Africa on the cusp of economic boom

By Njiraini Muchira

NAIROBI; KENYA: Some predictions are difficult to fathom.

Take the assertion that in a span of a decade — from 2040 to 2050 — Kenya’s economy will overtake Argentina, Switzerland, Turkey, Indonesia, South Korea and Mexico in that order.

By all accounts, this appears farfetched, even utopian. Today, according to the World Bank, Kenya’s gross domestic product (GDP) stands at a miserable $33.6 billion.

This compares badly to Turkey’s $773 billion, Indonesia’s $846.8 billion, South Korea’s $1.12 trillion and Mexico’s $1.16 trillion.

Going by their advanced economies, these countries are part of the prestigious G20 club with Kenya being in the peripheries at position 85 in world ranking. 

Measuring by per capita, Switzerland ranks among the richest countries in the world with a per capita of $49,151 while Kenya is among the poorest at position 152 with a per capita of $1,718.

Yet, according to investment bank Renaissance Group, Kenya is among African countries poised for an astonishing economic revolution over the next four decades as fortunes shift from Asia to Africa and as the west continues to experience economic upheavals.

“Africa has firmly shifted into the high growth camp after the stagnation of the 1980–2000,” said Charles Robertson, Renaissance Capital global chief economist in a new book that explores Africa’s economic revolution.

He adds that with many governments having learnt from their past mistakes and embracing reforms akin to what transpired in Asia 30 years ago, the continent is on the cusp of economic boom.

Leapfrog super powers

Today, Africa is where India was at the end of 1990s and developing Asia was in the late 1980s. 

The boom, which Renaissance Capital contends will be spectacular, will see sub-Sahara Africa leapfrog Germany, Japan, China and the US, the four biggest world economies, in 2025, 2030, 2035 and 2045 respectively if the current growth rates are maintained.

Put in perspective, the GDP of Africa at the current growth rate averaging five – six per cent will increase tenfold from the current $2 trillion to $29 trillion in 2050, making it bigger that the European Union combined that currently stands at $17.6 trillion, the US at $15 trillion and China at $7 trillion.

“By 2050 Africa will produce more GDP than the US and the Eurozone combined do today and its basic social, demographic and political realities will also be transformed,” reckoned Robertson in the book The Fastest Billion: The Story Behind Africa’s Economic Revolution.

He explained the current growth rates will continue to rise in the decades to come, with the lowest income countries recording accelerated growth from seven per cent to 13 per cent pushing GDP per capita to over $10,000 across the continent.

Are these projections realistic for a continent better known for doom rather than boom? According to leading economists, Africa has seen the worst and the future can only be brighter.

“What has been holding Africa back was simply political underdevelopment,” observed David Ndii, an economist who is also a Lecturer at the Department of Economics, University of Nairobi.

Asian tigers

True to this observation, Africa is coming from a troubled past where poor leadership blighted the continent’s hope for growth.

For decades, civil wars, wanton corruption, illiteracy and diseases, biting poverty, and poor infrastructures have been the bane of Africa’s growth.      

But after decades of genuine struggle, the continent is on a turning point and a combination of factors demonstrates Africa as the continent to watch in terms of economic development.

Just last month, General Electric chief executive for Africa, Jay Ireland, noted that multinationals seeking for sustainable growth could only turn to Africa.

“Africa is a frontier for growth because economic growth in the rest of the world is slowing down,” he said during the 3rd Annual African summit of the American Chamber of Commerce.

The transformation of Africa may have commenced at the start of this century but it’s only now that it is peaking momentum.

According to economists, a combination of factors is driving the phenomenal revolution.

Top on the list is the historical reason for optimism.

After being under the oppressive yoke of colonialists for years and watching the remarkable transformation of countries like China, India and the Asian Tigers within a generation, Africa has all the reasons to replicate these success stories.

In 1980, for instance, China was nothing but a vast scrappy country with a disillusioned ballooning population. In a span of 30 years, however, it has transformed to become the second largest economy in the world.

While historical perspective might be rudimentary, a critical factor defining the continent is getting the macro-economic aspect right.

Yvonne Mhango, Renaissance Capital Sub Sahara economist, observed that in recent years, governments have decidedly been crafting policies to ensure a sound macro-economic environment.

Across the continent, there is a conscious attempt to rein in inflation, maintain stable exchange and interest rates, shore up foreign reserves and contain foreign debt.

“Governments have got policy spectacularly right and created the low debt, low-inflation, much-improved macro conditions that have enabled growth to take off,” said Mhango.

She added that public debt in Africa is among the lowest in any continent having dropped to 32 per cent of GDP in 2009 from 70 per cent in 2000.

Another factor expected to play a major role is the maturing democratic culture. Though Africa is still home to 23 autocracies like Swaziland, The Gambia, Cameroon among others, the wave of democratisation sweeping across the continent, with the Arab Spring being a clear indication, shows time is fast running out for the strong men on the continent.

“While nearly all of Africa’s autocracies will have become democracies by the 2040s, this could of course happen much sooner,” stated Robertson.

Maturing democracy in the continent is expected to among other things unleash the private sector. While already the private sector is vibrant in most countries, deepening reforms, investments in infrastructure and friendly economic policies spur investment and growth.

In its growth trajectory, Africa will also be banking on its human capital. Unlike other continents that are having to contend with an aging population, Africa boasts of an expanding young population of between 15 to 24 years.

In the West, the number 15-24 years old is expected to stagnate between 2010 and 2020 in North America and to decline by seven per cent in Western Europe.

With projections showing that between five and nine out of 10 to be secondary school by 2020 coupled by expanding public spending on education from $93 billion currently to $1.3 trillion in 2050, the continent will be equipped with the necessary skills to do any jobs including those being done by the Chinese.

Developing skills will be critical because Africa is just starting to experience a natural resources boom in terms of oil, gas and mining while other sectors like ICTs, services are on a roll.

 Oil reserves

In terms of oil and gas, new discoveries in recent years has pushed Africa’s proven oil reserves to 132 billion barrels, equivalent to 36 years of production and 519 trillion cubic feet of proven natural gas reserves. 

“The consequence of rising production and higher oil prices is dramatic. The value of sub-Sahara oil production in 2011 dollars was $1 billion in 1965 but $235 billion in 2011,” observed Robertson.

According to Mhango, one area that Africa must concentrate on is agriculture to boost food security.

The continent has the potential to transform from a basket case to a bread basket considering that out of sub-Sahara Africa’s 2.3 billion hectares; nearly one billion is suitable for rain-fed crop production.

So far, the region has not utilised this land effectively. By 2005, the total arable land in use amounted to 236 million hectares, only about 24 per cent of the total suitable area.

As Africa’s economic renaissance take shape in the years to come, tell tales of a continent asserting its influence in the global arena will be many.

Apart from creating a growing number of middle class, it is crucial to note, for instance, it is anticipated that the number of air transport passengers will increase from the current 200 million to 1.8 billion by 2050 while motor vehicle sales will increase from 100 million to about 700 million.