Africa is NOT rising or falling

Africa is increasingly divergent. Straight-line projections and simplistic ‘rise-and-fall’ economics have never served the continent well. These have undermined the basic understanding of such a large and diversified continent for decades.

What goes up, must come down. Many thought this was the story of African growth and development following the end of the commodity boom that rallied economies from the early 2000s until 2013. But in 2018, Africa will once again be home to six of the world’s 10 fastest growing economies.

The difference this time: Most of these are not commodity-intensive economies. This may suggest sustained economic growth, albeit off a low base and slightly more tempered compared to the double-digit growth enjoyed by some of the oil boomers a decade earlier.

Just as growth prospects appear to be spurring a buoyant outlook for the continent, Bloomberg’s annual Misery Index dampens the outlook. This index, a measure combining inflation and unemployment, places six African countries in its top 10 most miserable countries globally in 2018. South Africa, with arguably the highest rates of unemployment, sits firmly in fifth spot. It was second, behind Venezuela, in 2017.

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Those countries that took advantage of the commodities boom, by implementing real structural changes to encourage diversity and stimulate industrialisation, have progressed, and continue to do so, often with more sustained levels of growth. For those that failed to implement necessary reforms, the so-called super cycle has proven to be yet another lost decade. Most have stagnated or even regressed as a result.

The African narrative is certainly not one of rising or falling. Africa is increasingly divergent. Straight-line projections and simplistic “rise-and-fall” economics have never served the continent well. These have undermined the basic understanding of such a large and diversified continent for decades.

Today it is clearer than ever: Countries across the continent are heading in different directions economically, politically and socially. A contextual understanding and appreciation of the nuances between countries has become essential for leaders and managers navigating African markets, seeking opportunities.

Several factors are driving increasing economic and political divergence in Africa:

Poor economic governance and weaker institutions

Despite rhetorical efforts of policy and institutional reform throughout a decade of economic liberalisation starting in the mid-1990s, ongoing efforts and policy persistence have waned over time. Levels of corruption have increased relative to the global average, while accountability, transparency and poor leadership have undermined institutional progress and development in many African countries, leading to lower than expected comparative results on many empirical measures.

The World Bank’s annual Country Policy and Institutional Assessment (CPIA) report, for example, found a 40% deterioration in the overall quality of policies and institutions in African countries in 2016. The deterioration increased from 2015 to 2016, and by 2016, the number of countries in decline outnumbered those improving by a margin of two to one.

Commodity exporters were typically weaker performers. South Sudan, Eritrea and the Central African Republic lead the pack of countries in institutional decline. Rwanda, Senegal and Kenya were the top scoring countries in policy and institutional progress.

Democratic decline

While almost every country in Africa holds elections of some shape or form, African governments’ commitment to democratic pluralism is increasingly questionable. There is a clear indication of creeping authoritarianism and democratic backsliding. While this may be a global trend, with measures from Freedom House and the Economist’s Democratic Health Index revealing a retreat of democracy with declining scores across the board in recent years, Africa simply cannot afford to abandon democracy at this stage in its development.

Authoritarian rule with leaders running roughshod over democratic institutions is rising, especially in East Africa, among the likes of Tanzania, Uganda and Rwanda. Even Kenya, a proudly democratic nation, has been teetering on the brink of violence following its recent presidential elections. There, vote rigging was found to have taken place, resulting in a re-run. In neighbouring Rwanda and South Sudan, elections are used to legitimise governments, which, given the lack of opposition, are voted in with little contest.

With the youngest population in the world, the median age in Africa is less than 20. But Africa has, on average, both the longest serving and oldest heads of state. Seven of the 10 longest-serving world leaders are African. President Teodoro Obiang Mbasogo of Equatorial Guinea, the longest-serving of all, has been at the helm for 38 years. In 2016, he won a fifth seven-year term.

Economic growth is slipping relative to population growth

Africa’s population is set to double by 2050 to 2.4 billion. The continent’s under-18 population, already nearing 60% of Africa’s total, could increase by two thirds to reach almost 1 billion by that date. Currently, nearly 50% of Africans live in cities, seeking housing, jobs and opportunities. This is an urban and demographic time bomb.

It is critical for African countries to post higher economic growth rates (much higher) than their population growth rate in order to boost employment opportunities and reduce poverty. But World Bank figures suggest only some are achieving this.

For example, Nigeria, Africa’s largest economy, is home to almost 200 million people. Its population is growing at 2.61% per year, with a median age of 18. But Nigeria’s economy is set to grow by just 2% in 2018. The implications of this are nothing short of disastrous.

Ethiopia and Ghana demonstrate the alternative scenario. Ethiopia’s 100 million strong population is growing at 2.46% per annum, and its economy is expected to grow by 8.5% in 2018. Ghana, albeit with a relatively small population of under 30 million people, has an annual population growth rate of 2.18% and is expected to have the world’s fastest growing economy in 2018, at 8.9%.

Technology and innovation

Globally, 80% of young people believe technology is creating jobs, not destroying them. This bodes well in Africa, with a young population. But the promise of positive change and opportunities brought about by the Forth Industrial Revolution is at risk in several African countries. Limited access to electricity and low levels of productivity and competitiveness present serious challenges. According to the World Bank, total electricity generation capacity across the continent is less than 100 gigawatts. This is less than the total generation capacity of Spain (which has a population of 46 million) and drops to around 40 gigawatts when South Africa is excluded.

The World Economic Forum (WEF) predicts that this century will see countries distinguished as either “innovation-rich” or “innovation-poor”, with natural resources holding little value. Opportunities associated with technological innovations, artificial intelligence or simply new processes will elude those African countries that do not diversify their economies beyond commodities.

Economic integration and connectedness

Economic and social integration are key drivers for growth and development. This is a direct route to economies of scale and access to new markets. Connecting people is the strongest driver of economic integration. Allowing greater mobility across borders, or from one city to the next, is key to addressing skills gaps in labour markets, sharing knowledge and promoting entrepreneurship. This is a crucial step toward borderless-business, economic diversification, value-added services and boosting competitiveness. But despite the obvious benefits, African countries remain by-and-large disconnected from each other, and few are implementing necessary measures to improve on this any time soon.

Infrastructure and large supra-national projects aside, only 21 countries in Africa have loosened or scrapped their visa requirements for fellow Africans in recent years. Kenya is the latest to allow freer movement of Africans, to visit their country visa-free.

Simple procedures and smoother borders are one thing. The case for intra-regional trade is another. According to the United Nations Economic Commission for Africa, trade among African countries makes up just 13% of Africa’s total trade.

The African Continental Free Trade Area (AfCFTA), proposed at the recent African Union (AU) meeting in Kigali, Rwanda, saw 44 African nations sign the agreement to form a continental free-trade zone encompassing around $3-trillion of cumulative Gross Domestic Product (GDP).

But the hype of continental free trade was dampened by the failure of Africa’s two largest economies, Nigeria and South Africa, to sign the agreement. President Buhari of Nigeria pulled out of the summit at the last minute following opposition from domestic unions, which insisted it being a “radioactive neoliberal policy initiative”. South Africa signed the Kigali Declaration, with an intent to sign the free trade deal in the future. But it will only be signed upon finalisation of unresolved aspects of the agreement.

What does Africa’s increasing political and economic divergence mean for business and leadership development across the continent?

Africa is undergoing dramatic changes. It is in the throes of increasing divergence across every socio-political sphere, economic sector and physical geography. In this era of complexity and uncertainty, bold, innovative and visionary leadership is essential. This stretches well beyond conventional business acumen.

Success in Africa requires contextually intelligent leaders who are politically sensitive and pragmatic, understand socio-economic dynamics, and are mindful of cultural diversity.

SOURCE: dailymaverick