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19.06.2008 Business & Finance

Asian investment is lending Africa a new found level of confidence

19.06.2008 LISTEN
By myjoyonline


Africa began the year on an inauspicious note: political violence, acrimonious party succession battles, crippling power cuts and an attempted coup were all signs that growth, political stability and democratic governance remain fragile despite the remarkable progress achieved in recent years.

At the previous two World Economic Forum (WEF) meetings on Africa in Cape Town, delegates had heard that Africa had irrevocably turned the corner to better governance and fast, sustainable growth.

What it means

Asian investment in Africa is skyrocketing.

Tribalism is Africa's blind spot.

Sub-Saharan Africa is enjoying the best period of sustained growth since independence. About 17 non oil-producing countries (representing about 35% of Africa's population) have grown at about 5% on average for the past 10 years, thanks to better macroeconomic policies, rising investment and greater private-sector activity.

However, this year the mood at the conference was more sombre.

Leaders were asked whether Kenya's recent explosion into ethnic violence exposed Africa's soft underbelly - its failure to deal with tribalism. Investors wanted to know what the likelihood was that other nations were also living the lie of unity when below the surface ethnic tensions simmered.

Ghana's president John Kufuor said it was possible that any other African country could go the way of Kenya because of the artificial boundaries drawn by colonialism and the failure by subsequent leaders to tackle the problem of tribalism at its roots.

Kenya's new prime minister, Raila Odinga, blamed the country's descent into anarchy on bad governance. Post-colonial leaders had failed to unite the country; instead, they had used ethnicity as a basis for disbursing resources. "The mediocrity with which Africa has been ruled is responsible for its underdevelopment," Odinga said, lashing out at the continent's leaders for remaining silent about the electoral crisis in Zimbabwe.

Conference co-chair and Industrial Development Corp chair Wendy Luhabe said a thread running through many sessions was the lack of leadership in Africa, which made it a challenge for the continent to capitalise on many unprecedented opportunities.

This included a lack of business leadership.

SA president Thabo Mbeki disagreed. African leaders, he said, generally had greater clarity about the need to establish stable democratic systems and showed greater acceptance of the role of the private sector as an engine for growth than a decade ago. He insisted: "Africa is moving in the right direction."

The International Monetary Fund's recent World Economic Outlook forecasts that sub-Saharan Africa will achieve 6,6% economic growth this year (compared with only 1,3% for advanced economies) on the back of the commodities boom.

Growth is supported by robust expansion in the region's non oil-exporting countries, where domestic demand and investment have responded to improved policies and structural reforms to the extent that manufactured export volumes now represent a much larger share of regional GDP than commodity exports.

Continued demand from Asia for Africa's raw materials, as well as robust internal demand dynamics, should strengthen the region's resilience to a slowdown in the advanced economies, delegates heard.

Much of Africa's new found confidence is derived from skyrocketing Asian trade and investment in the continent. Net private capital flows reached record levels in 2007, led by strong foreign direct investment, while exports from Africa to Asia have tripled in the past five years, making Asia Africa's third-largest trading partner after the EU and the US.

"Africa is sitting on a golden egg. The fact that the big emerging market countries are willing to invest in Africa is spurring the US and Europe to take a second look," says World Bank economic adviser Harry Broadman.

He says the interest of US and European private equity firms and global fund managers has mushroomed over the past year, as they realise that China and India are likely to get first-mover advantages and because Africa offers returns way in excess of the developed world.

Broadman feels this is all to the good as long as African governments exercise their leverage and drive a hard bargain with investors. Consequently, China's recent US$9bn investment in the DRC (the biggest of its kind in Africa) has been hailed as a landmark deal because the DRC government has obtained, in exchange for access to copper and cobalt, Chinese investment in infrastructure, including about 3 800 km of road, 3 200 km of railway, 32 hospitals, 145 health centres and two universities.

"To be sure, the overwhelming bulk of Africa's exports to Asia today is natural resources," Broadman concedes. "But what's new is that there is far more than oil that is being invested in. This is an important opportunity for growth."

Asian investment could also help the continent deal with the food crisis; India and China have successfully raised their agricultural productivity after extensive reforms of the sector.

Malawian president Bingu Mutharika expressed optimism that the world's food shortage would be solved in Africa, noting that Malawi had managed to turn itself into a net exporter of food since 2004 and had enough available land to grow more rice in a short period.

However, the magnitude of the task should not be underestimated. Africa's agricultural output has dwindled from 1960s levels, resulting in the continent becoming a marginal player. Only 4% of land is irrigated in Africa, compared with 40% in South Asia.

Ambassador Liu Guijin, China's special representative on African affairs, told a session on Sino-African relations that China had committed itself politically to assist African food production and was in discussions with several African countries on ways to expand agricultural co-operation. It had already sent more than 500 experts to Ethiopia, he said.

But many expressed the fear that, in the short term, high oil and food prices could undo the developmental gains of the past 10 years and push thousands back into poverty.

Odinga agreed with ANC president Jacob Zuma that the food crisis was a time bomb for all politicians, "because hungry people are angry people", while US assistant secretary for African Affairs, Jendayi Frazer, warned that food riots could worsen political tensions in a fragile country and give a government an excuse to crack down on the opposition, setting back democracy.

That positive momentum is building seems undeniable, but what is equally true is that 300m Africans remain in dire poverty and that most African countries will be unable to meet the millennium development goals, even with 6% growth rates. Africa still faces the same problems it has for decades - illiteracy, poverty and underdevelopment.

In terms of infrastructure, it remains the most under invested continent. For WEF delegates these are seen as vast opportunities.

Africa is being given a second chance; it had better not blow it.

Authored by: Claire Bisseker/Financial Mail.

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