26 January 2011
There are periods in the dynamics of global power when the shift in trends is of such a scale that it is almost impossible to perceive the full impact of the moment. This was certainly the case with the phenomenal rise of China as a major global economic power.
And it is happening again with the rise of Africa as a priority investment destination, as it moves into a similar position that China was in three decades ago, when that country began opening its economy to global forces.
The key elements in China’s economic miracle have been an integrated market, special economic zones with incentives for foreign investors, and widespread reform of the agricultural system, which has freed up more labour for economic development.
Africa is moving in the right direction on these key elements, but there are fundamental differences with China, and the evolution of Africa’s economic miracle will be different.
China’s lifting of 400-million people out of poverty in the space of three decades, maintaining 10% gross domestic product (GDP) growth for three decades, the helter-skelter rate of urbanisation at almost 20-million per year, and now the unprecedented growth of the middle-class – mainly took the West by surprise.
Africa: the reality-perception gap
Africa’s greatest disadvantage is probably in the area of perceptions. The huge deficit between the reality of Africa and the Western media’s obsession with negative stereotypes of conflict, famine and failed states undermine the continent’s potential.
The mainstream media has dominated the grand narrative for the past four decades, and through selective – rather than inaccurate – reporting has buttressed Africa’s negative trends at the expense of its potential.
But the reasons why Africa’s growing potential as an investment destination should be conventional wisdom are multiple:
- In the past few decades, Africa has taken significant strides towards more democratic governance, more transparent economic systems and eliminating some of the more crippling bureaucratic barriers to trade and investment. Although Africa still falls far short of constituting an integrated market, the trend toward integration and more transparency is undeniable.
- The invitation of South Africa to become the fifth member of the BRICS – Brazil, Russia, India, China and South Africa – and the South African seat on the United Nations Security Council will ensure that Africa has a voice in all key global fora and will accelerate reform of the UN and global financial, developmental and trade architecture.
- The credit crunch and global economic recession have created a fundamental crisis of confidence in the international financial system, which has both removed any moral high ground that the Washington-consensus institutions had and opened the way for an ongoing review of the current architecture.
- The potential of Africa as an investment destination has been long recognised and supported both in terms of investment and soft loans by China – now the world’s second-largest economy – and with strategic investments from South Africa and rising economies such as India and Turkey.
- There is ample evidence of Africa’s potential to leap-frog constraints such as fixed-line telephones with the revolution of mobile technology in Africa. The next breakthrough will need to come in the field of energy and electricity provision. Africa’s hydro-electric potential could play a key role here.
- In a world where there is growing consensus that future wars will be fought over food and water resources – rather than territory or ideology – Africa is well-placed to play a key role with its huge water reserves and vast tracts of arable land.
- With a population approaching 1-billion, Africa represents the world’s third-largest market after China (1.3-billion) and India (1.1-billion) and is rich in largely unexploited mineral and natural resources.
- South Africa played a key role in rescuing the 2009 climate change summit (COP15) in Copenhagen. There was enough progress at Cancun in Mexico at the end of 2010 to ensure that the next critical session of the COP17, in Durban in November 2011, could broker the breakthrough that world so badly needs.
Climate change and ‘biodiversity footprints’
It is fitting that Africa should play a key role in the search for a global trade-off on climate change, as Africa has the lightest carbon footprint of any region, yet stands to lose most from the impact of climate change.
But there is a twist in the tail here. As the industrialised world focuses increasingly on management of the corporate carbon footprint, it may well be that the “biodiversity footprint” – which focuses on maintaining the balance in the entire eco-system – is even more relevant for Africa because of the greater diversity of species on the continent.
It may therefore be a priority for African countries to re-consider their growth patterns in order to ensure the preservation of this diversity.
Emerging market blocs
China, South Africa, India and Turkey are now leading the way in the development of Africa, while traditional trading partners and investors – such as Britain, the US, France and Germany – battle to maintain their share of market.
The new grouping of promising emerging markets known as the CIVETS – Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa – already include two countries from the Africa continent. The rest will follow in time, starting with Mauritius, Namibia, Botswana, Ghana, Kenya, Nigeria, Zambia, Senegal, etc.
Africa is fast approaching the tipping-point, but it has not quite registered in the industrialised club of nations.
South Africa’s position as voice and advocate of the African cause in the shifting sands of global economic power and institutional reform now becomes even more critical as it takes its place both in the BRICS and the UN Security Council.
South Africa’s trade shifts east, south
As the shift in global economic power gains momentum, South Africa’s trade is moving eastwards and southwards in what has become a clear pattern which both reflects the global trend and is helping drive it.
It is no coincidence that since the beginning of 2010, South Africa’s President Jacob Zuma has paid his first state visits to India, Russia and China. In July 2010, Brazil’s President Luiz Inacio Lula da Silva paid his first state visit to South Africa following a working visit by Zuma earlier in the year.
There is no doubt in the minds of either China or African nations that Zuma is speaking not only on behalf of South Africa but the whole African continent on these trips abroad.
Even the notion that the much smaller South African economy could join four mega-economies in BRIC would have been unthinkable a decade ago.
While attending a UN conference on trade and investment in Beijing in mid-September 2010, South African Trade and Industry Minister Rob Davies said South Africa would prioritise China and India as export destinations of choice as these countries were now its biggest export markets.
Two-way trade between China and SA reached R119.7-billion in 2009, surpassing the US as the country’s largest trading partner, according to South Africa’s Department of Trade and Industry.
South Africa’s exports to India reached R5-billion in 2010, while imports totalled R2-billion, in favour of South Africa, the department’s trade statistics show.
South Africa and China
The fundamental shift in South Africa’s trading patterns was also clear from statements made by Zuma during and after his state visit to China in August.
South Africa, Zuma said, would look to China for investment in meeting its infrastructure projects, including transport systems, freight transport, renewable energy projects and mining. The agricultural sector and car manufacturing were also potential recipients of Chinese investment.
In the past three years, while the pace of Chinese investment has been slow, it has been strategic and clearly paving the way for accelerated investment in the future.
In 2007, the Industrial and Commercial Bank of China (ICBC) bought a 20% stake in South Africa’s Standard Bank for R36-billion, making it China’s largest foreign investment to date. In 2009, China announced that the African headquarters of the China-Africa fund would be in Johannesburg.
China has more recently invested in a South African platinum mine and a cement factory, and one of the most concrete agreements emerging from the state visit to China in August was the intention to build a high-speed rail link between Durban and Johannesburg.
But the most consistent message that Zuma conveyed during his state visits to China and Russia was that South Africa wanted to learn from both countries on how to ensure high levels of beneficiation of South African mineral wealth, to ensure that the country was able to speed up development, create more jobs and roll back poverty.
Zuma also stressed that South Africa needs to balance its trade with China to reduce the heavy deficit in China’s favour. He also foresaw co-operation between the two countries in reforming the global architecture and multilateral institutions.
The growing relationship with China is seen both as a means to boosting South Africa’s global trade and of accelerating the development of the Africa continent.
With its world-class financial sector, deep experience in African markets and an extensive corporate footprint on the African continent, South Africa is well placed to lead an African miracle similar to China’s achievement over the past 30 years.
John Battersby is UK Country Manager of the International Marketing Council of South Africa. Yingni Lu is a London-based business development professional specialising in clean technology and renewable energy. She writes for the online magazine ReconnectAfrica