De-risking Africa`s Emerging Economy
Since the onset of the global financial crisis in the third quarter of 2007, emerging markets gained more prominence as they drove economic growth. Investors took an interest in emerging markets, which offered attractive investment opportunities relative to America and the rest of Europe which were reeling from the economic meltdown.
This saw the emergence of the BRICS group of countries to the centre-stage of global economic activity. Various analysts have however been sceptical of the association of these emerging national economies, citing substantial downside risks presented by the same countries.
At the recently concluded World Economic Forum in Davos, there was a panel discussion on de-risking Africa. Historically, Africa has been mired in conflict. The effects of these conflicts, compounded with poor governance, high youth unemployment among a range of several other ills, pose a significant risk factor in Africa as an investment destination. With signs of America, the world`s biggest economy and Europe starting to recover from the recession, (albeit such indications being taken with a pinch of salt), the volatility in emerging markets, and more importantly Africa, are increasingly being brought under the microscope.
It is clear therefore, that more needs to be done to de-risk Africa as it were. Whereas, the rest of the world seemed to underplay the risks posed by the emerging markets previously, it will be a fallacy to think that this trend will continue.
An interesting observation is that, the various African regional groupings have spent more time and resources trying to stave off potential and actual conflicts in their regions, at the expense of promoting economic integration, cooperation and growth among their members. This has undoubtedly altered the dynamic geopolitical and geo-economic landscape in Africa. The Economic Community for West African States (ECOWAS) has had its hands full over the years, with the conflicts in Ivory Coast, Northern Nigeria where the Boko Haram militants are terrorising civilians, and more recently, the conflict in Mali. Further down the African continent, the Southern Africa Development Community (SADC) has had to contend with the fragile Unity Government in Zimbabwe for a while. All these are negative developments which will curtail economic growth and stability if unchecked.
The downgrading of South Africa`s (Africa`s largest economy) sovereign debt rating on the back of labour unrests, and rising economic inequality further underscores the risks that Africa as an economy is increasingly posing. Northern Africa has had its fair share of conflicts too. The Arab Spring which saw three presidents being overthrown have left scars on most of the economies north of the Sahara.
Now more than ever collectively, African Governments have to display the much needed political capital to ensure that their economies remain on positive growth trajectories going forward.
The actual or perceived risks attached with doing business in Africa need to be redressed and the operating business environment has to be improved to facilitate ease of doing business on the African continent. First and foremost, locals need to be given the necessary support to venture into their own enterprises. Currently however, the prospects of Africans to start their own initiatives are being hampered by poor infrastructure, poor access to utilities like water and electricity as well as inefficient transport networks. To ensure competitiveness going forward, these are some of the fundamental issues that need to be addressed.
Most if not all of the problems faced by Africa have been intrinsically related to the nature and type of leadership Africa has had. Our leaders must know that the people they lead, and more importantly, as Africans, we demand accountability and transparency. To this end, national government policy must be directed at tackling the underlying structural problems the continent faces. High youth unemployment, corruption in the upper echelons of leadership and rising income inequalities all need to be dealt with decisively. If unattended to, these could have grave consequences on the African economy. The self-immolation of Mohamed Bouazizi in protest of the Tunisian government is widely believed to have been the catalyst for the Arab Spring. This goes on to show that, problems such as these can no longer continue to be discounted. They contribute immensely to the risk associated with Africa.
President Paul Kagame of Rwanda mentioned at the World Economic Forum mentioned that, “Africa`s story has been written by others, and there is a need for us as Africans to own our problems and solutions, and write our own story.” It is not all gloom and doom, Africa has been witnessing rapid growth as it recovers from the global economic crisis. Gross Domestic Product (GDP) growth on the continent averaged 5, 2% annually between 2001 and 2011, higher than the global average for the decade of 4, 2%.
Questions remain however as to how sustainable this growth is in the long run. Key to ensuring that the continent remains on the positive growth trajectory is the need to decrease the risk attached to the continent by investors. Overall policy framework by national governments has to be deliberately modelled to ensure that growth translates into jobs, and incomes. In turn, this will improve the competitiveness of Africa as an investment destination, and go a long way in minimizing risk.