Is ‘Africa Rising’ Over?
The commodity super-cycle that characterized ‘Africa Rising’ has come to an abrupt end. It is time to get to the serious business of nation-building.
Sub-Saharan African economic growth was forecast to grow at 1.6% last year, barely enough to keep up with population growth. This is the lowest it’s been in almost two decades. The spurt of economic growth and improved governance over the last decade and half has been a welcome dose of good news for a continent that until recently was the poster child for disease, despair and destitution. The recent fall from grace of some of the continent’s previous high economic flyers suggest that the pendulum swung too far in the opposite direction, with some degree of hyperbole in the rhetoric.
One often cited figure at the height of this hype was the suggestion that seven out of the ten fastest growing economies were in Africa. A more sober analysis would have indicated that there was more to it than met the eye.
For starters, the sample size that was used ought to have been taken with a pinch of salt, as observed by Simon Fraser University academic, Morten Jerven. It excluded countries with populations of less than 10 million and also post-conflict Iraq and Afghanistan (whose high GDP growth rates would have easily displaced a number of African countries on the list). This left only 81 countries, 28 of them in Africa (ie Africa represented about 35% of the listed countries). If you stripped out the Organization for Economic Co-operation and Development (OECD) club of rich countries, (which were always unlikely to grow at high rates because they were starting from high bases), Africa’s share of the sample size increases to 50%. Thus, the phrase “seven out of the ten fastest growing economies are in Africa” would not have sounded as impressive if one had considered the fact that the sample size used was heavily skewed towards Africa. Finally, another detail, which largely went overlooked in the discourse, was that it was based on a forecast, which time and again has proven to be unreliable, as evidenced in the examples of countries such as Ghana, Zambia and Nigeria which have had (or are planning) to run to international financial institutions, cap-in-hand for Extended Credit Facility (read: bailout).
Larry Summers, the former economic adviser to President Obama once said that the three most dangerous words on a ski slope are “follow me dad”. To paraphrase him [again], the four most dangerous words in economic development are “this time is different”.
While the recent economic growth in Africa appears to have been somewhat different from previous booms, a healthy amount of the growth was a sideshow to Chinese economic expansion and its voracious appetite for African oil, gold and copper.
While this has been a welcome shot in the arm for Africa, the business models that underpin most of these economies are broken. Countries such as Ghana pursued a “highly levered growth bet” characterized by “borrowing a lot, leveraging up the country and betting on growth” as observed by London-based portfolio manager, Antoon de Klerk. I would add that the bet was supported by a wing and a prayer – an unsustainable strategy which, history tells us, always end in tears.
We missed out on a once-in-generational opportunity (debt write-offs, improved terms of trade and high commodity prices) to re-orient our economies onto a more sustainable footing. The structures of most African economies are unsound, with very limited capacities to absorb shocks. A lack of adequate investment in human capital and infrastructure has led to excessive reliance on export of primary commodities. This makes countries too vulnerable to fall in commodity prices from external sources, while less-than-robust institutions weaken countries’ capacities to withstand internal challenges from political clients to spend money on unproductive expenditures such as salaries and subsidies, for example.
A superior at my former employer once said “economist only know one thing. If they told you they know more, they are lying. The one thing is today’s investment is tomorrow’s growth” – only then can we truly take the hazard out of those potentially fatal words: “this time is different”.