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The economic outlook for Africa

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The economic outlook for Africa

Kathy Gibson reports from the World Economic Forum on Africa in Durban – It’s only a couple of years ago that the Africa was being touted as the growth engine of the world – but in 2016 the continent experienced its worst growth rates in 20 years.

Former high-flyers South Africa, Nigeria and Angola led the decline which saw Africa record a paltry 1,3% growth for 2016. This is expected to pick up slightly in 2017 to 2,6%, reaching 3,2% in 2018 and 3,5% in 2019.

Achieving even these modest growth levels could still be derailed if potential risks play out.

With its burgeoning youth population, the single biggest challenge facing the continent is the 20-million jobs that need to be created every year until 2025.

Finance minister Malusi Gigaba is confident that Africa will achieve its growth targets, although there are challenges.

“There are geopolitical risks like Brexit, and uncertainties in major economies like US and China,” he says.

“Hand in hand with these is the risk of countries becoming more protectionist and reducing international trade. This would have an enormous impact for us in Africa and lead to rising costs of capital and a risk of declining trade.”

To mitigate these risks, Gigaba says Africa needs to reduce its dependence on international trade.

“There are three urgent things we need to do,” he says.

“We must increase our own revenue to support infrastructure investment. We must be able to fund our own investments.

“We need to increase inter-African trade so we are not wholly reliant on what happens outside the continent.

“And we need to listen to the African youth, draw them into the system and listen to their views.”

Wolfgang Schäuble, federal finance minister of Germany, agrees about the geopolitical risks, but adds that Africa also needs to address issues of inclusiveness.

“If the gap between the rich and poor is increasing, we will face major political drama,” he says.

This gap is epitomised by the disparity between African economies and those of the developed world.

Alarm over the potential for violent social upheaval across the globe has prompted the G20 group of nations, along with South Africa, to launch a compact with Africa to try to rapidly improve the continent’s growth path and thereby stabilize the political environment.

So far, five nations – Cote d’Ivoire, Senegal Rwanda, Morocco and Tunisia – have committed to working with the G20 to build infrastructure and attract considerable new investment.

The G20 will facilitate and fund projects as well as encourage major private-sector investors to throw their weight behind the effort.

Africa’s problems affect Europe, Schäuble adds, in that the increased migration and terrorism are a result of crises in Africa.

“As a global community we have to engage this. If we fail to stabilise Africa we will face increasing geopolitical risk.”

As the only African member of the G20, South Africa will be expected to act on behalf of the continent when it comes to implementing the compact.

“We have always taken our commitment to Africa very seriously,” Gigaba says. “We will partner on creating partnerships on the continent.”

He adds that African countries should be active participants in its own growth. “We are not just waiting for the world’s largesse.”

Private sector investment is key to enabling Africa to develop capacity.

Swiss manufacturer ABB has invested upwards of $1,5-billion into Africa over the more than a century it has been present on the continent.

Ulrich Spiesshofer, president and CEO of ABB, says it’s important for investors to take a long-term view of Africa.

“We have been in Africa for 110 years. During this time, there have been ripples but we didn’t pull out. And we are not pulling out now.

“Not only are we continuing to invest, we are adding to it.

Spiesshofer says the challenge for Africa now lies in mobilizing investment to add value to its resource wealth. The continent has enormous untapped wealth and a vast indigenous market, and bringing these two phenomena together offers Africa a way out of its poverty trap.

Currently, a lot of the jobs being created by the natural resources are outside of Africa. Meanwhile, consumer demand is being met by exports.”

It is the role of industrialists to invest in facilities, people and education, Spiesshofer adds.

ABB has set up a new locomotive factory in Johannesburg that is the same size of the company’s facility in Switzerland.

Spiesshofer urges African leaders to focus on infrastructure, training and education. Cross-border trade is also urgent, he says. “Sometimes it is easier to import from China than from another African country.”

Frederic Lemoine, chairman of the executive board of Wendel in France and co-chair of the World Economic Forum on Africa, agrees that Africa has to be a long-term commitment.

He adds that the world is full of uncertainty, in both the developing and developed world. “I believe that Africa’s risk is often over estimated.”

Companies in the developed world simply do not know enough about conditions on the continent to make informed decisions, he says. The challenge for Africa is to prove that investments can work over time and not be disrupted by political instability and policy uncertainty.