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Africa status report: The signs are positive

News & Analysis

Africa status report: The signs are positive

At the end of the first quarter of 2018, what continuing trends can we discern from a dramatic and in many ways epoch-making 2017? Based on those trends, what does the rest of the year, going forward into 2019, have in store for the continent? Study by Johan Burger, the director of the NTU-SBF Centre for African Studies in Singapore.

Economic trends in Africa

At the end of 2017, and looking forward to 2018/19, the following African countries appeared in the Top 10 Global Economic Growth Countries list: Ghana (1st – 8.2%), Ethiopia (2nd – 8.0%), Côte d’Ivoire (4th – 7.2%), Djibouti (5th – 7.0%), Senegal (8th – 6.9%) and Tanzania (9th – 6.8%). This continued a trend identified earlier in 2017.

The World Bank identified the Top 10 African Economies in its 2017/2018 Doing Business report. Most of these have made many significant reforms, although some have not.

Mauritius ranks at 25th place worldwide, up from 49th position in 2016/2017. It improved its ranking in eight of the 10 business lifestyle areas given. Rwanda emerged in the top 50 countries for the first time, at 41st place (2nd in Africa), compared to being 56th in 2017. It has made 52 reforms over the last decade. Morocco is ranked at 69th position (3rd in Africa). Kenya gained 12 places to 80th position. The improvements are driven by the government and the private sector. It has gained 53 positions over the last three years – a tremendous improvement.

Zambia has gained 13 places to 85th position (7th in Africa). Currently, Zambia has also been listed as one of the world’s top 10 economies with the most notable improvements.

However, Botswana moved down from 71st in 2016/2017 to 81st (5th in Africa), caused by a lack of interest in investing in the diamond industry. However, investments in the service sector are expanding rapidly. South Africa dropped from 74th to 82nd (6th in Africa).

Tunisia, ranked 88th (8th in Africa), has dropped 11 places from its spot at 77 in 2016/2017, falling 46 spots in just 7 years. Seychelles is placed in 95th position (9th in Africa), down from 93rd in 2017. Lesotho is ranked in 104th position worldwide and 10th in Africa.

Mauritius has been ranked 1st in Africa for quite a number of years, but its massive jump to 25th in 2017/2018 can be seen as the result of a government and business community determined to make things work. The same goes for Rwanda, Kenya and Zambia.

The sad news appears to be Botswana, South Africa and Tunisia. The latter could blame the Arab Spring of 2011, but it has had a lot of time to restore itself. The most depressing story probably belongs to South Africa. It was ranked at number 28 in 2005/2006. It fell dramatically to 73rd place in 2015/2016; to 74th in 2016/2017 and to 82nd in 2017/2018.

African countries conspicuous by their absence are Nigeria and Egypt, as neither feature in the African Top 10.

Politics and transfer of power

Africa has again seen a number of peaceful transfers of power. Nana Akufo-Addo was peacefully elected as Ghana’s President in 2017, in Angola, the transition from the rule of long-term President José Eduardo dos Santos to that of João Lourenço was smooth and in Kenya, a situation that had threatened to turn ugly, was peacefully resolved through some mature leadership by President Uhuru Kenyatta and the opposition led by Raila Odinga. In Zimbabwe, Emmerson Mnangagwa was recently sworn in as the new president after Robert Mugabe was removed.

Mnangagwa has committed to elections by August 2018. He created positive expectations at the WEF’s Davos meeting in January.

João Lourenço is expected to instigate major changes in his economic policy. He is willing to reopen negotiations with the IMF, attract more foreign investors to Angola and develop the business environment, by changing its visa policy, improving governance and diversifying the economic base beyond oil.

On balance, 2017 was a good year for the political environment.

The African motor industry

Africa is the final frontier for the global automotive industry, with enormous growth potential; vehicle sales in Africa are expected to grow by 40% within the next five years.

In Kenya, Mobius Motors are producing low-cost vehicles for Africa’s off-road and rough terrain.

VW is hoping to open an auto assembly plant in Rwanda. It recently started production at a low-volume car assembly plant in Kenya. VW’s move into “app-based integrated mobility” in Rwanda is significant for two reasons. It’s happening in a city in Africa and it’s a new business model for future urban mobility. Kenya and Ethiopia, amongst others, have also been targeted by companies such as VWSA (VW South Africa), Toyota and Kia as a base for vehicle assembly.

VW also wants to link with other German companies to establish a local technical academy, to ease the transfer of technology and skills. The move is also part of Volkswagen’s plan to develop markets in Africa. Various French manufacturers have targeted Morocco. Others will also be assembling in countries such as Kenya and Nigeria.

Ethiopia’s first engine manufacturing plant, Mekelle Engine Production Factory, will manufacture three types of engines; small, medium and heavy.

Agriculture

Africa has tremendous potential in the agricultural sector. With 65% of the world’s uncultivated arable land, Africa will determine the future of food for the world. However, Africa produces only 10% of the global food output and spends $35bn annually on food. By 2025, this figure will reach $110bn.

AfDB president Akinwumi Adesina recently said its investment in the agriculture sector would rise by 400%, to $24bn over the next decade, as it looks to the industry to create more jobs in the future and to unlock its full potential.

The mechanisation of agriculture is a priority in many African countries as Africa gears up to exploit its potential to become the world’s food basket. Currently, its farming systems remain the least mechanised of all continents’. Some 70% of farmers cultivate parcels of less than two hectares by hoe. The challenge is to enable smallholder farmers to access equipment like tractors.

The mechanisation of agriculture must address the whole value chain in order to take up the employees that would be otherwise unemployed with the mechanisation drive. Africa cannot afford more unemployment. On the other hand, it cannot ignore the benefits of mechanisation.

China in Africa

With the apparent isolationist approach of the new US President, Donald Trump and the uncertainty associated with Brexit, Africa will increasingly be looking towards China and other Asian countries.

China is Africa’s largest economic partner and its involvement is bigger and more multifaceted than previously suggested. There are over 10,000 Chinese firms operating in Africa; about 90% of these are private firms, with about 33% in manufacturing. China’s financial flows to Africa are 15% larger than official figures suggest when non-traditional flows are included. There are three main economic benefits to Africa from Chinese investment: Job creation and skills development; the transfer of knowledge and new technology; and the financing and development of infrastructure. China is the largest source of infrastructure funding in Africa.

Mining

East Africa as a region seems to be a late entry into the mining sector, with new findings of minerals, gas and oil. This has stood them in good stead as economies have done well, given that they were primarily, but not exclusively, focused on non-commodity factors. While Nigeria and Angola were suffering from the oil price slump, East African countries such as Kenya, Ethiopia, Rwanda and Uganda were experiencing very good economic growth and benefitting from a low oil price.

Ethiopia wants to boost its economy through the development of its mineral resources sector. The government wants to increase the sector’s contribution to GDP, from 1.5% currently to 10% by the year 2025.

Kenya recently discovered a rich gold stream. Realising that Kenya’s oil finds have limited potential, it’s betting big on minerals. The government believes Kenya is sitting on significant mineral wealth, encompassing gold, diamonds, iron ore, coal and titanium.

The DRC remains one of the most important sources of cobalt, used in the manufacture of mobile phone batteries. Cobalt prices hit a nine-year high in January, at $80,000 per tonne, and although the prices dipped recently, they are still around 60% higher than in March last year. NA

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