Programme Director
Principal and Vice Chancellor of the University of South Africa
University community
Business leaders
Honoured guests
Ladies and gentlemen.
It is an absolute honour to be asked to speak at this august occasion following on the footsteps of great leaders of our society who addressed this event before me, some who are in government and esteem business leaders who are active participants in our economy.
I wish to extend my gratitude to the University of South Africa, the biggest university in our continent, for the invite particularly to talk about Africa’s financial and economic prospects. This is a fascinating topic, and very exciting in today’s world. Moreover, it has great significance for South Africa, a strong and growing Africa which can only be positive for South Africa both in terms of economic growth and in terms of political security.
A report on Africa’s attractiveness to foreign investment was published by Ernst and Young, the global accounting and consulting firm, their second report on Africa. The report tells an interesting story, on the one hand, many large investors are doing very well on the continent. As they put it: “there is a new story about Africa: a story of growth, progress, potential and profitability.”
However, they say that a perception gap remains between investors already doing business in Africa “and those who have not yet invested and continue to associate the continent with instability, conflict and corruption.”
Let us have a closer look at what has happened in Africa in recent years and try to understand what is really going on. We should look at Africa since the year 2000 its performance, trade, investment and growth including the Millennium Development Goals. We must also look at Africa before the financial crisis.
Programme Director, with your permission let me go back a few years. Africa began to grow more strongly in the early to mid 1990s and many African indicators began to turn around then. In 1990 Africa’s real GDP measured in current US dollars was about $877 billion. By 2010 it had risen to $1 679 billion. This is a compound average growth rate of about 5.1 percent, which is higher than any other region world-wide, except for “Emerging Asia”.
To see what has happened we need to break it down a bit further. In the 1980s, the average growth rate of Africa was 1.9 percent, slower than the population growth rate and Africans were getting poorer. During the 1990s, the growth rate rose to an average of 2.3 percent, improving especially in the second half of the decade. From 2001 to 2006, Africa grew at an annual rate of 6 percent, and then, after the financial crisis hit, the growth rate fell to about 4.7 percent.
So, even during the financial crisis, ironically, Africa’s growth was resilient. At the London Summit of the G20, a concern was expressed that the poorest countries, many of which who are in Africa, would be most severely hit by the global financial crisis. This is partly due to effective measures taken by the G20, but also for unrelated reasons, it turned out that Africa was one of the most resilient regions during the depths of the crisis.
Programme Director, three reasons have been put forward for this. Firstly, African exports were increasingly going to Asia. China and India continued to grow during this period, helping Africa along. Secondly, as many African countries had just gone through a debt relief programme where their debt obligations were reduced if they adopted responsible macro-economic policies, not only were their debt levels lower, but their policies were considerably better. Better than before, and better than many so-called developed countries.
Africa’s current growth rate is about 4.8 percent. This includes South Africa, which is the largest economy in Africa and was more severely hit by the financial crisis than many other African countries. If we look at Africa’s growth rate today without South Africa, growth is not 4.8 percent but it is standing at six percent.
It is clear that Africa’s current growth performance is consistently stronger than at any other time of our modern economic history. Against this background, we have to ask the questions, do we know why Africa’s growth is strong? Do we know how long it will continue? Do we also know what we need to do to ensure that it does continue in a sustainable way?
Programme Director; the most obvious reason for the recent growth of Africa, since the mid 1990s, is the rising demand for Africa’s products. Africa is one of the world’s great producers of raw materials, from oil, coal, iron, copper and diamonds, to cotton, sugar, coffee and beef. With the East and the South Asian fast growth, with their huge infrastructure investments, especially in China, and with the rising consumer capacity of their growing middle class, demand was rising for exactly the kind of product markets that Africa competes in.
The last time the world saw a concerted rise in infrastructure and consumer demand was in the so-called golden era of capitalism in the 1950s and 1960s when investment and consumption in Europe and North America grew so fast. In the 1970s and 1980s commodity prices were low as global investment and consumption slowed down. So, clearly, the boom in investment and consumption in East and South Asia contributed to Africa’s improved performance since the mid to 1990s.
A second important factor, was the debt relief programmes of the early 2000s. The Heavily Indebted Poor Countries Initiative, HIPC, and the Multilateral Debt Relief Initiative, MDRI, allowed African countries to reduce their debt levels. HIPC was launched in 1996 by the World Bank and the IMF, and the MDRI was added in 2005.
At that point, $80 billion of debt relief was available to all countries by 2006. Actually, this is not such a large sum by US or Chinese standards, but for small African countries debt obligations of even on or 2 billion US dollars was crippling. With even those relatively small debts, exports revenues were instantly repatriated as payment of the interest on debt.
To earn debt relief status, African countries had to follow a path of macro-economic discipline. Unlike the conditionalities of the early 1990s, the so called Washington Consensus, the conditions did not include interfering in a wide range of domestic economic policy. It simply meant that government must not spend more than they can afford to and that they should try to ensure that essentials are first in line, and that the needs of the poor are addressed.
By 2012, 34 African countries had past the Completion Point for debt relief. The impact was considerable in improving the balance sheets of governments and introducing responsible macro-economic policies where necessary. Low debt and better policies certainly helped Africa through the crisis.
A third and important factor is better and improving governance in Africa. Since the end of the Cold War, there has been a powerful trend in Africa towards democratisation and greater accountability. South Africa and Namibia were two obvious beneficiaries, but many other countries in Africa have established much stronger and more accountable governance systems. By one measure, the Freedom House measure, the percentage of African countries classified as free or almost free has grown from less than a quarter in 1990 to more than three quarters in the present day.
Dani Rodrik, Harvard professor and one of the world’s finest development economists argues very cogently that democracies and better governed societies are more able to ride thorough external economic shocks than authoritarian countries or dictatorships. So, the shift to better governance in Africa was also one of the contributing factors to ensuring that the global financial crisis did not have excessive negative impacts on Africa.
But we know that the patterns of growth in Africa are far from perfect. If we think about making African growth sustainable, for the long haul, what are the key deficiencies that need to be addressed?
It’s no secret that Africa’s output is not very diverse. We tend to produce a narrow range of raw materials for exports and some staple foods for domestic consumption. In most African countries, manufacturing is weak, the service sector is underdeveloped, and there is relatively little production of high value agricultural crops for export. Also, markets for tourism tend to be very poorly development.
So, the scope for diversification of production and exports is quite large. African countries might focus on different assets. For example, the highly populated countries of East Africa namely Ethiopia, Kenya and Tanzania, might well find a way into labour intensive manufacturing. Land rich countries like Angola, Zambia and Mozambique have huge opportunities for commercial agriculture. North African countries could exploit their tourist potential for Europe far more effectively. These are just a few examples. Africa must diversify, this is critically important for sustainability of the current growth trajectory.
A second factor is regional integration. African countries don’t trade enough amongst each other. This is a huge challenge, while we talk about the need to trade, we allow our special interests to erect barriers against other African countries and end up importing form Asia or Europe.
The Tripartite integration initiative seeks to unite 26 African countries from South Africa to Egypt into one free trade area by June, 2014. This was decided in a meeting in Johannesburg a year ago. This is a hugely important project, we are obligated to achieve this objective. Our people should hold us accountable if we do not achieve this objective.
Another factor where most African countries have not been very successful is in ensuring that the fruits of growth are well distributed. There are several important ways to ensure economic inclusion. One is through investment in social infrastructure, investing in better human settlements which is one of the most important redistributive interventions that governments can make. Many African countries, with rising urban populations, are not really getting to grips with social infrastructure investment yet.
Programme Director, just as important are social services. The Millennium Development Goals targeted levels of access to schooling. Numbers in school in many African countries have risen well. But the quality of education in some African countries, including South Africa, remains one of the most important unanswered redistributive questions. If we make quality education available to all, nothing else is as important as a basis for inclusive growth.
Finally, and just as important, how do we broaden the opportunities for getting directly involved in the economy. How do we create an environment for small business development in Africa, not the subsistence sector, but real, growing small and medium businesses? How do we create labour markets that encourage higher levels of employment? These targets are critical.
Just to recap, Africa’s growth would be sustainable if we can achieve the following objectives. Firstly, diversify production and exports; secondly, drive real regional economic integration, and thirdly, ensure that growth is really inclusive through better social infrastructure investment, better quality of social services, and through the wider availability of economic opportunities.
In conclusion we need to answer this fundamental question; how do we lay the foundations for Africa’s long term financial and economic health?
As a continent, we need to strengthen leadership in Africa, from political leaders to senior officials in all spheres of government and if we do this across Africa, we can truly make this the African century.
I thank you.
