Mahajan presents us with what is going right in Africa and builds a strong case for the continent as an exciting destination for foreign investment – even in these turbulent times. Collier helps us understand the traps than are keeping millions of Africans mired in poverty and which are hampering from the continent achieving the potential Mahajan so correctly identifies.
Mahajan argues that Africa, with more than 900 million consumers, is on the world fastest growing markets. He invites us to understand that Africa, taken as a whole, has a Gross National Income of around 980 billion, making it the tenth largest economy in the world ahead three of the four BRIC economies – Brazil, Russia and India. It’s ahead of India on a GNI per capita basis as well. In fact, six Africa countries boast a higher GNI per capita than China.
“There will soon be a billion consumers on the continent of Africa,” Mahajan writes. “Every day, they need to eat, they need shelter. They want education for their children. They would like to have soaps to wash their clothes. They desire cell phones, metal roofs for their homes, televisions, music, computers, movies, bicycles, cosmetics, medicines, cars and loans to start businesses.”
A lot of people think Africa’s wealth resides in oil and diamonds . If we’re talking about oil and diamonds as primary exports commodities, we’re talking about one the factors that Collier sees trapping much of Africa in poverty.
But Mahajan sees the wealth of Africa is other kinds of oil and diamonds. He cites the case of Bidco in Kenya will has built a $160 million business selling cooking oil, detergent and other products to low income customers throughout East Africa. As for diamonds, he identifies the so-called Black Diamonds of South Africa, as the University of Cape Town’s Unilever Institute called them. They are members of South Africa’s rapidly emerging black class, which, unleashed by the end of apartheid, has been growing at a rate of around 30 per cent a year.
They are not a uniquely South African phenomenon. Mahajan estimates that there are aound 400 million people in the middle segment of the overall African market. This help account for the fact that while the four largest African companies are still in the resources business, firms in other sectors are gaining an ever larger representation in the top 20. These include makers of consumer goods like SABMiller, telecoms companies like MTN, Orascom and Telkom SA, and banks like Standard, Absa and FirstRand.
Mahajan isn’t the only one telling this story. On September 2, the Wall Street Journal ran an article headlined “Investors bet Africa stocks are new tigers”. It gave the example of the Ghana Stock Exchange All-Share Index which, at the point, had appreciated by 63 per cent over the preceding nine months while on Wall Street the S&P 500 was down 13 percent over the same period (and has since swooned even more dramatically).
The Journal had a very telling quote for Charl Malan, the head of African research for Van Eck Global. African stocks, he said, were not a play on commodity prices any more. “If you think the commodities cycle is unsustainable, then why is Africa sustainable? Because this time, there’s a whole range of growth initiatives put into place by various African leaders.”
What helped inspire the Wall Street Journal story was an article by David Nellor, a senior adviser in the International Monetary Fund’s Africa Department. Comparing their performance with the of the so-called Asian Tigers as they readied for take-off in 1980, Nellor concluded that “several African countries…are promising candidates to become part of a second generations of emerging market countries.”
“The same crucial development,” Nellor continued, “are taking place in parts of sub-Saharan Africa today – growth is taking off, the private sector is the key driver of that growth and financial markets are opening up. The search for yield…has encouraged investors to expand their horizons.”
In a separate study, published last month, the IMF looked at what it called the “Great Sub-Saharan Africa Growth Take-off”. If found that the fast growers were a diverse group, including resource rich and landlocked countries as well as resource poor countries that have not had large gains in their terms of trade. The IMF also found that while most African countries were going to having difficulty meeting the Millennium Development Goal by the 2015 target date, growth was benefiting the poor who were seeing real rises in their incomes.
So there is a new and very hopeful story being told about Africa. Tragically, the old story, the story of conflict, atrocities and refugees, continues to be told as well. Right now the focus is on the eastern corner of the Democratic Republic of Congo. The Darfur situation in Sudan continues to be a grave concern as does Uganda’s unfinished war with the Lord’s Resistance Army.
This is where Collier’s findings become interesting. As the name of his book indicates, his focus in the poorest one billion people on the planet. They are concentrated in Africa and Central Asia, and they are the least likely to touched by the growth story we’ve been looking at so far. The countries they live in are caught in one or more of a set of often interrelated traps which include civil war, a dependence on the extraction and export of natural resources and bad governance.
Collier begins a sobering statistic: 73 per people in the bottom billion live in societies that have recently been recently been through a civil war or have recently been through one. He then goes on to demonstrate, empirically, the intimate relationship between poverty and conflict and how they feed each other.
One of his key findings is that Africa is not uniquely conflict prone. Rather, it became more prone to conflict when as its economic performance deteriorated. In other words, causation has flowed from poverty to conflict not vice versa.
The trouble is that once a civil war has erupted, it tends to have a highly destructive impact on the economy, thereby sowing the seeds for further conflict. The experience of having been through a civil war roughly doubles the risk of another conflict, Collier writes. And even if further conflict can be avoided, undoing the economic consequences can be very difficult. Collier believes that DRC will need 50 years of peace at its present growth rate to get back to 1960 income levels.
Nonetheless, growth does directly help reduce the risk of civil by raising incomes and making it easier for countries to diversify their exports. Fragile states that rely on the export of one or two high value commodities are always at high risk of conflict resulting from competition to control the rents from those commodities.
The lesson to be drawn is that anyone who is serious about seeing Africa meet the potential Mahajan describes in Africa Rising must, in addition to be serious about pro-growth economic policies, also be serious about conflict resolution and prevention.
This is why South Africa has been more than happy to play it part in working with regional partners and the African Union for peace throughout the continent, from the DRC to the Great Lakes to Darfur to the Comoros to Cote D’Ivoire to our neighbor Zimbabwe. To achieve the African Renaissance we all dream of, we need to end cycles of violence and economic immiseration and prevent new ones from starting.
We bring to the table our own experience in bringing peace and democracy to a land that was torn apart for generations by racial oppression. Among the most important of those lessons is for peace to be sustainable, all parties must feel they own it and no one should leave the table thinking that that they were forced to accept terms by powers outside the negotiating room. This takes a lot of patience, creativity and a capacity for empathy, but the election on April 28, 2004, and the adoption of our new constitution two years later, showed it can be done.
We also know, from bitter ongoing experience, about how hard it is to escape the continuing echoes of conflict. There severest challenges we face today, from crime to skills shortages to HIV/AIDS, owe their origins to what apartheid and our struggle to end it did to the fabric of our society.
Above all, we understand that if our so-called miracle is to last, it must be underpinned by economic policies that promote growth and equity, help generate the resources needed to roll the legacies of our history and enable us to play our part in the great Africa Rising story.