A happy future for the “doomed continent”?

October 12, 2012

The International Monetary Fund this week painted yet another gloomy picture, cutting its 2012 forecast for Africa along with most other countries around the world. In its latest World Economic Outlook, the IMF shaved its 2012 projections for Africa to 5 percent from 5.4 percent.

But it’s not all gloomy for Africa, once called  “the doomed continent” by the Economist. With its eyes set on next year, the IMF revised up its 2013 outlook to 5.7 percent from 5.3 percent.

Sharing this optimistic outlook for Africa’s future is Africa-focused Russian bank Renaissance Capital:

We expect… Africa’s GDP to increase from $2 trillion today to $29 trillion by 2050…By 2050 Africa will produce more GDP than the combined US and Eurozone do today.

Citing African mobile communications company MTN and Kenya’s Equity bank as examples of a promising future for the continent, Charles Robertson, global chief economist at Renaissance, has expressed his enthusiasm about Africa as an investment paradise in a book called “The Fastest Billion – The Story Behind Africa’s Economic Revolution” which will be published later this month.

The title of the book is a twist on Paul Collier’s 2007 “The Bottom Billion”, which presented the poorest billion living in countries deprived of growth and economic progress. Renaissance’s book sets out to repaint this picture in brighter colours.

Robertson identifies as key areas of growth in Africa the commodities, health and education sectors.

On the commodities front, higher prices since 2000 have helped revenues, says Robertson:

Oil revenues that averaged approximately $34 billion per year in sub-Sahara in the 1990s more than trebled to $124 billion by 2005 and have since doubled again.

Africa’s share of world oil reserves has been pushed to 10 percent in total, while sub-Saharan Africa alone now produces 5.8 million barrels per day, equivalent to all of China’s import needs, according to Robertson.

Similarly, he projects public spending on education to expand 15 times $1.4 trillion by 2050 and healthcare spending to rise 16-fold to almost $2 trillion in today’s money.

Robertson sees an IT revolution fostering a banking revolution in Africa, with Kenya’s Equity Bank providing the M-PESA system people can use to access lending via mobile phones.

Local currency debt markets that in emerging markets were short-term and volatile in the 1990s already extend out to 30 years in Kenya. Local pension funds, with assets of nearly $260 billion in sub-Saharan Africa, are significant players in local debt and equity markets and we cautiously assume they will grow to $7 trillion in sub-Saharan Africa and $10 trillion across Africa by 2050.

The euro zone crisis is weighing heavy on the shoulders of countries with close financial and trading ties with Europe such as South Africa, and higher food prices have a devastating effect on all food-importing nations in the region.

In contrast, the book presents Africa as a more promising investment destination than Europe:

Stronger growth and good public finances – Africa’s numbers are far better than those of Europe, the U.S. or Japan – has helped draw in record levels of foreign private sector capital.

By Shadia Nasralla

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