Wednesday, January 29, 2014

Beyond China: Why Africa Matters

Yesterday I was speaking at a 'Beyond China' event, arranged by Asia Pacific Technology Network in London. The idea was to look at the reconfiguration of the global economy at the wake of the end of 'cheap' China. There were different presentations, one from CBBC on the changing Chinese economy, followed by presentations on South-East Asia, India, Africa and US. Pratik Dattani, a friend and the current UK Director of FICCI, was speaking about India, though on a personal capacity. I was speaking about Africa, though my exposure to the continent is only through the African academics I speak to and African students that I teach.

My case was that the end of Cheap China is only an opportunity for Africa, and that Africa is mainly looking to do things with China rather than moving beyond it. However, as China becomes a more difficult place to invest in - for operational reasons rather than costs - Africa will emerge as an exciting, perhaps the most exciting, place for global capital. I thought there were three key reasons for this.

First, Africa matters as a simple demographic force. Africa is already the second most populous continent with more than a billion people, but it is puny when compared to Asia's 4 billion plus. By 2050, however Africa's population is expected to double to 2.4 billion, and by the end of the century, it will have nearly as many people as Asia, 4.2 billion against the 4.7 billion of the latter. Nigeria is expected to become the third most populous country in the world with nearly 400 million people by 2050, with populations in Tanzania, DR Congo and Ethiopia all going very rapidly alongside the big nations such as Egypt and South Africa. Africa's demographic miracle will be assisted by a rapid rise of life expectancy at birth, a function of better healthcare systems: The life expectancy has already risen from 52.9 years in 2000 to over 60 years today: This is expected to continue to rise and catch up with the rest, though it may not close the gap altogether.

Second, a related and more consequential factor will be the rise in productivity. Even discounting any possibilities of technological innovation or great investment (capital formation remains a challenge in Africa with most of its savings fleeing the continent), the simple demographic factor of falling Dependency Ratio should lead to this. At the current 80% Dependency Ratio, there are 80 people either in Under-15 or above-64 age groups for every 100 working age people, Only 56% of Africa's population is working age (compared to 67% in Europe today). But this dependency ratio will start falling dramatically from now on, reaching 70% by 2030 and 60% by 2050 (implying 62% working age population), resulting in, by simple maths, 1.3 billion working age people, up from today's 550 million. Combine with this the rapid urbanisation that we are seeing in some parts of Africa, and one gets the picture of a rapid rise of a vast consumer economy.

Third, I am excited about the Technology narrative in Africa. While it is small - and someone in the audience did point out that technology industries may not grow until the per capita income picks up - this year's investment in 'Silicon Savannah' (the corridor between Nairobi and Lagos and Accra) exceeded the investment in Silicon Valley. African Tech companies, App Development enterprises, start-ups have made news globally. As one leading African tech entrepreneur contends, the development of Africa's tech companies will happen not at the back of consumer demand, but on the strength of Government IT procurement. Come of think of it, that was one big element in India too, at the early stages of its tech industry lifecycle. However, the most exciting thing about Africa's technology sector is its focus on 'infrastructure hacking', the innovations to overcome infrastructural bottlenecks, like physical delivery issues, payment issues and low bandwidth (and dependence on feature phones rather than smart phones). This presents an interesting model for other countries stuck with infrastructure bottlenecks (think India) and African Tech may be the next hot thing to talk about.

Indeed, Africa has enormous challenges, and I spoke about three of these. First is Agriculture, as Africa is the only continent which did not have a green revolution and it only uses a tiny fraction of its arable land. This is an urgent need, because depending on imported food when the population is doubling is a sure recipe for disaster. The second challenge is electricity, as 5% of Africa's GDP every year gets wiped out by electricity shortage. Africa can do it cheaply and sustainably, given its vast reserves of renewable energy sources, but it needs to be done to support its growing middle class population and urbanisation. And finally, Education - an essential ingredient to turn the population burden into demographic dividend - where the efforts in Africa remains fragmented. Indeed, the scare word here is 'vocational training': This has so far been a disaster wherever one chose to create this artificial category divorced from education. Yes, one needs to create professional skills at multiple levels in Africa, but we don't need one of those 'vocational training' drives which have come to mean modern workhouses to contain the poor.

So, this, in summary, was my view of Africa, a vast, rising continent, with exciting possibilities and potential tragedies cuddled together in a formation. This is the big one for the coming generation, as China has been for us.

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