Africa, the new Asia: Opportunities and possibilities of the African economy
The explosive and phenomenal growth of Asia serves as an example for Africa. The success stories of the Asian economies have valuable lessons for Africa, which can turn Africa into the next Asia. While the African countries have been suffering from poverty, corruption, mismanagement, and various other problems, it has the potential to replicate the successes of Asian countries like China, Japan, and South Korea. The continent has been bestowed with natural resources, cheap labor, a high population of youth, and growing industrialization, which can help the African economy to rise and bolster the living standards of the inhabitants.
Africa has an abundance of natural resources, with many countries relying heavily on the exports of commodities like iron, silver, gold, copper, bauxite, petroleum, uranium, etc. The economies of Nigeria, Algeria, and Libya depend on the export of oil. Unfortunately, the resource-rich countries have not been able to benefit their populace by not achieving inclusive growth.
However, Africa is changing. With 1.2 billion people and 54 countries, Africa is now on the radars of many big corporations. American corporations like Walmart, IBM, AES, etc, have started their operations in Africa to target the untapped market of Africa. The free trade agreement of Africa with the EU and the US is resulting in low transportation costs, helping the companies based in the EU and the US to operate in Africa at lower costs and target the young and growing urban population of African countries. The abundance of natural resources, young demographics, and cheap labor is tempting many firms to relocate from China to African countries. The rapid industrialization will change the course of the continent and contribute to lowering the poverty levels while increasing the growth rate of the economies.
With the passage of time, the African economies will achieve autarky due to continuous exposure and indulgence to the technology. The growing consumerism and household consumption, which is expected to grow annually by about 4% until 2025, provides an excellent opportunity for corporations vying for growth rate.
Various possibilities exist for corporations to develop and upgrade Africa’s energy and transportation network. Many countries of the continent need considerable investment in upgrading its agricultural productivity. The US and the EU countries can invest in developing Africa’s infrastructure, which will significantly boost Africa’s GDP and improve the lives of citizens due to improvement in the countries’ energy, water, transport, and agriculture sectors. But investing in the energy sector requires a huge upfront investment, which many corporations struggle to make in the absence of strong institutions, political stability, and a favorable business environment. Countries like Ghana have been able to attract various projects because of its favorable environment for investors. More companies are now investing in Africa’s telecommunications, services, and retailing sectors, with physical commodities accounting for a minority of the long-term foreign direct investments.
According to the management consulting firm McKinsey, the African continent will be worth $5.6 trillion by 2025, providing business opportunities for global corporations. The continent’s poverty rate has been declining since 1990. According to McKinsey, the poverty rate has declined from 54% in 1990 to 41% in 2015, with the possibility of declining to 23% by the end of 2030 if the rate of decline stays the same.
Industrialization and investment in different sectors of the African economy are extremely essential and can be a win-win situation for both the investors and the Africans. However, sustainable and inclusive growth is only possible when the African countries attain political stability, strengthen institutions, democratization, policy improvements, and take steps to promote ease of doing business. More companies will invest in Africa after witnessing a secure and investment-friendly business environment.
On March 21, 2018, The African Continental Free Trade Area (AfCFTA) agreement was signed by 44 African countries to remove tariffs from 90% of goods, services, and commodities across the continent. The agreement is expected to increase the intra-African trade by 52 percent by 2022. With the recent tariff war between the US and China with wide-ranging implications, larger countries of the African continent like Nigeria, South Africa, and Egypt hold a key place that can shape the future of Africa.
The African countries relying solely on their natural resources for exports should look to diversify their revenue resources by investing in their human resource to spur technological innovation and value-added exports. Kenya and Ghana, because of their relative economic and political stability, have been able to diversify their earnings as they no longer rely on a single export of their raw natural resource. Experts recommend that investing in human capital development can contribute to achieving sustained and inclusive economic growth.
The African continent has the potential of being the next Asia because of the countries’ access to natural resources, booming young population, cheap labor, increasing consumerism, high potential for industrialization, and removal of inter-African trade barriers. There are some bottlenecks like political instability, poverty, non-inclusive growth, corruption, mismanagement, poor human capital development, poor governance, etc, which are hindering the African continent in achieving the growth it deserves. If the African countries succeed in overcoming the shortcomings and strengthen their institutions and protect the investors, the African continent will surely be the next Asia.