Africa – Land of opportunities for India (Part I)

Africa – “cradle of human civilization”, has close to 10 of the 20 fast growing economies.

In this first article, we will see Growth Potential of Africa and the Challenges infront of Africa.

In the second article, we will see Connecting African growth to Indian Economy vis-à-vis Chinese Economy.

Africa is resource rich and this has helped in its growth and Globalization is the most important aspect which is shaping the current environment for economic development, which is reflected in sectors such as wholesale and retail commerce, transportation, telecommunications and manufacturing.

By pursuing outward-oriented strategies such as those followed by East Asian countries such as South Korea, Malaysia and Thailand have doubled their national incomes in just over twenty years and this kind of development can have immense growth potential for African countries also. Thus it can be argued that Africa is next East Asia of the world.

But at the same time, Some African countries are still regarded among the poorest countries in the world today. Within Africa, Nigeria, Egypt and South Africa are the economic power houses, three of them appearing within top 30 economies of globe. Of these three, only Nigeria is consistently delivering real growth rates above 6 %, the other two producing a low growth rate of 2 %. But seen in per capita terms (PPP), there are only two African countries, within top 50 countries of the globe, implying that on an average Africa is yet to catch up in per capita terms.

Growth potential of Africa

Analysing economic giants of Asia, one can correlate present scenario of high development and sophistication, with the year of take-off in the economy.

Country Year of Take-off of Economy
Japan 1961
South Korea 1961
China 1978
India 1991
Nigeria 2001

Nigerian economy took off only in the 21st century. With close to decade and half past, Nigeria is ambitiously positioning itself in top 20 economies of globe, by 2020. As more and more economies of Africa are transforming, their growth is accelerating from below 5 % levels to double digit growth levels.

Many African countries, including Ghana have posted real growth rates beyond 12 % , leaving behind their failed policies of 80’s and 90’s. Successful Integration of South Africa’s economy into ‘BRICS’ gave a ray of hope to the entire continent.

Within Africa, Nigeria, Egypt and South Africa are the economic power houses, three of them appearing within top 30 economies of globe. Of these three, Nigeria is consistently delivering real growth rates above 6 %. If seen in per capita terms (PPP), there are only two African countries, within top 50 countries of the globe, implying that on an average Africa is yet to catch up in per capita terms.

Africa is the next Big Economic Power
“Africa is the next Big Economic Power”

Africa’s population is set to double by 2050, and will be able to reap demographic dividend that India and China are enjoying right now. Moving Africa into the next stage of growth, developing human capital is of prime importance.

Ghana, a country hailed as a model by American officials for its recent record of democracy. “We are 20 years behind China,” said an Ethiopian bureaucrat, “and we’re trying to do what they did to get where they are.” Rwandan President Paul Kagame, also has said that “he hopes to eventually transform his country’s economy into the “Singapore of Central Africa.”

Kenya’s Vision 2030 long-term development plan and Ethiopia’s growth and transformation plan draw a great deal on analogous concepts from Malaysia, Singapore and elsewhere in the region.

Africa has fascinating opportunities lying ahead, at its door step to “leapfrog certain technologies”, like India and Singapore which bypassed peaking in secondary sector and directly jumped to revolution of services sector. The emphasis on outward-oriented economic outlook over an inward-looking such as those of East Asian countries has been increasingly accepted as a key component of a growth-enhancing development strategy.

With globalisation has leads to rapid advances in communication, Information technology and transportation and thus resulted in reduced costs of moving goods, money, people and information. Like, farmers in Africa can use smart phones to boost profits as the information related to the weather, market reports, even new seed technologies are shared to them to avoid adverse risks. All these can further lead to enhanced markets for goods, services, and African countries can effectively integrate cross national borders to achieve its growth potential and Africa should benefit from its support for free trade.

However, the fact that the East Asian model is so attractive to many African countries is bound to have profound implications. But, achieving the enviable growth patterns of some Asian economies will require the strengthening of intra-regional trade. Africa’s recent economic gains have been mainly driven by external trade, especially with emerging economies such as China, India, Brazil and South Korea. Majority of imports are merchandise and machinery. Trade of Africa with world should improve, both in merchandise and services, not just in agricultural exports and gems and gold exports. A recent report by the McKinsey Global Institute puts intra-African trade at a lowly 12 percent, about half that achieved in Latin America. There are about a billion consumers residing in the African continent and thus the intra-African trade should be seen as a potential path toward market consolidation and leverage for African markets in the global economy. The first step is to work towards more open trade and liberalization in economy between neighbouring countries in order to tap in the potential through better integration of economies within Africa.

"Africa is future Asia"
“Africa is future Asia” (Image Source)

For comparison with East Asia, to become major global economy, entire Africa, as an union, must focus on (1) Sustained increase in real National Income over coming decades, and (2) accelerated progress in Per Capita Income over long run by reaping the slowdown of population growth rate, in contrast to increase in growth rates.

East Asian growth excluding China happened with limited natural resources, in Industrial sector. Africa, with plenty of natural resources, barely harnessed, has potential to be a formidable economic block.

As in the case of majority African countries, primary sector’s contribution is unusually high and as it employs much more fraction of people. Therefore, first, labour force must be shifted to secondary and tertiary sectors for enhancing productivity per worker. Second, commercialisation of Agriculture should be systematically and sustainably promoted. Third, there should be value addition of raw products such as agricultural produce. Fourth, food processing Industries must be given high priority.

Many fast growing countries are experiencing high inflation too. But, for those African nations, which experience low growth, inflation must be checked. Supply constraints, and structural constraints if unblocked, can unlock multiple growth engines for Africa.

As per African development Bank (AfDB), Africa is the world’s fastest-growing continent at 6% a year. Hence, African economy is set to outpace Asian counterpart, in the decades to come. Strong institutions like AfDB have to play significant role, to develop Africa brick by brick. Only when Strong institutions and strong policies are synergised by dynamic leadership, the benefits of compounding can be reaped.

Another key to African success will be following best practice in success stories like Singapore, where the merit based system of bureaucracy replaced the cronyism and elitism where genuine talent is rewarded whether it is state-led or laissez-faire economy. Table below summaries the lessons that Africa can learn from East Asian Countries.

Lessons from Asia

Sl No East Asian Country What Africa can learn
1 Singapore Merit based system of bureaucracy
2 China Manufacturing lead growth
3 Japan Stress on education, equality, and land reform
4 Malaysia Greater share of public expenditure to the health and education sector , rule of law and property rights
5 Vietnam Quality of budgetary and financial management and public administration and freedom of press
6 Phillippines Reaping benefits of official development assistance (ODA) and foreign direct investment (FDI)

 Stay tuned for second article, on “Connecting African growth to Indian Economy vis-à-vis Chinese Economy.”

You can browse other articles related to economy here – Indian Economy | UjwalAndhra Pradesh

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