Today China announced that its projected growth for 2012 is going to fall below the 8% economists have long projected is necessary to absorb the millions of new entrants to the country’s workforce. If the economy is not able to do this, the prevailing wisdom is that the credibility of the Chinese government will be hurt, and that broad domestic social instability could result. In advance of this summer’s planned leadership transition, this announcement has many people leery about the country’s economy in the short-term. That would obviously be bad enough, but while working on some research for an upcoming project in Africa today, it struck me how China’s slowdown might impact other vulnerable emerging economies who have recently found a semblance of strength by leveraging their natural resources to satisfy China’s burgeoning demands. The best example of this is undoubtedly in Africa.
As G. Pascal Zachary points out in his superb article “Africa’s Amazing Rise and What it Can Teach the World” at The Atlantic magazine, “In the past ten years from 2000 to 2010, six of the world’s ten fastest-growing countries were in sub-Saharan Africa: Angola, Nigeria, Ethiopia, Chad, Mozambique, and Rwanda. In eight of the past ten years, sub-Saharan Africa has grown faster than Asia, according to The Economist. In 2012, the International Monetary Fund expects Africa to grow at a rate of 6%, about the same as Asia.” Why is this? Zachary points to a handful of reasons: African political leaders and creative entrepreneurs finding a way out of the “development trap” and, to my earlier point, the massive injection of economic activity – including infrastructure building – related to China’s interest in Africa.
Say what we may about China’s involvement in Africa, it is undeniable that China’s role in Africa has been positive in many ways. China has not been as willing as the west to use money to buy off African politicians; rather, China would prefer to put together a plan that coordinates what it wants (extraction of key natural resources) in exchange for key infrastructure build-outs, which of course will be handled by Chinese companies and, in many cases, by workers provided from China. This has resulted in Africa seeing infrastructure getting built out where previously cronyism would have diverted the money to Swiss bank accounts (not to say the latter of course no longer occurs). Admittedly a lot of things have impacted Africa during this period – only one of which is China’s presence – but it would be a mistake to look past the good things China’s involvement has done for the people of Africa.
The folks over at the African Development Bank published a report recently called “Africa in 50 Years’ Time” which projects that the continent’s GDP could increase from $1.7 trillion in 2010 to $15 trillion in 2060. As anyone with an appreciation of Africa’s political instability knows, these sort of projections are prone to error; however, the underlying trends the report points to are good. As examples, on demographics (per The Africa Report, “working age population will triple between 2005 and 2060”), urbanization (The Economist projects that by 2030 urban dwellers will increase from 1/3 the total currently to ½), and the impact of key new technologies on Africa’s ability to power and feed itself (look at seed varieties designed for the African climate and ground conditions as well as the role of solar power in meeting Africa’s growing power needs).
Africa is too big to think about as one monolith, but the point that these various reports all illuminate is that parts of the country have found a real basis of stability. With the right political leadership, various countries like Ghana and Nigeria are positioned to become meaningful emerging economies in their own right. These are markets that are highly fragmented and ones where early entrants will need patience and fortitude to build winning strategies; however, if successful, these companies will likely find the opportunity to tap into one of the most exciting growth opportunities since China opened to outsiders in the 80s.