Archives for April 2014

Sub-Saharan Africa has gone through a remarkable decade of economic transformation. The continent is abuzz with talk of new investment, new cities, new airports and new refineries. A new, more confident and self-affirming Africa is taking shape.

The new millennium saw per capita incomes in Africa rise faster than high-income countries for the first time since the 1970s. Poverty and inequality remain, but for a score of countries the income gap has narrowed with wealthier OECD countries. The World Bank expects that most African countries will reach middle income status (defined as at least US$1,000 per person a year) by 2025 if current growth rates continue.

As the growth in Africa has been driven mainly by services and not manufacturing or agriculture, it has been growth without jobs and without reduction in poverty levels. In fact, the food security crisis of 2008 which took place on the heels of the global financial crisis, has pushed back 100 million people into food insecurity. Mining, oil, and gas contribute significantly to Africa’s GDP, but these sectors employ less than 1 per cent of the workforce.

CHALLENGES

For those venturing into Africa for the first time there are several headwinds to confront, not least of which is the great diversity of tongues drawn from several language families. But also education, ICT infrastructure and the ongoing instability across the continent are challenges vital to recognise.

Languages

The first challenge is the great variety of languages spoken across the continent. Estimates vary on the number of tongues spoken, whistled and even drummed in Africa from 2000 to over 3000. Some languages in North East Africa have their own alphabets; in West Africa, scripts now adapted to Latin were originally written in Arabic; other languages have only recently been written down, especially in the southern parts of the continent.
The main languages families are:

• Afro-Asiatic (Hamito-Semitic) spread throughout the Middle East, North Africa, Ethiopia, Eritrea, the Horn of Africa, and parts of the Sahel
• Nilo-Saharan centered on Sudan and Chad
• Niger–Congo (Bantu) covering West, Central, and Southeast Africa
• Khoe concentrated in the deserts of Namibia and Botswana
• Austronesian on Madagascar
• Indo-European in the south

Languages spoken by millions of people such as Arabic, Igbo, Somali, Swahili, Hausa, Amharic and Yoruba are used for interethnic communication. Twelve of the more similar languages are spoken by 75% of the people and fifteen of these are spoken by 85% as a first or second language.

While English, French – and to a lesser degree Arabic and Portuguese – are spoken in many of the countries that were colonized in the past, there is a clear need for local languages when selling services or goods in these markets. Angola is the exception as over 60% of the people speak Portuguese and this is increasing among the youth.

Education
A second challenge is the fact that education in most countries has lagged, with only a small percentage of the more affluent sectors of society achieving university status during the 20th century, thus creating a lack of suitably trained persons.

Although literacy rates have greatly improved over the last few decades, approximately 40% of Africans over the age of 15 and 50% of women above the age of 25 remain illiterate. Thus many sub-Saharan African countries have low rates of participation in formal education. Schools lack basic facilities and universities often suffer from overcrowding. Universities have difficulties retaining qualified staff attracted by higher pay and better conditions overseas. According to a report published by Friedrich Huebler in March 2008, 36.9% of school-aged children in Africa do not attend primary school.

ICT infrastructure
A third challenge is the lack of Information and Communication Technology (ICT) infrastructure in many African countries. Internet connectivity is frequently not of good quality, making it difficult to work online, or the costs are extremely high. Ongoing electricity outages compound the situation in too many of the countries. One bright spot is East Africa, with the development of the new undersea optical fibre cable in 2009.

Innovation in ICT is a vital component of an economy’s dynamism and competitiveness. While Africa lags behind in terms of fixed-line telephony, new technologies and business models are circumventing market inefficiencies and institutional bottlenecks. The number of applications is rising, with e-banking setting the pace and other services such as e-health, e-education, and e-government following closely.

So the outlook for ICT in Africa is immense; there are many opportunities for enterprising overseas companies to tap into vibrant sectors such as the mobile money industry, which has taken East Africa by storm. Africa could easily transform ICT development around the world because there is a lot to learn from hard to reach regions, which leapfrog past their Western counterparts due to local factors forcing them to think outside the box.

Instability
The fourth challenge is the ongoing conflicts and coups that affect a number of the countries in West and Central Africa, and more recently Sudan and South Sudan.

Most African countries have enjoyed more than a decade of economic growth at rates the West can only dream about. At the same time Congo has suffered the most murderous conflict since World War II. Next door in Uganda, the capital Kampala has boomed, while less than 200 miles to the north, the Lord’s Resistance Army has abducted children and committed appalling atrocities. Africa is so big and so diverse that it contains both horrendous disasters and extraordinary successes.

OPPORTUNITIES

Africa has gone through a remarkable decade of economic transformation. Africa’s economy—with expanding trade, English language skills, improving literacy and education, availability of splendid resources and cheaper labour force—is expected to continue to perform better into the future.

End of post-colonial era
Before the talk was in dollars. Now leaders speak equally of Chinese renminbi, Indian rupees and Brazilian reals. Are the last shackles of colonialism finally being broken? Or is another form of dependence taking over, this time based on commodity-hungry emerging markets?

According to the African Economic Outlook, trade between Africa and its new partners is now worth USD 673.4 billion a year. Africa is benefiting from investment, trade and aid, but also from the macroeconomic, political and strategic advantages that the rise of emerging countries has produced. Africa’s top five emerging partners are China, India and Brazil — along with Korea and Turkey.

The shift in global wealth has ended post-colonialism and the broadening of Africa’s partnerships reflects the normalisation of its international relations. Pessimists say the emerging economic giants are plundering Africa. Optimists see Africa already belonging to the emerging powers club.

Demographic shift
Africa will experience a “demographic dividend” by 2035, when its young and growing labour force will have fewer children and retired people as dependents as a proportion of the population, making it more demographically comparable to the US and Europe. It is becoming a more educated labour force, with nearly half expected to have some secondary-level education by 2020.

A consumer class is also emerging in Africa and is expected to keep booming. Africa has around 90 million people with household incomes exceeding $5,000, meaning that they can direct more than half of their income towards discretionary spending rather than necessities. This number could reach a projected 128 million by 2020.

Jobs
To reap the benefits of its positive demographics and advancements in education, Africa needs to quickly create more and stable jobs that are the route to lasting prosperity and an expanding consuming class. Africa needs a jobs strategy, not just a growth strategy. Four sectors have a proven capacity to create jobs and can do so in the future: agriculture, manufacturing, retail and hospitality.

Africa’s employment challenge is daunting, but it is not unique. Many other emerging markets have transformed their employment landscapes and made sweeping gains in economic growth, and with the right policies in place, Africa has the right ingredients to produce similar success. Businesses and investors are beginning to take note of the continent’s potential – not only its wealth of natural resources but its human capital. Africa may prove to be one of the next great global stories.