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Alex Vines says it's time for Africa to look westward

Growth patterns will vary across African economies, but partnerships are a critical to sustain them — and while this century may be Asia’s, improved relations with the West are back in fashion.

 

There is no one country called Africa. Generalized descriptions — or prescriptions for — the “Africa rising” story don’t work in a continent that is so vast in size that it could swallow up Europe, the United States, China, India and Japan combined.

What we can predict is that the growth pattern over the next decade will be variable — some countries doing much better than others. This is to do with leadership, governance, education and skills and location. Given Africa is the most youthful continent in the world, turning demographics into an advantage is critical for growth.

Yet just as the world shouldn’t view Africa through a single lens, African countries will increasingly need to consider geographical diversification as a growth strategy.

The Outlook

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Shortfalls of electricity and skills deficits are a drag but significant mega-project infrastructure investment are already underway. Young, fast growing urbanized populations are generating domestic consumption for products and services although Africa’s manufacturing capacity is tiny outside of South Africa.

External market shocks still impact Africa’s growth trajectory. The sharp decline of commodity prices — brought about by cooling demand for oil and minerals from China — is having an impact on commodity exporters such as Nigeria, Angola and Zambia. This has resulted in a slowdown in investment from China, Brazil, Turkey and the Gulf countries, as well as a bit of a pullback diplomatically.

The U.N.’s 2015 World Investment Report noted that foreign direct investment in Africa remained flat at $54 billion, decreasing in North Africa while rising in sub-Saharan Africa to $42 billion. What the report illustrated — and what African governments have increasingly appreciated — is that the United States, Britain and France remain leading sources of foreign direct investment. Indeed, by number of projects (if not value of deals) Britain and the United States remain the leading sources of FDI in sub-Saharan Africa, followed in third place by South Africa.

U.S. private equity firms such as KKR and Carlyle Group have recently made their first sub-Saharan African investments, and this trend will grow. Foreign direct investment is still highly concentrated in a few resource-rich countries such as South Africa and Nigeria, but this will change over time. More private equity will be drawn to Africa as governments improve their “ease-of-doing business climate.”

The World Bank’s most recent Doing Business report found that some 35 sub-Saharan economies have implemented one pro-business reform in 2013-14, with the region accounting for five of the top 10 improvers worldwide in 2014. It is worth noting, though, that 14 of the 20 least competitive economies in the world are in sub-Saharan Africa — a further reminder to avoid generalization.

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East or West?

This century may be Asia’s, but the slowing of the Chinese economy and the strengthening of the U.S. economy have encouraged a greater realism among many African governments that they need diversified partnerships to navigate a changed world order.

China remains part of this calculation, but improved relations with the West is back in fashion — as highlighted by President Obama’s trip to Nairobi in July and his meeting with Nigerian President Buhari in Washington. Angola, which has become highly dependent on Chinese loans and trade, is also showing willingness to improve its relationship with Washington.

Meanwhile, South Africa appears to be pulling in an opposite direction despite the importance of western investment for its economy. As many African states try to widen their international choices, South Africa risks becoming trapped in its BRICS — Brazil, Russia, India, China, South Africa — narrative.

Just as Africa shouldn’t be seen as a single entity, the economic realities facing African economies today is far a zero-sum choice between the East and West. Diversification of partnerships will play an increasingly important role in the growth strategy of many African governments.

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