by Alec Russell
“For the first time in decades Africa’s growth appears enduring,” said Goolam of the Standard Bank. “Between the 1950s until 2000, while much of the planet moved forward, Africa in a relative sense fell back, in terms of the sheer world commerce and world economic activity. There are many reasons to explain why Africa did not progress. From the 1950s to roughly 1995 there was a tendency to see that the more resource rich a particular nation was, the more likely its people were illiterate. This reveals quite a novel twist to the resources curse. These resource rich nations were not harnessing their resources for general industrial development. They did not harness the rents the governments took from the resources sector to apply it to developing human capital and investing in education and health, so as to develop a labour body that would be able to kick start secondary and tertiary activity.”
Indeed, Africa has been steadily reversing its marginalized trade position globally, and the unprecedented growth of Africa’s economies in the last decade has dramatically altered its investment landscape. African GDP has outpaced world growth since the start of the 2001 commodity boom, and the continent’s growth reached 6% in mid-decade, according to the Economist Intelligence Unit. “The current state of Africa is one where there is remarkably improved political and economic governance,” Goolam explained. “Political and economic governance has markedly improved. That has provided the base context for Africa to be able to entice more risk taking, especially more private sector risk taking, and this has helped to give Africa its more rapid base of economic growth in the last decade.”
While there are several factors behind Africa’s growth, including robust commodity prices, better economic management by Africa’s governments, substantial debt relief and increased private capital flows, the continent’s growth this time round seems far from a cyclical one. Unlike earlier short-lived economic booms, what has made this boom unique is the external demand from the BRICs. Being home to 30% of the world’s mineral reserves, Africa contains 42% of the world’s bauxite, 38% of its uranium, 42% of its gold; 73% of its platinum; 88% of its diamonds; and 10% of its oil, according to Padraig Carmody. The BRIC countries have been among the world’s fastest growing, and it is their swelling populations that have fuelled a surge in demand for these resources. Representing 40% of the world’s population, 26% of its territory and 15% of its GDP, Brazil, Russia, India and China’s burgeoning appetites have led them to seek partners across the continent. From China’s state-owned petrochemical corporation Sinopec Group, to Brazil’s mining conglomerate, Vale; from India’s IndianOil Corporation, to Russia’s Gazprom, Africa is the new frontier for growth, and the BRIC’s multinationals have vied to stake a claim on the continent’s commodities.
“There has been seismic change in Africa’s trade and financial relationships over the last 15 years, and it is truly tectonic,” said Goolam. “There is no example of such a rapid realignment in commercial relationships over such a short period of time in modern economic history. If you consider Africa’s global trade mosaic in the early 1990s, its trade [with the BRICs] was only fractional and yet today they occupy a top position in the league table of Africa’s trading partners. It highlights and signals quite clearly that there has been a momentum in growth. At its heart, there has been a shift in centres of global production away from western markets, towards emerging markets generally. So whether it is the world’s factory floor in China, or the new services hub out of India, or Brazil’s prowess in agriculture, the comparative advantages of these nations has increasingly come to the fore and [it has enabled them to] capture a global market share. They have naturally become trading partners for established, as well as nascent, markets like Africa. Simultaneously along with these nations’ emergence, has been their hunger for resources, so as to nourish their industrialisation, and Africa has been able to offer a reciprocal bargain, in terms of supplying resources. So [this shift] has been away from the traditional western established partners, to what were yesterday’s frontier nations and today’s dynamic markets.”
Trade between the BRICs and Africa has expanded from $22.3 billion in 2000 to $166 billion in 2008, and BRIC-Africa trade as a proportion of Africa-world trade grew from 4.6% in 1993 to over 19% in 2008, according to the Standard Bank. Conversely trade with the European Union (EU) has steadily declined. According to Renaissance Capital, in 1989, the EU accounted for 50% of sub-Saharan Africa’s total trade. A decade later this share had dropped to 38%, and it fell further in the 2000s. By 2011, only 25% of sub-Saharan Africa’s trade was with the EU.
“It is clear that the trade between Africa and the BRICs has grown quite considerably in the last decade and if you look at the amount of trade that China has done with Africa – it has gone from next to nothing a decade ago to several billions in the last year,” Andrew Alli, the CEO of the African Finance Corporation (AFC) explained to me. “China is probably the most active one of the BRICs. Also India, in terms of their competition with China, have started looking at Africa, but I would say they are [still] behind. For Brazil, trade ties have been increasing with the Lusophone countries. Yet I am not sure whether these trade ties have been increasing at a cost to their traditional partners. Rather it has been growing, and while the amount of trade with the traditional partners has not really decreased, proportionally it is coming down [when compared with the BRICs].”
The rapid expansion of the BRIC’s domestic car industries illustrates this. As the BRICs are getting wealthier, the disposable income of their citizens is rising, and there has been a growth in car sales. In the first half of 2012, passenger car sales grew by 14% in Russia, and almost 10% and 8% in India and China respectively, according to Zee Research Group. As the pace of urbanisation continues to rise in these countries, African oil and gas has become crucial to their development. By 2015, McKinsey estimates 13% of global oil production will take place in Africa, compared with 9% in 1998. Accordingly, Africa has experienced a surge in its income as the BRIC’s high demand for resources has led commodity prices to rise. The price of oil rose from less than $20 a barrel in 1999 to $145 in 2008, and McKinsey found that the prices for minerals, grain and other raw materials have also soared on the back of this demand.
Africa has been in the driving seat in its new trade relationships, and by 2009 Africa ran a sizeable trade surplus of $20.2 billion with the BRICs, according to the Standard Bank. BRIC-Africa trade is not a one-way street, and trade volumes reflect the BRICs’ interest in capitalising on Africa’s booming consumer markets. India, for example, is now ranked as a top five foreign source of goods for over one-third of all African countries.
“Africa is no longer content with trading with anyone,” said Pranjal Sharma, Editorial Advisor, and former Executive Editor at Bloomberg. “African countries are seeking manufacturing partners. They are looking for investors who can help them grow. This emphasis on seeking investment partners is taking them beyond the traditional OECD partners and former colonial rulers. African countries now have options to choose their economic partners. Two decades ago, they had no choice but to trade with their former rulers. Despite political independence, they did not achieve economic independence from their European rulers. With the emergence of strong economies especially in India and China, the African countries have a choice, and the OECD countries now have competition from these countries that offered to partner with Africa.”
The rising power of the BRICs holds potentially far-reaching consequences in terms of enhancing Africa’s economic prospects in the coming decade. There are some similarities between the rise of Africa now as a priority investment destination and that of each of the BRICs, two decades ago, when all countries were in the midst of opening their economies to global forces. The Cairo Review of Global Affairs believes that Africa will follow a similar development trajectory in the coming decades, and achieve growth levels that will empower its nearly one billion citizens. Africa’s greatest disadvantage among advanced economies has been in the area of perceptions, and the
BRICs have been a significant force in challenging these perceptions. “The huge deficit between the reality of Africa and the mainstream media’s obsession with negative stereotypes of conflict, famine, and failed states undermines the continent’s potential,” the Cairo Review of Global Affairs stated in an online paper. “The mainstream media have dominated the narrative for the past four decades, and through selective rather than inaccurate reporting, [they] have reinforced Africa’s negative trends at the expense of its potential.”
The BRICs have not only been significant drivers of investment into the continent, but they have also illustrated why Africa’s potential as an investment destination should be taken more seriously. Africa, with nearly one billion people, represents the world’s third-largest market after China, which has a population 1.3 billion people, and India, with 1.2 billion people. Thus the increasing presence of the BRICs in the continent is evidence of their belief in Africa’s commercial potential. It is significant to see that in recent decades, Africa has made significant strides in implementing transparent economic systems, and eliminating of some of the bureaucratic barriers to trade and investment within the region. Although key indicators such as the World Bank’s ‘Doing Business’ report reveals Africa’s business environment is still far from ideal, the trend towards improved macroeconomic management and increased transparency is undeniable.
While Africa’s trade with these countries is not new in itself, it is the depth of the trade ties, the sheer volume of investment involved and the demand from the populations of these economies that makes this a renaissance in Africa’s relationship with these economies. “How this [era] is noticeably different is that for much of the latter half of the last century, productivity growth on the continent was not much better than half a percent,” said Goolam. “From the 1960s to roughly 2000, productivity growth was below 1% per year and if productivity growth is so poor, then economic performance is going to be dismal because economic growth and per capita incomes tend to move in tandem with the pace of productivity growth. Over the last decade, Africa has been able, in a broad-based way, to grow by roughly 5% per year and productivity growth has been nearly 4% a year in this time. The fact that there has been longevity to this growth signals [there have been some] reform measures that have helped to underpin the continent’s performance.”
