April 13, 2010

Africa: can it be the next hotspot of the Global Economy?


Drought stricken country side, under nourished human figures, military big men, child soldiers, mud roads, relief workers and NGOs are the images that go through one’s mind, when we hear the word ‘Africa’. This happens through continued exposure to one-sided or ignorant news, images, reports etc. However, this clich├ęd image is changing and today no one can just ignore Africa as an underdeveloped market. According to the UN Trade Agency (UNCTAD), Africa offers the highest return on foreign direct investment, in the world.

Over the last decade the global economy have been transforming itself breaking the established norms and expectations. The economic recession have further complicated this, leading to new protectionist policies by various national governments and economic groupings. Certain economies resisted the global crisis better than others. Africa, like the Middle East, is one region which marked around 2 percent growth rate during this period, outperforming all other regions, except China and India. It is expected to grow at a higher rate in 2010. This is a positive factor, which should be used in attracting more and more foreign investments into Africa.

It is true that there are certain elements in Africa which are restricting the continued economic growth and in attracting huge foreign investment in sectors other than oil and raw materials. We can identify the most important of them as lack of basic infrastructure, good roads, political stability, rampant corruption, ongoing conflicts and civil wars. It is important to note that, most of the emerging economies are still facing some of the very same issues. Corruption is widespread in India, Brazil and China. India and Brazil lack basic infrastructure and good roads, even though both countries are trying to improve the same. India is currently engaged in a fight against the Naxalites (maoist) in some of its states. Even with these deficiencies, these countries are continuing with their economic growth.

It is a proven fact that steady economic development will to a certain extent eliminate many of these bad elements. Africa can use its cheap manpower to attract more foreign investments especially in the manufacturing sector. The labour costs in Asia are increasing as years pass by. With increased economic growth, Asian workers have started demanding higher salaries and higher perks. In the next 10 -15 years labour costs in India, China and other emerging markets will reach a point, where it will be no longer profitable for industries, especially manufacturing, to continue investing in these economies. They will start migrating towards cheaper labour markets, as they did in the 1990s when they had left the Western markets for Asia. This is where Africa comes in, as a provider of cheap labour, which in turn will help in the creating employment and boosting growth. Along with cheap labour, the main advantage Africa have, compared to other emerging economies is the availability of raw materials for manufacturing. This will bring down substantially the cost of production and will in turn attract companies to establish their manufacturing bases in Africa. Using its cheap labour and availability of raw materials, Africa can market itself, to become the next manufacturing hub for the global economy.

The latest acquisition of Africa’s third-largest telecom operator by the Indian telecom giant Bharati Airtel is an interesting example. Bharti Airtel, like other telecom providers in India, is facing crunch in the domestic market as a result of the ongoing price wars. Africa is the only emerging market, with a huge population like India and China and which will not be saturated for at least the next 10-15 years. The combined population of the 53 countries that represent Africa is estimated to be around 1 billion. The mobile phone penetration in Africa is limited only to 2 out of 5 Africans. But the demand is growing at an average annual rate of 25 percent. This shows that Africa is not only attractive for its production costs but also for its growing domestic market. Africa’s current boom is attributed to the domestic consumption by its growing middle class population.

Another area where Africa can excel is the service sector. It can become the next back office of the world. In Africa, the presence of Anglophone, francophone and Portuguese speaking population, is a big advantage. India was successful in attracting a large part of the global outsourcing work because of its English speaking population and skilled labour. But today, India is struggling to maintain this as result of the demands for higher salaries and availability of other cheaper markets. Africa can use its language base, to attract investments in this sector.

If Africa can sustain the current trend in economic growth, it can further attract its diaspora present around the world to return and to start new business ventures and projects. For this to happen, African governments, media and civil society will have to engage in a publicity and marketing campaign to attract its skilled diaspora back. In addition, the diaspora will have to be convinced and showed that political and economic conditions back home are stable and bright. If this could happen, it will be the single most important key in transforming the continent.

It is true that the international community can help Africa through aid and investments. But at the end of the day, Africa’s destiny remains in the hands of the Africans. They will have to engage positively and with long term vision in transforming their community, country and the continent.


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