As my time in the last month or so has been pre-dominantly consumed by prepping and participating in a business case competition in Texas, I found my reading list to be narrowed down to database/news/papers/reports on current market trends, the economics of emerging markets and [insert topic of case research here].
What I did come across in my meanderings across the interwebs was this [recent-ish] issue of the TIME’s magazine, which highlights “10 ideas that are changing our world right now”. The compiled list of ranged from issues in religion to infrastructure to the economy, one of which I found to be of particular interest to me.
Africa: Open for Business
The article highlights that Africa has long been perceived as a continent of where progress is irrelevant regardless of the efforts being done — foreign aid, economic stimulus, etc. Africa is essentially viewed as hopeless, and a $40 billion/yr foreign industry has been built around that perception to the point where people are starting to question whether aid is even doing any good at all. Thus, when the world’s economy went into Defcon 5 last year, the $40 billion industry started being called into question with debates and books being written that foreign aid is bad, fuels corruption, undermines governments, unsustainable and is counter productive. (ie. Dead Aid — Dambisa Moyo, former Goldman Sachs and World Bank economist)
Drilling down to the actual relevancy of aid and development, the article points out the obvious fact that has been staring us in the face all this time. That throughout the noise of the aid industry, reality is that aid is no longer Africa’s main source of foreign income. Yes, that’s right. Africa is now a business destination.
So, I did some economic digging and cam across some very interesting information.
1) Foreign Direct Investment (FDI) inflows into Africa have improved tremendously in the last 6 years. From $14.6 billion in 2002 to $53 billion in 2007 (UNCTAD World Investment Report, 2008). This translates into a 263% growth rate over a 6 year period!
Note: FDI refers to investment in domestic structures, equipment and organization by foreign private sectors or governments. Does not include foreign portfolio investment in a domestic economy. FDI contributes to the economic performance of a host country by: first,representing additional resources which can be used to build additional physical capital and create more employment. Secondly, increases a country’s output and productivity by encouraging efficient use of existing resources by increasing the size of the capital stock. Overall, FDI also improves local skills and technology know-hows which translate into growth and development.
The IMF puts Africa’s average annual growth for 2004 to ’08 at more than 6% — better than any developed economy — and predicts the continent will buck the global recessionary trend to grow nearly 3.3% this year — Time Magazine
2) The reason for an increase in FDI is an improvement in both economic and political conditions on the continent.
Economic Conditions: The UNCTAD Report stated that not only has Africa’s economy grown over 5%/yr since 2001, but cross border M&A’s in the extraction and related service industries of Africa has tripled. Combined with the fact that the high prices and demand for resources like oil has attracted investments from both developed and developing countries. An interesting fact to note is that because Africa’s economy is relatively displaced from the global economy, it is actually to their advantage during the current economic crisis, that they have been relatively unaffected.
Perhaps the most attractive element of the improving African economic condition is the very fact that China has developed a healthy interest in the continent.
While the old superpowers still agonize over Africa’s poverty, the new one is captivated by its riches. Trade between Africa and China has grown an average of 30% in the past decade, topping $106 billion last year. — Time Magazine
The Chinese has changed the psychological approach on Africa. They enter the continent to trade, not to provide aid. In her book, Dead Aid, Dambisa Moyo pointed out that those who still needs convincing about Africa should ask themselves if they are convinced about China, “because if you back China, you’re backing Africa.”
Political Conditions: The turn of the new millennium has brought about a wave of peace, with a rapid decline in civil wars and conflicts. Democracy is up, trade is improving, inflation is declining and growth is happening. Yes Africa still has its Zimbabwes, Darfurs and Congos, but the truth of the matter is, the continent is trending towards a more peaceful and democratic region as a powerful consensus is emerging across Africa for good governance and as nearly all African countries have been involved in some type of political and institutional change.
This is reflected by the fact that better governance means better standards of living, infrastructure, education and although most Africans are not middle class, most are also not living in extreme poverty.
The percentage of Africans living on $1.25 a day or less dropped from 59% to 51% from 1996 to 2005 and has decreased further since — World Bank
Essentially, when it comes down to it, Africa really is open for business. Perhaps the issue lies in whether the world is ready to receive it? Remember, the figures really do speak for themselves. Trade, not aid.
For those who are curious, the full list is:
1. Jobs are the new Assets
2. Recycling the Suburbs
3. The New Calvinism
4. Reinstating the Interstate
5. Amortality
6. Africa, Business Destination
7. Rent-A-County
8. BioBanks
9. Survival Stores
10. Ecological Intelligence
The TIMES’s article can be found here