Helping Unlock a Continent's Economic Rebirth
The region has already made big strides below the radar. It now stands to become the developing world’s next great success story.
October 2015 | by David Delaney
The global financial crisis has shown that the developing world no longer holds a monopoly on investment risk. A new risk reality has emerged—one that is ubiquitous and less associated with the developing regions of the world. Thanks to this new reality, combined with macrotrends affecting the global economic landscape, businesses are now looking for new markets in which to invest. In the aftermath of the crisis, the “South–South” expansion of trade and investment is likely to accelerate thanks to the global appetite for natural resources; the effects of climate change will continue to complicate growth and open up new investment opportunities; and changing demographics will have important implications for productivity and demand. Against this backdrop, sub-Saharan Africa offers a better platform for profitable new investments than ever.
Future global economic growth will increasingly come from emerging markets. Following more than 20 years of hard-won political and economic reform, sub-Saharan Africa will be an important part of this story. Africa is often associated with poor governance, weak institutions, civil unrest, a lack of infrastructure, and other difficulties. The extent of these problems cannot be minimized, and African governments and civil society must continue to work against them. But there is an emerging side of the African story that speaks of successes often achieved below the radar screen. The region aspires to move past the image of extreme poverty and conflict with which it has long been associated and to show that it is not only open for business but also actually in business. Before the crisis, sub-Saharan Africa had been growing fast, with an average annual growth rate of 6 percent between 2002 and 2008. The region, which is weathering the global downturn better than most other parts of the world, is projected to grow by 3.8 and 4.5 percent in 2010 and 2011, respectively—faster than Latin America, Europe, and Central Asia.
Sub-Saharan Africa’s recent sustained growth has been made possible largely by improved political and macroeconomic stability, a strengthened political commitment to private-sector growth, and increased investment in infrastructure and education. Many sub-Saharan African countries have liberalized trade since the early 1980s, and throughout the continent fiscal soundness and monetary discipline are increasing. Debt as a share of exports has declined dramatically, to levels comparable to those of other regions, and sovereign credit ratings in parts of the continent enjoy a positive outlook. More of the region’s countries are now regarded as frontier emerging economies with relatively developed financial markets, including Botswana, Cape Verde, Ghana, Kenya, Mauritius, Mozambique, Namibia, Nigeria, Seychelles, South Africa, Tanzania, Uganda, and Zambia.
Most encouraging of all is the fact that the region is continuing to reform through difficult times. There is a broadly shared conviction among sub-Saharan Africa’s leaders that sustained growth will come only from the private sector and increased integration with the global economy. Last year, two-thirds of the economies of sub-Saharan Africa implemented reforms to ease the path of investors doing business there. In 2008–09 alone, Rwanda completed seven reforms, Mauritius six, and Burkina Faso and Sierra Leone five each. Indeed, Rwanda’s and Liberia’s measures were so significant that they both received “top reformer” status: Rwanda was the number-one reformer world-wide in Doing Business 2010, and Liberia was number ten.
These reform efforts have been complemented by increased investments in infrastructure and human development. The figures for average years of schooling are catching up fast with those of the rest of the world, after having increased more than fivefold since 1960. Infrastructure spending amounts to $45 billion a year and absorbs more than 5 percent of total GDP. A recent $600 million private investment in high-capacity fiber-optic cable connects southern and eastern Africa to the global Internet backbone, widening the continent’s horizons of connectivity.