Fund raisers like to describe Africa as a tremendous growth story. The figures however do not justify an overwhelming Afro-optimism. The truth is more complicated.
The headlines of the international press are often foster optimism: “Why you should invest in Africa right now” or “Why the best time to invest in Africa is right now” or “Top five reasons why the time is now to invest in Africa”. These are just a few headlines spread in the past months through Internet.
The international consultancy firm McKinsey claimed in 2010 that investors should invest in Africa now because economic growth there was higher in the OECD countries.
But honestly: It is not a great feat to do better than the 36 member-states of the OECD, a club of rich, developed countries. Economic growth in the OECD area slowed to 0.5% in the third quarter of 2018, compared with 0.7% in the previous quarter, according to provisional estimates made by the economists of the organisation.
A developing region such as Sub-Saharan Africa that economically lies far behind the developed world should do much better than that. OECD should not be a benchmark to African policy makers.
China realised an economic growth of 8-10% per year and this for 30 years. This is how the country caught up in just one generation with the Western world and catapulted the economy from an agrarian state that could hardly feed their population to the probably most powerful economy of the world.
Africa is far away from the growth rates China achieved in the past. The World Bank estimates that economic growth in Sub-Saharan Africa has decelerated from 2.5% in 2017 to 2.3% in 2018. For this year, growth is projected to pick up to 2.8% and 3.3% in 2020.
Growth in Africa is not so bad, but not breathtaking. According to the World Bank economists, growth rate in 2018 was for the fourth consecutive year below the rate of growth of the population.
We really would like to have better news for you, but the diagnosis is unequivocal: Afro-optimism about the African growth story is much higher than the real growth figures.
Are all the news about the “Dance of the Lions and the Dragons” as McKinsey stated in a study in June 2017 over-optimistic and exaggerated? Our answer is a clear and firm “no”. There is a lot of growth in Africa, in some countries such as Kenya or Ethiopia and in a lot of sectors. The problem is that growth does not spread enough about the whole continent.
The gap between the wishful thinking and the reality teaches us several lessons:
- The African success story is real. But do not take it for granted. The African economy needs to be better integrated into the European value creation chain.
- Take the Chinese lesson: You really need to focus on economic growth and accept that economic success is the result of hard labour.
- African entrepreneurs need better access to European markets. This will be the huge challenge for policy makers in Europe: to share in a fair way access to their markets. That’s a painful lesson for Europeans as the Chinese example taught them.
- If you consider an investment in Africa, choose well the country you want to invest in. The discrepancies between, let us say, Niger and Nigeria are tremendous. But a country that has a low growth rate is not necessarily a country you should avoid. Invest in growth, not in statistics of the past.
- Consider well the sector you want to get involved in. You will be surprised. Even in the low-income sectors you might find astonishingly promising business opportunities.
- African governments need the support of the international community for strengthening the political framework, the institutions, the legal setting, democracy, civil rigths and the capability to generate tax revenues.
- African governments should undertake more for mobilising local money for financing economic growth. Africa strongly needs to develop its capital markets and pension schemes.
We could put our message in alarmistic terms: If Africa fails, the world will have a huge problem with 2.5 billion people in 30 years looking for jobs, food, health and security. But we do not like to be scaremongers. We prefer to turn it this way: Africa did not write up to now a self-perpetuating growth story. But there are so many businesses performing so well. We have the historic opportunity to promote the African growth story and to write a happy end. Growth in Africa matters all of us.