Will this be Africa’s century?

OECD Observer

Ruairi O Brien

For Jean-Louis Terrier, Chairman of Credit Risk International, a consulting firm, there are good reasons to be “Afro-positive”.

Speaking at the first International Forum on African Perspectives, organised by the OECD and the African Development Bank and held in Paris on 3 and 4 February, Mr Terrier, a country risks expert, highlighted the importance of the large market that Africa could become.

His logic is simple: there can be no economic growth at a rate lower than population growth. Starting with that axiom, which he argues always holds true in the long run, Mr Terrier builds a prediction for 2015 based on projected economic and demographic growth rates, in urban areas in particular. He opts for a “reasonable” scenario, assuming that economic growth will average 3.5% between 1996 and 2005 – close to the levels of the last three years – and a slight acceleration for 2006 and 2015. Since the population is expected to increase by 58% between 1995 and 2015 – tripling in the cities – per capita GDP will rise automatically by 35%. As a result, the number of

Africans with purchasing power of US$10,000 per year will quadruple; so that by 2015 the African continent could represent a market equivalent to that of China today.

This would be a tall order. After all, Africa is a diverse continent, unlike the tightly managed country that is China. True, some African countries may be doing well. According to Omar Kabbaj, president of the African Development Bank, there is a group of at least 20 countries that are performing above the African average and these countries could be described as “emerging”. But whether they can draw the rest behind them, through the so-called “hauling principle”, is an open question.

Still, Mr Terrier is convinced that investing in sub-Saharan Africa is worthwhile, provided one is prepared for the double-barrelled revolution taking shape – an acceleration in urbanisation and a greater regional integration. In Mr Terrier’s view, these trends could have far-reaching effects. On a more realistic note, he points out that Africa holds the dubious distinction of combining various types of risks – risks of non-payment by States, risks to property rights, risks of non-transferability and non-convertibility in some cases, and risks related to the environment and the absence of the rule of law. Without overcoming these, Mr Terrier’s scenario of an African bull in the 21st century seems a little optimistic.

If Africa is to “emerge”, its countries must diversify their economies, emphasised Jean-Claude Berthelemy, Director of the French think-tank, CEPII (Centre d’études prospectives et d’informations internationales). Only then can investors spread their risks and generate more profitable products, earning greater returns on capital, thereby yielding higher growth. Mr Berthelemy cited Mauritius, a prosperous African country which has succeeded in diversifying its economy after creating an institutional framework more open to private initiative, shaping a smoother-functioning financial system and investing in education.

In other words, the future of Africa depends on domestic structural change and reducing aid dependency. As Mr Berthelemy stressed, doubling the effectiveness of aid would be equivalent to doubling the volume of aid. But is that enough? Africa is still cruelly in need of financing if its hopes of “emerging” are to be realised. A large number of African representatives at the conference voiced concern over the steady decline in aid volumes – between 1990 and 1997, aid to the West African region of the Sahel shrank by more than a quarter. Might it be possible to offset the decline of aid with an increase in investment? Certainly, Mr Terrier’s Afro-positive approach could catch on, but on the evidence global investors may need a little more convincing.

©OECD Observer No 220, April 2000

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

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