How Current Market Trends Will Change the Future of Africa
With an approximate population of 1.2 billion, Africa is the second most populous continent on the globe- there is now doubt that the continent is growing to be an economic force. What’s more, Africa enjoys an abundance of natural resources: it is the source of 99% of the world’s chrome, it supplies other countries with 85% of their platinum needs, and it is responsible for 54% of the planet’s gold supply.
How the African economy develops in the coming years has the potential to create ripple effects worldwide. As emerging economies gain traction, millions of Africans are being lifted out of poverty and exerting influence onto the global economy. Africa is positioning itself as a force to be reckoned with as an ever increasing global economy reaches more inter-connected and technologically advance. It is imperative to predict possible routes the future may take the burgeoning continent, starting with where the African economy is today:
The current state of Africa’s Economy:
Broadly speaking, we can split up the African continent into two main pieces: Sub Saharan Africa, where the GDP per capita in 2014 was approximately $3300 USD, and North Africa, where the GDP per capita the same year was $11,000. Moreover, North Africa boasts of a middle class much larger in relative size with a lower rate of poverty compared to that of Sub-Saharan Africa.
Despite having a smaller GDP per capita, Sub-Saharan Africa has been enjoying a larger average GDP growth rate over the decade preceding 2014, 5.8%, than its northern counterpart, 4%. As a result, it should come as no surprise to learn that the southern part of the continent has a higher informal employment percentage- the measure of the amount of individuals working outside the prerogative of the government, like entrepreneurs and freelance workers.
This growth does not seem to be slowing down anytime soon; foreign investment has more than quintupled during the decade spanning 2004 to 2014. As a matter of fact, said investors are spurred on by the knowledge that plenty of large companies, plenty of which operate in the transportation and healthcare sector, are realizing revenue growth in the double digits.
The dark side to this rosy picture:
Alongside the optimist jolt of these figures, the continent has still suffered setbacks in the last decade. Several countries have experienced a deceleration in their GDP growth; some of these countries have reached the point of going through a year or two without growing their GDP at all. The reason for this deceleration can be broken down into two main components: On the one hand, the raging political instability that came on the heels of the Arab Spring made it difficult for a lot of countries to start rebuilding right away. On the other hand, countries relying on oil exportation have been hit hard by the recent plummet in oil prices. As a result of all of this, there are numerous African countries that have sought financial aid from abroad, among which are Angola- reaching out to the IMF- and Nigeria- pairing with the Chinese government.
Another challenge facing Africa is the lack of intra-regional trade between its member countries. In fact, given that the percentage of intra-regional trade is as low as 18%. This fact should be all the more pertinent when you bear in mind that trade between African countries is a trillion dollar business. Over and above, empirical evidence points to how the prosperity of a single country in Africa can positively affect neighboring countries: An excellent case in point can be found in a working paper by the IMF that reported found when South Africa’s Growth increased by 1%, concurrent growth in the rest of the African countries followed by 0.4%-0.7% . The good news is that some African countries have already begun exploring the benefits of trading with their neighbors through the use of regional trading corridors, including the South African Development Community, the Economic Community of West African States, and the East African Community.
So, where’s the continent headed?
Even though Africa may have a few obstacles ahead of it, the continent is poised for impressive growth within the coming decades. Whereas the rest of the world is beginning to face the consequences of aging populations, Africa has a predominantly young population. In other words, Africa is likely to have the largest working-age population in the world within a couple of decades.
Second of all, several African countries are shifting from an agrarian background to one more urbanized. Urbanites tend to be more than three times as productive as those living in rural areas. Both households and businesses tend to consume more in urban settings than in a rural one, driving forward the economic cycle.
None of this is to mention how technological changes are bound to expedite Africa’s growth. After all, not only does today’s technology bridge gaps and overcome deficits in infrastructure, but it also empowers everyday people to do what yesterday’s generation would have imagined impossible.
Finally, realizing the immense potential laden in an Africa that trades within itself, the African Union has been pushing for the establishment of the Continental Free Trade Area, CFTA for short, a project that aims to establish a continental market that will encourage intra-regional trading along with the free movement of business and financial assets. Ideally, the CFTA is expected to double the amount of intra-regional trade happening by the beginning of the coming decade.
What can be done to make matters go smoother?
In case you still don’t feel optimistic about Africa’s future, there is plenty scholars agree that can be done to increase the rate of growth across the continent. Investing in infrastructure is essential for reliable transport of goods and services, supporting African business across borders. Increasing pension provisions, aiding the democratization of banks, and implementing fair practices in capital markets are other ways to attract outside capital and establish the public’s trust in institutions.
As for technology, most African countries need to invest heavily in energy sectors in tandem with digital infrastructure. Furthermore, it should go without saying that it is imperative to invest in education and urban planning.
Besides expanding existing infrastructure, nations that diversify their exports, particularly countries that rely on oil as a source of revenue and foreign currency will see increased economic stability. This stability would in turn allow nations to establish set policies that will long outlive their creators, mitigating the risk shouldered by its citizens along with its trading partners.
With regards to furthering intra-African trading, there is also plenty that can be done. Looking at the aviation industry, it is easy to see that although the industry is an excellent source of revenue for countries, it is currently hindered to a large degree by the red tape surrounding it. After all, seeing as Africa has 54 countries, each with its own civil aviation authority, flying the skies of Africa means contending with 54 different rules and regulations. Matters can be made much simpler by relying on a single framework to regulate the blue skies above.
Another hindrance that should be dealt with is the tariff barrier. Besides raising the prices of imported goods, tariffs slow down the trading process and the economic cycle along with it. In order to create a free market, tariffs should be reduced if not eliminated altogether. In the same vein, there is talk of African countries creating a single currency for them to deal with sometime in the near future.
The outlook on Africa’s future is a positive one. Anticipating a maturing young population and an increased presence in urban areas, Africa has the prospect of intra-regional trading to look forward to. With smarter governance comes more economic opportunity. As governments learn to cooperate in tandem and replace legacy rules that no longer reflect an ever-changing world, all African nations will prosper together through fairer practices and transparency.
