Africa As a Company - Economic Analysis and the Junk Bond Continent
There's been a lot of talk these past few months about Africa Rising, for whom and what for. But it's kind of difficult for the average person to look beyond the sentiment and "promising statistics" to put that in some sort of perspective.
To my mind, we need to be thinking about Africa's prospects in far more pragmatic terms. If you consider that Apple had bigger cash reserves than the United States Federal Reserve in 2011, and that many Fortune 500 firms are bigger than entire countries and enjoy better rates of growth, it becomes apparent that the scale and nature of the issues within the global economy should be situated in an entirely different rubric - with the caveat that GDP is a rather poor measure of economic growth.
If Walmart were a country, its GDP (US$443.9bn) would be greater than that of South Africa's ($422bn). Visa would be bigger than Zimbabwe, Wells Fargo dwarfs Angola, and eBay, Amazon, Costco, Proctor & Gamble would swamp Madagascar, Kenya, Sudan and Libya respectively.
And if Africa were indeed a country, as Sean Jacobs would have it, its GDP (US$1.184 trillion) would be only around a fifteenth of the United States' ($15.776 trillion). That's a whole continent - the world's second largest - and a continent where around 15 percent of the world's population share 1.5 percent of the planet's total gross domestic product of $78.95 trillion.
This is less astounding if it is considered that the top 10 poorest countries in the world are all in Africa, and moreover, if we consider the continuing dependency of the continent on development finance, its most important shareholders are its foreign investors and aid donors. Hopefully Chinese demand and the increasing role of the African Development Bank will change this. Therefore while Africa is rising, in reality, we're talking about a fractional component of the global economy, and for growth to be meaningful for Africans, development and infrastructure spend needs to be extremely aggressive, an added difficulty with very few investment grade-rated sovereign bonds and economic aid expected to slow.
Inequality as measured by Gini co-efficients doesn't tell a good story across the continent either - the pressing question for Africans is how to prevent this from becoming durable inequality? South Africa, its largest economy, not only contributes almost half of the continent's GDP, but the rest of the continent has a long way to go to catch up with it. The point of the 'Africa Rising' narrative of course, is that there is a lot of opportunity in Africa because it's starting from a low base. But if you put these statistics into context, growth rates need to be at least more than 10 percent consistently for another 10 to 20 years to have meaningful impact on human development and pull people out of poverty.
Poverty is declining in absolute terms, but not at the critically required levels. With the exception of a few countries such as Sierra Leone, Nigeria, Rwanda and Ethiopia, the required growth rates do not seem likely. Average growth prospects for Sub-Saharan African economies are estimated at around 5 percent for 2012 (and forecasted to increase to 5.7 percent for 2013, but drop to 5.5 percent for 2014).
So Africa has certainly grown, but it has not grown much ahead of the global GDP growth average of 3.3 percent for 2012, and pales in comparison to China or Walmart's 6 percent, for that matter. Hopefully, for the African countries that are making economic strides, the growth will prove sustainable, but a big part of the Africa Rising story has been hot money seeking new sources of alpha and arbitrage as alternatives to a declining Eurozone, and then this has only been in a few countries where there has been investor interest and liquidity.
African countries are on the whole not ranked highly by the World Economic Forum for their competitiveness. Financial sector depth, particularly with regard to banking, and bringing other financial services to the poor and SMEs also remain challenges. Moreover, there are 29, mostly small, stock exchanges in Africa, and only the Johannesburg stock exchange is a member of the World Federation of Exchanges.
Africa is certainly rising, irrespective of who needs it to, but, it still has a very long way to go. Economic data quality is improving but still insufficient, there is still poor or no economic data for large swathes of the continent. Capital market regulation and transparency, while improving, remain enormous challenges for the continent.
The BIG question is whether the second scramble for Africa can contain capital flight and see corporate social responsibility distribute profits back to the communities in which companies operate?
The mining and resources scramble currently taking place also won't have the best outcome for the environment, people and long-term sustainability. These industries are the heaviest polluters and exploiters of human capital. Green and fairtrade economies would be preferable alternatives for Africans. Excesssive financial sector development should also be approached with caution.
Africa has so far been somewhat insulated from the financial crisis and its scifi toxic assets due to it relative disembdedness from the global financial system, but as I previously wrote here, the knock on effects from a protracted recession for the cash-strapped developed economies will be felt soon enough.
Further, finance-heavy economies in developed economies have shown the results of continuing to socialise losses at the expense of privatising the gains. The outcome of austerity and the financial crisis will show how sustainable African growth really is. African domestic markets need to become a source of growth and development when its trading partners and aid donors result in the stemming of recent exuberant speculative capital flows.
With food insecurity, continuing political instability in the Sahel and MENA, its largest economy South Africa in a spot of bother at the moment as I write here today, the challenge will be steep. How can Africa balance the virtuous cycle of growth and development to rise onwards and upwards to be bigger and faster than the largest companies on earth, but also as prosperous and happy as the Northern European social democracies? More importantly, do its governments have the political will to make Africa Rising a reality?
Desné Masie is a journalist and academic.