Africa still perfectly poised for a golden age

By Sanjeev Gupta

UN Secretary-General Ban Ki-moon recently stated: “It is not just Wall Street or Main Street that is hurting; people with no streets are suffering too.” And amid all the turbulence that has engulfed the world of high commerce and haunted the major global economies, one can be forgiven for asking whether the dawn that had begun to break on the African continent could once again turn out to be a red herring, sacrificed, as it always has been, at the altar of global priorities? In my view, however, even though the financial tsunami has left no corner of the globe unaffected, Africa is still perfectly poised to begin its long-awaited and long-deserved golden age.

Sceptics will, of course, speculate that this resource-dominant and -dependent continent can’t really be expected to meet its destiny under such trying conditions. Shrinking global economies have reduced demand and led to plummeting resource prices. This has created yawning gaps in the already challenged fiscal conditions of Africa’s fledgling nations and has played havoc with their infrastructure development plans and massacred their currencies in the process.

But it is also true that, to the more discerning, Africa still continues to offer value and hope to the world. In fact, it is Africa’s very apartness from the sophisticated First-World economic machine, which may present it with a golden opportunity. Wide reaching lack of financial sophistication and tight financial regulation on the continent has meant that Africa had avoided most of the “toxic” instruments that brought other continents to their knees. The relative newness of the pension and insurance reforms has meant that good old-fashioned investing in domestic real assets have buffered Africa from the excesses of its sophisticated First-World counterparts.

Until a few years ago, Africa had never experienced real economic growth or growth in formal sector employment or foreign reserves. Large parts of the continent were never blessed with any form of coherent monetary policy or, for that matter, prudent fiscal management. In fact, until the 1990s, the continent was largely unaware — some would say blissfully — of the concept of democracy.

So how did this darkest continent survive when, to all extents and purposes, it had been left behind by the rest of the world? The answer is simple. Its people are survivors with lashings of ingenuity, indigenous innovations and a very functional informal economy. In troubled times like these, such attributes are worth their weight in gold and will go a long way towards sustaining the continent. For Africa, life is not about a decline from a 6% growth story or a 2% forecast. Those are merely incidental. It is about improving lives and moving up the world’s poverty index.

It is perhaps Africa’s enthusiasm and optimism which has seduced the world into a new-found confidence which the underlying data does not necessarily support. Currently, this resource-laden but still troubled geography is being actively courted by three major economic blocks; the US, EU and Asia. This is supremely ironic if one looks back at history. Trade and commerce between Asia, the Arab peninsula and Africa flowed freely for thousands of years and indeed formed the foundation of the Silk Route. But the collapse of the great Arab and Asian empires together with the ravages of colonisation relegated the African continent to a status of servility unprecedented in modern history.

The post Second World War period which saw the demise of the great European colonialist powers should have paved the way for the continent to make up for lost ground. But the Cold War period put paid to that prospect as Africa became a home for hubris, surrogate empire building, broken promises and exploitation with its masses of people largely forgotten and resigned to their fate.

That has changed as better education and greater awareness, together with the natural synergies that exist between Asian and African nations, has gradually started building a bedrock on which world-class economies can and will be built.

It is therefore not a coincidence that in a space of 15 years, trade between Africa and Asian nations has grown from virtually nothing to 30% (now split equally between Asia, the EU and US). This remarkable growth is set to continue as the great Asian powers, China and India, pump more money and energy into the continent. To further enhance this groundswell, the Middle Eastern/Gulf countries are increasingly flexing their considerable financial muscle globally and Africa is firmly on their radar. Already the sovereign wealth funds of the super-rich Gulf states are playing a major role in North Africa and in part of sub-Saharan Africa and are poised for greater involvement across other parts of Africa.

All of these initiatives are significantly more than the sometimes-biased Western media tends to report; where they try to explain it all away as simply a rush to control resources by the new world. Yes, the giant consumer base of Asia needs resources but equally Africa needs infrastructure, finished goods, know-how, jobs and new markets. The recent evidence of how Africa’s arable land and its vast agricultural potential are being harnessed through know-how and funding from Middle Eastern and Asian countries is a step in the right direction.

The US, as canny as ever, has not been oblivious to all this and under its new president, who has more than a passing interest in the continent, it can virtually be guaranteed that American big business and US funding will remain available. The EU, with its rich and long history of engagement with Africa, is hardly going to take this threat from Asia lightly and as its own domestic woes deepen, will seek to find new markets for its products into new frontiers.

All this bodes well for the virgin markets of Africa. Their burgeoning consumer class is embracing itself for an invasion of a new kind. Three world powers competing for Africa, this time not with arms and threats but with money and knowledge as they attempt to save and serve their own countries by empowering and enriching a continent that offers markets, skills and opportunities.

Sectors that will benefit will not only be mining but also agriculture, infrastructure, financials and consumer goods. There’s also an opportunity in healthcare if modern facilities can be built but priced at affordable rates. As the world revives itself from its caprice-driven apocalypse and looks for opportunities, it will find such uncorrelated value-driven “alphas” in the African continent.

The good news is that the commodity cycle has basically bottomed out and governments have withstood the currency and inflation pressures with maturity and sensible policies with no obvious tilting toward fiscal profligacy or artificial means of protecting the currencies and domestic inflation.

Thus, the price competitiveness of African exports with vastly weakened currencies can only bode well as will the African economies’ enhanced ability to fund themselves through foreign direct investment, sovereign savings and local currency bond issuance to start clearing its infrastructural bottlenecks.

There is also growing evidence of increased political maturity as cross-border synergies and fund flows begin to emerge and talks of pan-Africa cooperation gathers momentum.

So we are possibly looking at a scenario where domestic demand will be complemented with domestic economic activity supported by regional commonalities and aided through local and global funding as the world’s big powers vie for a place in the African sun. As they say, nothing is more compelling than something whose time has come.

Sanjeev Gupta is head of Sanlam Investment Management Emerging Markets and is based in Dubai. The views expressed in this article are his own