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Is Africa rising? Is Africa really ready for an industrial revolution?

What are the driving forces behind & optimism behind an African industrial revolution?

Group of women smiling in Africa

Ever since Joseph Conrad wrote the now-famous novel “the heart of darkness” more than 100 years ago, the African continent has had to struggle with all kinds of negative labels as largely being a hopeless continent. 

This narrative continued well into our century, with the now infamous year 2000 Time magazine issue cover titled “Hopeless Africa” . But right about the year 2012, the same magazine would come up with another cover titled “Africa rising”

So what happened?
Why is there a sudden wave of optimism?
Why did the narrative change?
What is the origin of such rising economic optimism given that the common narrative about Africa has been so negative?

What are the driving forces behind such optimism? 

In the next few years, it is expected that Africa will have a sizeable middle class which as of today, totals about 150 million people.

The recent growth seen in Africa has been and should generate lots of interest for various companies and investors wishing to tap into this untapped potential.

From politicians, ordinary citizenry, to international investors, there has been a wave of positive interest in the continent that has hitherto eluded it, and that will be the principal focus of our analysis.

In addition, will examine the challenges that lie ahead and further interrogate if it is all hype as some observers have been saying. 

At the outset, it would be important to state the following; when it comes to studies about Africa, many experts find themselves perhaps unknowingly, generalizing African countries under an all-encompassing narrative and imagination.

Whether it’s the negative stereotypes or the now enthusiastic optimism about Africa’s economic future, Africanist scholars are all very tempted to fall into this trap of juxtaposing incomparables.

That’s why we will not attempt to suggest that the macro or microeconomic data out there, as an accurate picture of all African the 54 countries since their economic dynamics are so different.  

However, that is not to say that some economic realities are not the same. Indeed, in a highly globalised world, it would be naive to ignore specific economic realities that cut across the continent and especially unique to Africa. 

For example, close to 40% of the world’s minerals come from Africa – a geographical reality unique to the continent which often dictates Africa’s place and position in global trade. 

From this fact, we can make so many inferences and valid generalizations that cut across the board despite the individual dynamics characterizing various African countries.

Let us examine the factors driving this optimism

Consider this, Africa as a whole has been growing faster than the rest of the world for more than a decade.  As a matter of fact, the fastest growing economies in the world are largely found in Africa.

This rapid economic growth is driven by both internal and external factors. We will examine the internal dynamics driving these changes and how these internal factors are creating opportune chances for international capital to be invested in Africa.

Over the last few years, most African countries have implemented so many reforms in various sectors to the extent that, all these changes have converged to favour a strong and sound business environment that is devoid of state interference.

This is why it is not surprising that the African banking system has been getting better and better. Indeed, many African bankers are so enthusiastic about the future given that by 2014, their average yield was six times higher than the average return of European banks.

Other figures that are often cited is the rapidly expanding middle class. Whereas North America has been seeing a shrinking middle class, the African middle class has bludgeoned to 200 million people according to the UN.

This sizeable African middle class with quite a disposable income has seen the rise of service-based economies leading to the rapid growth of such sectors like IT, retail, tourism, insurance and banking.

These are visible and quantitative changes that can be felt across the board, which is why it is not surprising to see, survey after survey showing that many young Africans feeling optimistic about their future.

 

So what does the future portend for Africa? Is Africa ready to take off if it continues on the same trajectory? 

 

Before answering that, consider the commodities market which has been driving the growth of Africa’s economy.

Africa is an unusual geographical phenomenon when it comes to bountiful mineral wealth and, over the last few years, it is China that has been fueling the growth of the global commodities market.

From Africa to Australia, the huge appetite of the Chinese industry has seen an explosion of wealth and growth in the mining industries since China had become the de facto world factory.

This led to the development to what is now famously called the win-win relationship between China and Africa, where China would build and finance huge infrastructure projects that African countries badly needed and in exchange, the Chinese would get access to Africa’s raw materials needed for the Chinese industries.

At the end, the spending in infrastructure created jobs while increasing the ease of doing business such that, it incentivized the creation of small industries. 

Let us take the case of Ethiopia, where along the recently created railway lines, the government created special industrial zones, which as of today has already attracted lots of investors. 

The same model was applied to ports and airports where auxiliary industries like warehouses simplified the often logistical nightmares that faced many African based industries. The same narrative is as true in Angola, Mozambique, Zambia, Ghana or even Kenya.

Is the narrative of an Africa taking off already running out of steam? 

Recently, Chinese manufacturing has taken dip, and with the government’s intention to rebase the Chinese economy from a producer of cheap goods, to a high income economy. 

Analysts predict that once these reforms are implemented, the Chinese selling point as a producer of cheap goods will come to an end.

Consequently, it means two things; not only a reduction of overall manufacturing but also all the markets that depended on Chinese money to buy their raw materials will see a reduction of exports. 

That is why Angola’s, South Africa’s and Nigeria’s revenues were so much affected by the recent dip in the price of commodities since they had not diversified their economies.

And this is the problem of relying solely on one economic sector, when you do not diversify enough, you are more vulnerable to financial shocks.

This is the same phenomenon that face the many oil producing countries in the middle east, where countries like Saudi Arabia have had to use their foreign currency reserves to supplement their oil revenues after the drop in oil prices.  

For this reason, some analysts are arguing that this spike in economic growth seen in Africa would be only transient in nature. 

They further observe that whenever an economy relies on raw materials only without any value addition to them, you get the price imposed by the buyers and not the other way around. 

If the market sets the price of the barrel of oil to be 35 USD, you have no other choice other than to accept it – these are some of the effects of the resource trap. 

That is why despite the mining potential in Africa, the majority of the manufacturing has evaded the continent such that as of today, Africa manufacturing only represents a partly 1.8% of the global manufacturing output.

Despite the pessimism, there are two other factors that might just launch African manufacturing.

When people make reservations about Africa’s capacity for manufacturing, the optimists will often reply and cite rapid urbanization, and the demographic dividend, as what will be the final driving force that will create a manufacturing base.

Consider the demographic dividend. 

Planners argue that with the rapid population growth, followed by the decline in mortality rate, and a fall in fertility rate, countries enter into a transition phase that is accompanied by a demographic bonus.

A demographic transition characterized by an increase in the working age population provides a country with a window of opportunity, which if properly tapped can generate a “demographic dividend” from higher growth. Indeed, this occurred in several countries in Asia and helped define the “Asian Miracle

 

IMF Working Paper; Africa Rising: Harnessing the Demographic Dividend 

In sum, it means that, whenever you reduce the dependency ratio through a bigger working population vis-a-vis the dependent population, this readily available workforce if well tapped can drive economic growth.

As for urbanization, it goes without saying that for you to become industrialized, you need to reap from what economists call economies of scale. 

When people congregate around one area, you have a readily available manpower for the industries as well as well as a readily available consumer market.

This is an attractive proposition for investors whenever labour and consumption are coalesced in the same area since it saves them from logistical nightmares that are brought about by decentralized industries and populations.

A nuanced study will however tell you that not all African countries are sitting on this trajectory.

By the year 2100, the UN is expecting that the population growth of the following countries will multiply by five.  These countries are; the Democratic Republic of Congo, Angola, Burundi, Malawi, Mali, Tanzania, Niger, Somalia, Uganda, and Zambia.

This impressive demographic growth if not well managed will complicate the task of these governments because currently, some of these countries in that list that have the highest population growth, just happen to be among the least developed countries in the world.

Indeed, such is the huge population growth in some African cities that experts say they might as well become ungovernable in a few years. Kinshasa and Lagos are such cities where even today, you will find that they are slowly becoming difficult to manage.

In some cases it is true, some African countries will reap a huge demographic bonus from the expected demographic dividend but for others, some fear that they might just have a Malthusian nightmare in their hands if they do not adopt birth control programs.

Consider the argument they propose, it posits that the premise of a demographic dividend lies not just having a huge birth rate and huge population growth, but that the active population should also be working.

Let us take the history of European or Japanese industrialization for example, where we saw the share of the working-age population increasing significantly over the years thus providing ample opportunities for the countries to develop economically. 

However, as we have seen recently, this favourable situation lasts only for a moment. A few decades later, these young people later become old out surpassing the birth rate, to the extent that, the population replacement levels are so low to support the aging population.

But is this historical trajectory valid and accurate for all African countries? Are we not juxtaposing incomparables entities? 

We may not have a definite theoretical framework to predict the future but what is clear is that, if you have huge number of an active population without jobs, the greater you reduce the chances of having a demographic dividend. 


Written by Briana Anabtawi, Head of Service & Operations, LEXIGO: As Head of Service and Operations, Briana is responsible for quality, client satisfaction and efficiency in service delivery for LEXIGO Strategic Clients and Partners. Briana's professional background in the travel and tourism industry has provided her with a unique insight into culture, language and project management.