Young men and women chat along the glittering corridors of the sprawling shopping complex. With state-of-the-art mobile communication gadgets in hand, they go in and out of the mall’s 65 shops, filling shopping bags with expensive items. There is a large and well-equipped children’s playground at the back. Fully air-conditioned, the mall has 20,000 square metres of retail space, a theatre, restaurants, bars and parking for 900 cars. Welcome to the Accra Mall in Ghana, one of West Africa’s best — and comparable to any mall in the world.
In Ghana, as in many other African countries, young people are living out the continent’s economic growth. They are educated and relatively well-off, as seen in their cars, dress and homes. Ghana’s economy grew by an impressive 14.4 per cent in 2011, while many African economies are expected to be among the world’s fastest-growing in 2012, according to the World Bank. Ghana, Liberia, Nigeria, Ethiopia, the Democratic Republic of the Congo and others will lead the charge.
Undoubtedly Africa is still bedevilled by poverty, with half of its people living on less than $2 a day. However, its economic growth over the past decade has been striking.
A hopeful continent
“There is a new story emerging out of Africa: a story of growth, progress, potential and profitability,” reports Ernst & Young, a US-based business consulting company. Johnnie Carson, the US secretary of state for African affairs, adds: “Africa represents the next global economic frontier.” Investors had better be aware, advises Mr. Carson, who recently led a US trade delegation to Mozambique, Tanzania, Ghana and Nigeria. China’s trade with Africa reached $160 billion in 2011, making the continent one of its largest trading partners.
Ten years earlier, in 2000, The Economist saw no reason for hope. It pronounced Africa “the hopeless continent,” noting problems that included a bloody civil war in Sierra Leone, famine in Ethiopia and political conflict in Zimbabwe. But last December, the London magazine reconsidered: “Since The Economist regrettably labelled Africa ‘the hopeless continent’ a decade ago, a profound change has taken hold.” Today “the sun shines bright … the continent’s impressive growth looks likely to continue.”
Africa’s overall economic indicators have been remarkable. Over the past decade, Africa’s trade with the rest of the world has increased by more than 200 per cent, annual inflation has averaged only 8 per cent and foreign debt has decreased by 25 per cent. Foreign direct investment (FDI) grew by 27 per cent in 2011 alone.
Even though projections for overall growth in 2012 have been revised downward due to the political crisis in North Africa, Africa’s economy will still grow by 4.2 per cent, according to a UN report in June. Sub-Saharan African economies will grow at more than 5 per cent, notes the International Monetary Fund (IMF). In addition, there are currently more than 600 million mobile-phone users on the continent, while increasing literacy and improving skills have resulted in a 3 per cent growth in productivity.
Most foreign investors are still cautious about Africa, particularly because of security and infrastructure problems. But there is a steady increase in intra-African investment, which in 2011 accounted for about 17 per cent of total FDI, according to Ernst & Young. African entrepreneurs are reaping the benefits. The world’s richest black person used to be the US talk show icon Oprah Winfrey, worth $3 billion. Today, Aliko Dangote of Nigeria, referred to by Forbes magazine as a “commodities titan,” has amassed more than $10 billion.
Several factors make Africa an investor’s dreamland. McKinsey Global Institute, a think tank, writes, “The rate of return on foreign investment is higher in Africa than in any other developing region.”
Africa’s economic growth is driven by a number of factors, including an end to many armed conflicts, abundant natural resources and economic reforms that have promoted a better business climate.
More political stability is lubricating the continent’s economic engine. The UN Economic Commission for Africa (ECA) in 2005 linked democracy to economic growth. “Good governance is central to improving economic performance and promoting economic progress in Africa,” argued Abdoulie Janneh, the ECA executive secretary at the time.
Another important factor is accelerating urbanization. While it may strain social services in the cities, it has also led to an increase in urban consumers. More than 40 per cent of Africa’s population now lives in cities, and by 2030 “Africa’s top 18 cities will have a combined spending power of $1.3 trillion,” McKinsey projects. The Wall Street Journal reports that Africa’s middle class, currently numbering 60 million, will reach 100 million by 2015.
Still a long way to go
Africa’s current economic indicators may appear upbeat, but analysts say it is not yet time to celebrate. “I’ll be cautioning against excessive exuberance,” says Donald Kaberuka, president of the Africa Development Bank (AfDB). “A sustained slowdown in advanced countries will dampen demand for Africa’s exports,” adds Christine Lagarde, managing director of the IMF. Europe accounts for more than half of Africa’s external trade, and tourism could also suffer as fewer Europeans come to Africa, denting economies — like those in Kenya, Tanzania and Egypt — that rely heavily on tourism.
The South African central bank also warned in May that the crisis in Europe, which consumes 25 per cent of South Africa’s exports, poses huge risks. And adverse effects on Africa’s largest economy will have devastating consequences for neighbouring economies.
Another flashpoint is the resurgence of political crises. Due to the Arab Spring, economic growth in North Africa nose-dived to just 0.5 per cent in 2011. Recent coups in Mali and Guinea-Bissau could have wider economic repercussions. “Mali was scoring very well, now we are back to square one,” says Mthuli Ncube, the AfDB’s chief economist. Ethiopia, Kenya, Uganda and other countries are militarily engaged in Somalia, which may slow their economies. And Nigeria is grappling with Boko Haram, a terrorist sect in the north of that country.
Africa also faces other headwinds. The 2011 Africa Economic Report of the ECA and African Union warned of Africa’s “jobless recovery,” noting that investors are concentrating on the extractive sector, particularly oil, gold and diamonds, which produces few jobs.
Another report, the African Economic Outlook 2012 (produced by the AfDB, ECA, Organization for Economic Cooperation and Development and UN Development Programme) reinforces concern about unemployment, adding that about 60 per cent of Africa’s unemployed are aged 15 to 24 and about half are women. In May, UNDP raised an alarm over food insecurity in sub-Saharan Africa, a quarter of whose 856 million people are undernourished.
Talk of a rising African middle class is hasty, the AfDB argues. Defined loosely as those who live on $2 or more a day, most “middle-class” Africans have daily expenditures of no more than $4, notes the bank. Potential economic shocks could easily throw many families into poverty, below the $2 threshold. High income inequality also clouds the picture. In 2008, for example, just 100,000 of Africa’s 1 billion people had a total net worth of $800 billion, equivalent to 60 per cent of the continent’s gross domestic product.
Despite such hurdles, Africa’s economies do not seem set to slow down. Ernst & Young insists that this “story has to be told more confidently and consistently.” But equally important is the need to ensure that the continent’s economic growth also creates jobs and helps rescue millions from poverty.