The big read: Is Africa's boom over? - African Business Magazine
The big read: Is Africa’s boom over?

The big read: Is Africa’s boom over?

Scarred by communal violence and long ignored by the federal government, Nigeria’s remote north has not had much cause for celebration in recent years.

But as the presidential election results trickled in last March, and the resounding victory of local favourite Muhammadu Buhari became known, Kano state hosted a bash that few will forget.   

Freeways turned into impromptu party venues as convoys of young riders, two or three to a bike, barrelled through the parting crowds, performing tricks and waving flags for the assembled revellers. Teetering rickshaws pulled off gravity-defying wheelies in celebration of a peaceful transition that many thought unlikely. A new era of hope had dawned for Africa’s most populous country.   

Almost a year later, the mood is very different. The plunging price of oil, which has fallen 70% in less than a year to around $30 a barrel, has decimated government finances and dashed hopes that Buhari’s cautious reform track will usher in a new era of prosperity.

The government whose victory prompted such exuberant celebrations is now in talks with the World Bank and the African Development Bank (AfDB), seeking a reported $3.5bn of emergency funding to help plug a budget deficit of $15bn and ward off the threat of an IMF bailout. 

The transition from hope to disappointment has been replicated across the continent. As the extraordinary growth that propelled China’s economic miracle struggles to maintain its momentum and OPEC continues to flood the markets with cheap oil in a bid to drive out competition, African commodity producers are feeling the squeeze.

Angola, another of Africa’s largest oil producers, is in talks with the World Bank, having seen its 2015 assumption of $81 a barrel mercilessly upended. In South Africa, many of the mines that have supported growth since the Victorian era lie defunct, while thousands of jobless former employees struggle to support dependent families.

For a generation that has grown used to the cosy optimism of ‘Africa Rising’ – a conviction that inevitable economic prosperity awaits – these are worrying times indeed. 

As the continent faces its most challenging spell since the turn of the century, global economic volatility and the collapse of commodities prices are prompting many to ask whether Africa’s growth narrative was based on anything more than transient good fortune and a commodities super-cycle. After a period in the wilderness, the bears are once again getting a hearing.   

“Africa Rising has encouraged a premature, chest-beating celebratory mood that the continent has arrived, when it hasn’t taken off,” argues Kingsley Moghalu, former deputy governor of the Central Bank of Nigeria and now a professor at Tufts University’s Fletcher School.

“When you don’t have control over the trajectory of development, you cannot be said to be truly rising.”

And yet Africa’s continued growth amid a backdrop of falling commodity prices has prompted others to reassert their long-term optimism. They argue that the assumptions which prompted the Africa Rising narrative –the return of stability, the emergence of the middle class and a demographic dividend prompted by an expected population boom – are still in place. And if the outlook is so bad, they ask, why is the AfDB predicting growth of 4.4% this year?

“Instead of pronouncing the requiem, my view is that behind every problem there’s a silver lining,” says Donald Kaberuka, president of the AfDB until 2015 and now an academic at the Harvard Kennedy School.

The naked emperor

For one week a year, the swanky bars and hotels of Cape Town’s V&A Waterfront provide an idyllic backdrop for Africa’s mining and political elite to kick back, muse on the latest deals and plot a course for the future of their industry. But the optimism which has characterised past instalments of the Mining Indaba was in short supply this February.

The mood was best summed up by Mark Cutifani, chief executive of South Africa-focused mining group Anglo American, who proclaimed 2016 “the worst year yet” and cautioned that things may get worse before they get better.

For the assembled audience of African policymakers and executives reeling from the fall in demand, that is a chilling prospect. Some $1.4 trillion has already been wiped off the value of global miners since 2011, according to Cutifani. The IMF says that the decline means most sub-Saharan African countries will struggle to achieve growth rates on a par with the previous decade. That has led some to argue that Africa has staked its economic future on factors beyond its control.

“If you look at the last decade, the continent’s economies were driven largely by the commodities super-cycle,” says Moghalu.

“They have no control over those cycles so the continent’s economies are perpetually in a passive state. When you are in this situation you really have no control over your economic destiny…clearly the emperor is naked.”

The cost of this overexposure is apparent in some of the continent’s largest extractors. Both South African president Jacob Zuma and Nigeria’s Buhari have rued the decline in commodity prices in downbeat public speeches. The IMF projects that South Africa will grow at less than 1% this year, far below the government’s aspirational 5% target, while Nigeria is expected to grow 4.1%, compared to an average of 7.4% per year in the decade to 2012. 

Miguel Azevedo, head of investment banking for Africa at Citigroup, says that the commodities slump is damaging government earnings and foreign exchange, while derailing the ascendant oil and gas producers of East Africa. 

“I agree that the next 12 to 24 months and maybe beyond will be tough. Africa still, generally speaking, is a massive producer of commodities, and there were projects on the commodities side that were bringing a new dynamism and changing the landscape in countries like Mozambique, Tanzania and Kenya. Everybody is linked to commodities.” 

The extent to which African countries have succeeded in ending their historic overreliance on extractive materials remains up for debate. As ever, the reality differs across Africa’s 54 states. Following a January visit to Nigeria, IMF managing director Christine Lagarde praised the country’s emerging film, fashion and software development sectors while pointing out that services now account for almost half of GDP. Botswana has had notable success in adding value to its stock of raw materials, particularly diamonds, while Rwanda has seen strong activity in construction, agriculture and services. Yet in major economies like Mozambique, Angola and Ethiopia, the fund said that more work is still required on structural transformation. 

For Kaberuka, the positive case studies confirm that Africa’s emergence has much deeper roots than a simple commodities bull market, and has its genesis in the structural economic reforms of the 1990s.

“It’s true that the end to the commodities super-cycle requires adjustment, but that’s everywhere, not simply Africa…The fiscal growth in some countries has been investment-led, not export-led. There has been investment in infrastructure and financial services, for example in Ethiopia and Rwanda. In other countries the source of growth has been domestic consumption. We also find that regional trade deals played a very big role, for example in the East African space.”

Yet some observers remain unconvinced that full structural transformation is under way. Nkosana Moyo, former chief operating officer of the AfDB and founder of the Mandela Institute for Development Studies, says that policymakers need to seize the initiative and make a definitive break from a past based largely on resources.

“I think with Rwanda, it’s a small economy and you can sense it. And South Africa is a bit of an outlier. But with other countries it’s difficult to get your hands on the linkage between the positive numbers and deliberate plans. For countries to be running to the World Bank so quickly is an indicator that this was not being thought through.”

Demographic dividend

Yet even if some African countries seem unwilling or unable to shape their own destinies, major foreign corporations are holding fast to their faith in the continent – in particular, the power of the emerging consumer. They argue that in the long term at least, the boom is still on.

In January, Coca-Cola set Nigeria’s corporate world alight with a $240m swoop for a 40% stake in CHI, a juice and dairy producer. For Azevedo, who advised CHI, the deal represents a shot in the arm for a country struggling with its short-term prospects, and a riposte to those who believe Africa’s growth story is dead in the water.    

“It was an investment in Nigeria when everyone expects the naira to devalue, there’s a lack of raw materials and factories are not operating. It’s essentially nearly chaos. And at this moment, someone like Coca-Cola makes a massive investment, probably their biggest in Africa. Why? Because people take a long-term view.”

Although foreign direct investment flows(FDI) into Africa decreased from $55bn in 2014 to $38bn in 2015, according to UNCTAD’s Global Investment Trends Monitor, cross-border mergers and acquisitions activity on the continent actually increased from $5.1bn to $20.4bn over the same period. This suggests that corporations retain more than a residual faith in the ‘Africa Rising’ narrative.

With the continent’s population expected to double to 2.5bn by 2050, according to UN estimates, investors still have their eyes firmly set on the rapidly expanding consumer market. Cavan Osborne, an Africa-focused portfolio manager at Old Mutual, says that the commodities slump has had a limited effect on the intentions of consumer-focused businesses.

“We talk to corporates and those on the consumer side are continuing to expand and invest. They’re still seeing the idea that the population will come through and will want consumer products like beer, cell phones and food.

“In the longer term you can’t fight demographics, and that’s why I hope it’s just a short-term setback.”

Nevertheless, Osborne says that policymakers must encourage the investment that will see the continent emerge from its current malaise.  In too many countries, he argues, investors have been hindered by restrictive exchange rates which prevent them from pulling their money out when times are tough.

Yet Moghalu believes that it will take more than tinkering with exchange rates to ensure that Africa does not squander its demographic dividend. It is not enough, he argues, for Africa to emerge solely on the basis of a demand for products. The continent must become both producer and consumer.

“The Africa Rising tendency has been based on a completely incorrect understanding of globalisation because it is based on Africa as a rising consumer market. But is Africa a factory of globalisation or a market? For as long as it remains a market the thinking is based on a false premise. We know that wealthy countries produce and export things.”

Never waste a good crisis

If Africa’s future as an economic powerhouse is to move beyond that of a shifting mirage, forever beyond the grasp of its people, observers agree that the time for action is now. The African countries which do not rely on the export of primary commodities already have a priceless opportunity to reduce import bills, get their finances in order and fund transformative infrastructure projects. But for some of the continent’s largest commodity exporters, the necessity of fighting fires should not distract from the long term goal of moving their countries away from extraction. Without structural change, the continent will forever be caught in a cycle of fortuitous boom followed by inevitable bust. The continent must avoid the temptations of the commodities gravy train.

“The growth has to happen independent of commodities,” says Azevedo. “The risk is that if they go up again, people will go easy. Hopefully commodities will not go up dramatically so people will get on with delivering transformation”. 

For Kaberuka, who in his time at the AfDB oversaw the era of ‘Africa Rising’, using the crisis to reform will be the best way to stick it to the naysayers.

“In 2008 I got calls during the global financial crisis saying that Africa would be the most afflicted. Fast forward to the Arab Spring, and then Ebola. There is always a narrative of an African finality. But reforms are possible, we’ve done it before, and we know the road to take.” 

David Thomas


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Written by David Thomas

David Thomas is Digital Editor at IC Publications and a features writer at African Business Magazine. He has previously been published at the Financial Times, Wall Street Journal and South Africa's Cape Times.

  • Square Root

    I was never really taken by the ‘Africa Rising’ narative since in my opinion, i could see many moving parts, I am into technology and in as much as Africa technology industry is rising as we see amazing consumer based application that try to make business much easier and faster, you cannot fail notice the loopholes in policy that make it difficult for startup companies get a substantial market share of the products. Still the large corporation, in my opinion, seem to be the ones getting more ‘Air Play’

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