Africa: A Rising Star in the New Economic Order

The African continent has been on top of the agenda of the policymakers in all periods. From the historical aspect, the conflict of interests was emerged in the era of colonization, when the global powers did not hesitate to conquer various parts of Africa for valuable resources such as gold, ivory, salt, and more. They all wanted these resources because they needed them for manufacturing. As time went on, Africans wanted to design their destiny by themselves, so today’s 54 African states emerged mainly starting from the middle of the 20th century. In modern times, however, with the sovereignty of African countries, the rules have changed so that familiar and new powers came not to conquer their lands but to invest in their markets.

Why is Africa so important?

In the global dimension, the resource-rich African continent is one of the fastest-growing consumer markets since household consumption has risen even faster than its GDP in the past years. Furthermore, the average annual gross domestic product growth has consistently surpassed the world average. Numerically, on the potential market of 1.35 billion people, since 2010, at a compound rate, consumer expenditure has increased 3.9 % annually and reached US$1.4 trillion in 2015. This figure’s expected level is US$2.1 trillion by 2025 and US$2.5 trillion by the end of 2030.

On the other hand, a massive increase in the continent’s youthful age segment in a rapidly growing population creates a suitable environment for industrial development. The median age on the continent is 19.7, while this number is 37.4 in China, 38.1 in the U.S., 42.9 in the EU, and 30.6 globally. Moreover, the significant youth factor enables the faster spread of access to the internet and mobile phones. Besides the traditional spheres, apparently, the digital industry’s future is bright as well in Africa.

Africa’s significance partly lies in its geographical position, and thus the potentials it creates. The African ports are the vital gateways for domestic and worldwide export and import operations. Albeit currently, the African economies’ exports are mainly commodity-based; in the long run, monoculture economies will diversify as they will grow. So, the ports will play an essential role in ensuring the sustainability of the more robust, resilient, and diverse economic dynamics in the continent’s economies through the exports and imports of industrial products and other manufactured goods. Additionally, these ports will not solely serve African economies; it will substantially contribute to the global supply chain systems as modern transportation facilities.

The traditional and new players in Africa

Africa is very attractive for investors with respect to the positive trends and opportunities in economic growth. The EY’s 9th edition of the Africa Attractiveness report published in September 2019, denotes the African continent in the first place in the world according to the 2018 FDI (Foreign Direct Investment) to GDP data.

According to UNCTAD’s World Investment Report 2020, the top 5 investors in the African continent are respectively the Netherlands (US$79 billion), France (US$53 billion), the United Kingdom (US$49 billion), the United States (US$48 billion) and China (US$46 billion). Interestingly, while other countries in the list lessened their direct investments between 2014 and 2018, only the Netherlands (US$20 billion) and China (US$14 billion) have increased their investments in Africa.

The flow of investments is engrossingly intricate. The US has been warning countries that some security risks might accompany technology developed by Chinese firms like Huawei and ZTE. Nonetheless, Huawei and ZTE built and laid fiber-optic and submarine cables off Africa’s coasts. In this context, Chinese technological infrastructure constitutes the high-tech network’s backbone in some states on the continent within the “Digital Silk Road.” For instance, in Ethiopia, the direct investment in the tech sector was US$2.4 billion, while this figure was US$1.8 billion both in Niger and Zimbabwe. It seems China is in an advantageous position in Africa since it forms the “infrastructure of the future” by helping drive the growth of mobile phone and internet penetration, in contradistinction to the US.

Apart from the conventional forces, some new countries, such as Turkey and Russia, are eager to penetrate the African markets. Turkey’s Africa initiative started in 2003. In 15 years, the number of Turkish embassies in Africa has significantly risen from 12 to 44, direct Turkish investments have skyrocketed from 100 million to US$6,5 billion, and Turkey’s trade volume with the continental countries increased by six-fold, reaching US$17.5 billion. In addition, Turkey is the second-largest investor in Ethiopia with US$2.5 billion, and in recent years had increased its political influence on Northeastern Africa.

Russia has a deep cooperation experience with the African states from the Soviet era. After the collapse of the USSR, successor Russia strived to perpetuate the relations but mostly failed due to a focus shift to its domestic affairs. Still, in this period, it preserved its political influence area to some extent in the specific regions of the African continent. However, bilateral relations were exposed to a radical renewal from the first Russia-Africa Summit in Sochi on October 23-24 in 2019.

In 2018, Russia’s trade with African countries increased by more than 17% and exceeded US$20 billion. At the Sochi summit, Russian President Vladimir Putin stated his expectation for at least double the volume of trade in the next 4-5 years, which means a jump from US$20 billion to US$40 billion. Recently, on November 23, at an interactive webinar organized by the Federation Council of Russia, Chamber of Commerce and Industry of Russia, and Business Russia Association, Russian officials have once again demonstrated their intention to restore the historic relationships through cooperation in numerous spheres.

The obstacles and constraints

Albeit Africa provides innumerable opportunities, it has some structural problems accompanied by some inter-state and intra-state conflicts and disputes. Terrorism and disintegration are still the foremost challenges for the continent. The Armed Conflict Location & Event Data Project, which monitors incidents of conflict around the world, found that there had been 21.600 incidents of armed conflict in Africa till November 2019. For the same period in 2018, that number was just 15.874. That represents a 36% increase.

Many nations on the African continent have performed poorly in maintaining stable economic growth rates and achieving appreciable economic development levels. This might be linked to a list of factors, political instability in the first instance since it dramatically diminishes the economy’s productive and transactional capacities. It is estimated that there have been at least 100 successful coups in Africa in the past four decades, with more than twice the number of coup attempts. Consequently, there is an apparent correlation between the destabilization in the political theater and economic disbalance.

Most of Africa lags the rest of the world in coverage of crucial infrastructure classes, including energy, road and rail transportation, and water infrastructure. For instance, nearly 600 million people in sub-Saharan Africa lack access to grid electricity, accounting for over two-thirds of the global population without power. Additionally, the infrastructure notion plays an essential role in the region in terms of efficiency. For example, agriculture is Africa’s largest economic sector, representing 15% of the continent’s total GDP, or more than $100 billion annually. Experts estimate that sub-Saharan Africa alone requires additional annual investments of as much as $50 billion to make the agricultural system work better. It can be clearly seen that from the economic development aspect, closing this infrastructure gap is vital for the continent as it would raise the quality of life and stimulate the growth of the business sector.

What to expect?

In light of numerous indicators, the future of the African continent seems to be quite complicated. According to recent UN forecasts, the continent is expected to double its population by 2050. If the investment inflow would not go up, Africa will face a major demographical challenge. Otherwise, the intellectual capital and human resources will contribute to a tiger economy supported by continuous investments, and this factor will be a path to prosperity.

A major step was taken towards integration-related hurdles in March 2018 with the signing of The African Continental Free Trade Area (AfCFTA) agreement by 54 African states. Namely, it presents a tremendous opportunity for African states by bringing 30 million people out of extreme poverty and to raise the incomes of 68 million others who live on less than $5.50 per day. The agreement also comprises the simplification of the customs procedures that would drive $292 billion of the $450 billion in potential income gains. Also, customs procedures simplifications imply the development of the supply chain systems in the continent. The agreement’s implementation can be an usher in the integrated development to enhance long-term sustainability in African countries.

It will undoubtedly be a long journey for the Africans to overcome all the issues. However, the emergence of a new generation with progressive thoughts might condition a different environment on the continent. The most crucial factors within the process will be innovation, discipline, and, foremost, patience. In that case, the sustainable and dynamic African economy will play an essential role in the global system. On the whole, still there are some positive signs to be optimistic about the future of Africa; as it says in the famous African proverb, “However long the night, the dawn will break.”