PETERSIDE ECONOMIC REVIEW

Chamberlain S. Peterside, Ph.DMonday, April 26, 2010
[email protected]
New York, NY, USA

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AFRICA – THE TWO PERCENT ECONOMY …WHY SO, HOW CAN IT CHANGE?

…Disproportionately Endowed

t is plain fact that Africa lags and features in the lower rung of global economic scale. This is so, owing to historical antecedents combined with prevailing inability to learn and adopt lessons of economic resurgence by Asian and other emerging market countries. More over, leaders and decision-makers in some countries of Africa have been unable to imbibe very basic tenets or best practices of economic success in policy formulation and implementation, notably; strengthening institutional framework of their financial systems and corporate structure, improving governance standards in the public sector, entrenching the rule of law, empowering the private sector and ensuring fair and more equitable wealth distribution across board.


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Consequently, not many observers would have noticed that Africa’s share of certain key global economic and financial indicators range between 2 to 3 percent. In fact to be precise, in a lot of such indices Africa stands at 2 percent or less, leading me to coin the caption of this article – or would it make a difference if I called it “three percent economy”?

This is in stark contrast to the more impressive ratio of its natural endowment. With nearly a billion inhabitants, Africa accounts for a little over 13 percent of world’s population and occupies about 20 percent of landmass. However it holds a disproportionately high reserve of mineral and agricultural resources, making it potentially the richest continent by most account.

To consider just a few cases – Africa hosts about 78 percent of world platinum deposits, 60 percent of uranium deposits, 40 percent of gold, 25 percent of cobalt, and 9 percent of proven crude oil reserves. Africa produces over half of world cocoa beans, coffee, cotton, and rubber (cash crops). As at 2002, a single entity in Africa, Bonny Liquefied Natural Gas Plant (LNG) accounted for over 7 percent of global liquefied natural gas export.

…Yet Perennial Under-Performer
In the face of this, Africa’s overall share of global economic output (GDP) remains stunted at about 3,1 percent, its portion of world trade is 2,6 percent (declining from 6 percent in 1980), share of global Foreign Direct Investment 2,9 percent, share of international private equity investment is 7 percent, whereas share of global research-spend is 2 percent and so on.

Just to give you some quick comparative perspectives – Switzerland with a population of 7 million people has an aggregate annual economic productivity equivalent to all African countries combined. With a population of 45 million people Spain generates as much electricity as the whole of Africa.

Which makes you wonder, why the coincidence? Why is Africa perennially stuck at the two percent mark in all such vital parameters? The reasons are multifaceted. Aside from gross underutilization of its God-given resources, the world is not standing still waiting for Africa to improve its position in global ranking and catch up. In fact by one description – Africa has to actually run faster to simply keep up to speed with pace of global economic expansion – how can it achieve this?

Many experts have characterized the 1990s as the lost decade for Africa because as the world advanced, the continent actually retrogressed. So its no surprise that if you look at today’s raging bulls like China and India that are blazing global economic recovery or the Asian Tigers like South Korea, Singapore, Taiwan and Malaysia that have thrived, major advances that propelled them to greater heights was achieved within a space of 10-15 critical years during the 1970s to 1990s. By addressing key economic-drivers they set the stage for long-term accelerated growth.

…Self-Inflicted Failures
In Africa, say Nigeria for instance, the reverse was the case. Except South Africa, Botswana, Ghana, Mauritius and Uganda that have understood the message of identifying and leveraging pivotal areas that is helping galvanize macro-economic expansion even with limited resources, the story remains a two-percent one for majority of other countries on the continent. Disjointed and incoherent policies, coupled with incompetent/corruptible resource-management and unnecessary squabbling have resulted in total failure.

Even critics abroad openly acknowledge that Africa is a continent waiting to take-off. My fear is that such dreams might never be actualized in the foreseeable future with the kind of lack luster experience we have seen in Nigeria during the last 2-3 years. Very few countries like Nigeria do have the potentially diverse economic platform that can energize and spread wealth domestically and across the region, yet prosperity remains mere wishful thinking for ordinary folks.

Moving from current dismal state will take far more than rhetoric and political agendas – it demands commitment, showing up for work everyday and striving hard, believing that the effort will ultimately catch on. Recent experience the world over clearly shows that even in the best of circumstances and with all the effort, nations and macro-economic systems could still be prone to intermittent shocks.

…Target The Growth-Drivers
So to shed the toga of a two percent continent, Africa as a whole and leading but grossly under-performing country like Nigeria in particular, must rise up to the occasion. Whether it is the failed seven-point agenda of President Yar Adua or anything else espoused by Acting President Goodluck Jonathan, the emphasis should be on identifying and tackling problems that could underpin long-term development and yield qualitative multiplier-effect on productivity while improving living-standards, creating jobs and alleviating poverty. That singular magic wand to my mind remains electricity in the immediate-term then infrastructure, agriculture, education and healthcare in the mid-term horizon.

The task for Africa is well cutout just as the target should be simple and straightforward – to raise Africa’s share of key global economic indicators (investment flow, value-added exports, technology spend, and manufacturing productivity etc) by one percentage point every 2-3 years and keep it steady. To support this, African countries need higher than average annual economic performance.

Already by World Bank/IMF data, majority of African countries logged in double the growth rate of advanced countries (6-8 percent between 2003-2007). Such welcome news needs to be consistent. Even in the face of recent global meltdown some countries on the continent have managed to register reasonable growth rate of 2-4 percent in the last two years and forecasted to post higher growth rates, albeit from a low base (in the 2009-2011 timeframe). This is coming at a time when some developed countries had to contend with negative growth rates.

…Then Sustain The Tempo
My hypothetical summation is as follows – a gigantic economy like Nigeria forecasted to grow at 7 – 7,5 percent in 2010 and beyond, and that has consistently posted positive growth rates since 2002 (according to IMF data) was able to achieve such feat mostly thanks to the catalytic role of mobile telephony and Internet technology. Now combine that with more reliable power supply, it should be conceivable that we could add another 2-3 percentage points to the annual growth rate on a consistent basis.

If you factor in role of infrastructure in driving productivity (assuming efforts in fixing broken highways/bridges, building/efficiently managing new toll-roads and revamping railway network yield desired results in the foreseeable future), we might well be looking at double-digit (10-12 percent) growth rate for the country, year-in, year-out. Only through such ambitious scenario extrapolated over 5-10 years period (like in China or India) will Nigeria and its neighbors be able to make a dent in current status quo. Realistically, Africa might never catch up with advanced countries in our lifetime but it should at least strive to slow the pace of constant gap-widening then seek to narrow the divide.

Chamberlain is a New York based financial professional and member of Rivers State Economic Advisory Council.

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