WEF Davos: Sub-Saharan Africa – Next Growth Hub?
With all eyes on Europe, the unresolved sovereign debt crisis in the eurozone is certainly taking the center stage of this year’s World Economic Forum summit in Davos themed “The Great Transformation: Shaping new models”. However, those looking for hope and growth potential seem to look to Africa, hence the role of Sub-Saharan Africa (SSA) in this global transformation fit well in the agenda of the meeting. As argued by Nouriel Roubini in his latest weekly column, the various linkages between developed (DM) and emerging markets (EM) mean we are likely to see a recoupling between EMs and DMs in the near-term.
The session on Africa, chaired by Gordon Brown, a former UK prime minister, brought together presidents of South Africa (Jacob Zuma), Guinea (Alpha Conde) and Tanzania (Jakaya Kikwete) and prime ministers of Kenya (Raila Odinga) and Ethiopia (Meles Zenawi).
While it is true that the SSA’s transformation has only just begun to take off and faces a number of political and institutional challenges, SSA might be slowly emerging as the next “growth pole” of the global economy, according to Ethiopia’s Meles Zenawi. The Time Magazine advertising campaign of Brand South Africa on the eve of the Davos gathering emphasized that Africa, home to about 15% of the world’s population, has the potential to position itself as “a priority destination for international investment.” A recent Invest AD-EIU report touted the same thing, with many already seeing Africa as the most attractive region to invest in the coming decade.
Indeed, as Gordon Brown said in his speech, “Sub-Saharan Africa has recovered quickly from the Great Recession of 2008-09, but big challenges remain.” Despite growing population and vast reserves of natural resources, many African nations suffer from poverty, war and poor governance and the continent “accounts for only 1% of global manufacturing and 1% of global inward investment.” Meanwhile, as RGE worries, African economies monetary and fiscal policy space is shrinking. In order to continue to grow at the high rates of recent years, and follow a similar course India has since the 1990s, Africa needs three things, according to Zenawi, “higher investment in infrastructure; better skills; and to attract low-cost manufacturing plants which are looking to re-locate from Asia.”
At the current, early, stage of development, Africa is missing the elements needed to boost its growth potential: investment in education and technology (agriculture and manufacturing), more inclusive employment, leadership and innovation. Instead of supportive productive investment, African countries have largely used their resource wealth to support consumption. It is also poorly integrated regionally and globally, which on the one hand, shields it from the full impact of the eurozone woes and global slowing, but on the other hinders investment potential. As Tanzania’s Jakaya Kikwete put it, “Africa needs access to markets. The early conclusion of the Doha Development Agenda (trade liberalization negotiations, which have been effectively stalled since mid-2008) is critical.”
There is no doubt that in the immediate future, despite strong resilience, SSA will be affected by the weaker demand from its key trading partners, which will dampen prospects for exports, remittances, aid and capital flows, which will accentuate any domestic hot spots. However, with investors searching for a higher yield, capital should continue to flow into Africa, particularly to those countries that offer a more stable political environment and better governance. If spent wisely, across a broader range of sectors, particularly infrastructure, and for the benefit of wider groups of the society, Africa has the potential to achieve a more sustainable growth in the longer-term.
One Response to “WEF Davos: Sub-Saharan Africa – Next Growth Hub?”
This was flagged in the IMF's December 2011 Finance & Development magazine on Africa. Well worth a look. http://www.imf.org/external/pubs/ft/fandd/2011/12…