that Africans should applaud themselves with the remarkable progress AfCFTA has made in a very short period of time. In a world where divisions and fractures between people are becoming greater and greater, and politicians exploit these divisions to sow hatred and discontent, Africa has chosen a different path.
The Africa Union and Afrexim Bank have stepped up to drive this new pan-Africanism, based on economic prosperity and the private sector. In a very short period of time,
- AfCFTA was signed in Kigali, Rwanda on March 21, 2018
- 49 member- countries of the African Union have signed the AfCFTA (SEE MAP)
- 18 countries have ratified the agreement (The proposal will come into force after ratification by 22 of the signatory states)
- UNECA predicts a 52% increase in intra-African trade by 2022 if AfCFTA is implemented
This is remarkable progress and all those who are driving this new pan-Africanism should be applauded.
So as we look forward to 2019, Africa faces an uncertain economic environment in the rest of the world. But we must use our cohesion and drive the progress of AfCFTA to ensure our future prosperity.
The views expressed in this piece are the author’s own and do not necessarily reflect News Central’s editorial stance.