Photo by John Thys

Dawning continent

The West has underestimated Africa’s independent economic potential

Artillery Row

Last month, a high profile EU-Africa Summit in Brussels brought together the leaders of EU member states and their African counterparts. At the Summit, EU leaders like German Chancellor Scholz stressed the importance of close collaboration with African states, declaring, “Our relationships are of strategic relevance for both sides.” 

The Summit was also meant to showcase a new EU flagship project, the “Global Gateway Initiative”. In an effort to counter China’s Belt and Road Initiative, the EU would mobilise €300 billion between 2021-2027 for all kinds of projects, by means of EU guarantees. The UK, meanwhile, is going to pour hundreds of millions of pounds into developing African port infrastructure in a bid to win a “battle for economic influence” against China and other authoritarian states.

We should question whether another round of taxpayer-backed support is really the answer to help Africa develop further, given the very poor and often counterproductive effects of development aid. It also overlooks how private investors have already found their way into Africa, without the need for direct or indirect government support. 

Investing in Africa

German investors are the EU’s largest private investors in Africa, after French investors. In a report last November, Ernst & Young calls Africa “an attractive investment destination, with its young population and vast natural resources giving it the potential for enormous growth and innovation”, however adding that “rapid economic reform” and “good governance” are key to achieve this. It singles out the African Continental Free Trade Area (AfCFTA), which came into effect in 2021, as a promising development, though lamenting that “in the nine months since AfCFTA came into being, implementation has been patchy, with many members reluctant to cut tariffs and thus expose their local businesses”.

A South African company has made a Moderna-like vaccine, without any help from Moderna

Many are still worried about the Covid situation in Africa, but according to the World Health Organization (WHO), if current trends continue, Africa will be able to control the pandemic in 2022, “Over the past two years, the African continent has gotten smarter, faster and better at responding to each new surge in cases of COVID-19,” Dr. Matshidiso Moeti, WHO Regional Director for Africa, explains.

On top of this, a South African company has apparently managed to make a vaccine that mimics Moderna’s messenger RNA vaccine, without any help from Moderna. This is important, given how even more than patents and IP, the ability to replicate biologics such as mRNA vaccines, transferring development and manufacturing knowhow are key. It is yet more evidence of how Africa is really able to take care of itself.

According to global accountancy and consulting firm Rödl in 2019, “the 55 countries of Africa have taken the centre stage of the global investment agenda: The next Asia is Africa” as “the booming economies of Nigeria, Kenya, Ethiopia, Angola and other nations — many of them expecting GDP growth rates in excess of 7 per cent per year, every year, for decades to come — offer fascinating opportunities for global business and African citizens alike”. 

The example of Ghana

Rödl then singled out Ghana as the country with “the lowest country risk in Africa” as it “offers attractive opportunities in the fields of logistics, telecommunication and information technology” as “a Western African trading hub”. 

That was just before the pandemic, but nothing much has changed. It’s worth taking a closer look at the country to explain how Africa may indeed become the next great growth story. 

Ghana managed to avoid a contraction of GDP during the pandemic

As opposed to many other countries, Ghana managed to avoid a contraction of GDP during the pandemic, even if growth was of course hit. Its current economic growth outlook is better, despite major rating agencies decided to downgrade the country. According to rating agency Fitch, Ghana may have lost market access to international bond markets, but “in our view, Ghana has sufficient liquidity and other available external financing options to cover near-term debt servicing without Eurobond issuance”, as it adds “we believe that the government can meet its external debt servicing without market access given its reserves”.

Fitch further estimates Ghana’s GDP growth potential around 5 per cent. Given how the Omicron wave has seen hospitalisations and death rates below those in previous waves, it considers that “Omicron is not likely to significantly impact 2022 growth”.

In fairness, reforms are still needed. Ghana’s economy is relatively free to African standards, as it is ranked 9th among 47 countries in the Sub-Saharan Africa region in the economic freedom index of the Heritage Foundation. Still, it is below the global average, meaning police makers must make strides towards improvement. 

Then Ghana has managed to close several trade arrangements, like the EU-Ghana Economic Partnership Agreement and the UK-Ghana Interim Trade Partnership Agreement, without of course forgetting its membership of the African Continental Free Trade Area, which presents major opportunities.

Africa’s services sector

Ghana is an oil exporting country, which should help its economy, considering how quite a few analysts now expect an “oil supercycle”. It would be wrong to consider the country’s economic attractiveness in terms of resources exports alone, however. During the last twenty years, commodities have become less important for Africa’s economies, as the services sector has grown.

Fast internet has proven key to boosting the economy

Truly the greatest resource for African economies are its people. In the case of Ghana, this has translated into a number of successful IT start-ups with key operations in Ghana, like the US drone delivery start-up Zipline or African peer-to-peer cross-border payment service Chipper Cash. Ghana also has successful start-ups of its own, like the fintech Float or mPharma, a health tech start-up which manages prescription drug inventory for pharmacies and their suppliers.

Africa as a continent is demographically the youngest of all Continents. Fast internet has proven a key factor in boosting the economy. Two thirds of the world, which includes large parts of Africa, are still deprived of this, meaning the future growth prospects can only be understated. According to one estimate, the African internet economy has the potential to grow to $180 billion — roughly 5.2 per cent of the continent’s GDP — by 2025.

Clearly, African economies still have major hurdles to overcome, from corruption to illiteracy to war, but these are all well-documented. Much less appreciated are the major opportunities and chances for rapid African economic growth.

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