All about Africa

A look at the economic story of the world's second largest continent

First things first, Africa is a continent, not a country. A fairly basic point you might think but one lost on the former vice-presidential candidate, Sarah Palin during the 2008 campaign. That someone so high up in US politics could make such a basic error suggests two things: one, American politicians are sometimes uneducated and two, even now, in some places, staggeringly little is known about Africa.

Perhaps this is not surprising. Though second only to Asia in size and population, in economic terms, Africa is a midget. The collective GDP of all the African states is roughly the size of India's. What's more, the bulk of this wealth is distributed amongst a select band of northern African countries: Algeria, Libya, Morocco and Egypt, which, culturally and economically, arguably have more in common with Southern Europe than with their Sub-Saharan neighbours. The collective wealth of Sub-Saharan Africa's richest states: South Africa, Nigeria and Angola, is slightly larger than Poland's.

A closer look at the continent reveals the extent of its poverty. Of Africa's 53 states, 50 have a per capita GDP which is below the world average. Of the 10 countries with the highest child mortality rates in the world, nine are in sub-Saharan Africa. The effects of colonisation, poor governance, civil war and environmental factors are just some of the causes Africa's economic problems. These factors ultimately boil down to one fundamental disadvantage: underdevelopment. Since they gained their independence from the European colonial powers in the 1960s and 1970s, most African economies have stagnated. Some have gone backwards. Many are still over-reliant on exports of basic commodities such as minerals or agricultural produce for growth while, for many countries, western aid still comprises a significant proportion of GDP.

An interesting comparison can be made with developing Asian states, such as India, which, since gaining their own independence, have found new sources of growth, developing their manufacturing and service sectors. The telecommunications and motor industries are thriving in India. Even poorer countries like Bangladesh and Cambodia have assets such as textile production. The industry that exists in Africa is concentrated in the northern region or in select southern countries, such as South Africa.

Africa has long been the forgotten man of global economics and finance. A period of weak growth in the 1970s and 1980s sapped demand for Africa's commodities. This left many states without a source of income and so reliant on Western credit or handouts. The continent's share of international trade declined as developed states, including the European Union, introduced subsidies and heavy import tariffs to protect their own farming industries, cutting Africa further out of the picture. Meanwhile, international trade embargos on Sub-Saharan Africa's richest state, Apartheid South Africa, had a knock-on effect on the surrounding region.

However, in the last 10 years much has changed. Though much of Africa is still desperately poor, the continent's overall economic growth is accelerating and is forecast to increase by 3.1 per cent in 2010, outstripping Europe and the Americas. This growth has little to do with the West and more to do with the continent's growing relationship with the developing countries in Asia and South America.

Bilateral trade with China reached $107 billion in 2008. The Republic's hunger for raw materials is one of the main drivers of growth. Take Angola: ravaged by a 25-year civil war, at the start of the century, the West African state was one of the poorest countries on earth. Any infrastructure had long been destroyed by the conflict. Its fortunes have since changed dramatically. Development of the country's offshore oil sector is driving the economy, which, in 2008, grew by a staggering 21 per cent. Its GDP per capita has risen to more than $6,000, twice that of India's. Angola is now the leading supplier to oil to China. In return, China has handed Angola the funding and expertise it needs to rebuild its shattered infrastructure and cities. Chinese engineers have been building roads, ports and bridges which should help the development of sustainable sources of economic growth, allowing other industries, such as mining and manufacturing, to thrive. The country still has its problems. Corruption is rife and much of its oil wealth has yet to seep into the pockets of its citizens but things are improving.

Angola's rags to riches tale may seem extreme, but it illustrates the world's changing attitude towards the continent. China is not the only emerging powerhouse with a developing interest. In 2003, Brazil, India and South Africa came together to form IBSA - an agreement between the three countries to cooperate on economic and political issues. Perhaps rightly, African states have realised that their future lies not with the ex-colonial powers but with the BRICs (Brazil, Russia, India, China) who, through their own experience, posses the know-how to transform Africa from mere sustenance producers into developed economies. Bilateral trade with the BRICs rose from just 4.6 per cent of Africa's total trade in 1993 to more than 19 per cent in 2008. The proportion is projected to rise to 50 per cent by 2030.

Asia and South America's growing relationship with Africa has attracted the interest of the West. Africa is creeping into popular culture, as evidenced by the rush of Hollywood blockbusters (Blood Diamond, the Constant Gardener and Clint Eastwood's Invictus are few obvious examples). The 2010 football world cup in June presents an opportunity for Africa to show itself off on the world stage. In the financial world, encouraged by their spoils from the BRICs, investors are slowly awakening to the opportunities presented by so-called "frontier" markets, such as Ghana and Nigeria. South African corporations, now with black CEOs at the helm, are starting to assert themselves as multi-nationals.

With 2010 shaping up to be turning point for Africa in many respects, The Gateway looks at some of the key Economic, political and business developments to consider over the year.

The outlook for 2010

Politics

2010 is a big year for South Africa because of the football World Cup. Outsiders will be looking to see how the country's president, Jacob Zuma, who came to power in 2009, will handle the challenge. As leader of Nelson Mandela's former party the African National Congress (ANC), Zuma won the 2009 general election comfortably with almost two-thirds of the vote. Though a popular figure in South African politics, Zuma's reputation has suffered a series of scandals including allegations of corruption and a rape charge of which he was acquitted. Zuma has a communist background and one of his main goals will be to redistribute some of the wealth in what is one of the world's most unequal countries. While a select band of black South Africans have prospered since the end of apartheid, most have not and the country's official rate of unemployment is 24 per cent. Many believe the true figure to be much higher. Zuma faces a challenge to make South Africa's economy, which suffered a steep recession in 2009, work for the many rather than the few. Healthcare remains a key issue. South Africa has the largest population of people living with HIV/AIDS in the world - over 5 million according to the Human Sciences Research Council. The issue was callously ignored by Zuma's predecessor Thabo Mbeki, who infamously disputed the scientific evidence that the disease is caused by the HIV virus.

International attention will also be focused on neighbouring Zimbabwe, which has enjoyed a period of relative tranquillity since a coalition was agreed between president Robert Mugabe and opposition leader Morgan Tsvangirai. Tsvangirai was sworn in as Prime Minister of Zimbabwe in February 2009 after it appeared Mugabe had bowed to international pressure for reform. Zimbabwe's economy has been stabilised by the end of hyperinflation after the country adopted the US dollar as its currency. Much-needed Western investment is slowly returning. Problems still persist, however, and Mugabe has continued with his controversial land reform policy, which has seen farms invaded and their white owners attacked.

There is also ongoing unrest in a number of other states including Sudan, where a brutal conflict between the Sudan Liberation Movement/Army and the government continues in Darfur; and Somalia, which was voted the world's worst country by the Economist Intelligence unit (EIU) because of the rampant corruption and piracy.

Finally, general elections in Ethiopia and Angolan this year are likely to test the newfound stability of both countries. With both governments seemingly entrenched and enjoying strong support, change is not expected in either country.

Economics and finance

Africa's economy is forecast by the Economist Intelligence Unit to grow by 3.1 per cent in 2010, led by Ethiopia (7 per cent), Nigeria (5.2 per cent) and Angola (5.5 per cent). This growth is likely to be driven by higher global commodity prices, with crude oil boosting export revenues in several West African states. In Ethiopia, stable prices for coffee and other goods such as livestock and gold are expected to help growth. Countries with strong mining sectors such as South Africa, Zambia and Mozambique are also expected to prosper from strong Chinese demand, while a recovery in western consumer spending should boost Botswana's lucrative diamond industry.

In 2010, attention is likely to focus on further investment in Africa's underdeveloped infrastructure and logistics networks. Much of this will be centred on the football world cup which has seen billions of dollars pumped into improving road and rail link across South Africa and neighbouring states such as Mozambique and Namibia. Foreign Direct Investment is also on the rise, meaning more international corporations are investing directly in businesses and industries, allowing them to grow, rather than merely plundering resources from states. Recently, there has been a growing trend for Asian and Middle Eastern states to develop farmland in Mozambique, Madagascar and other countries to feed their growing populations. However, this has also caused controversy, with the practise denounced as "land-grabbing" by some international observers.

A more sustainable source of economic growth might come from the financial sector, which has come to recognise African as a potentially lucrative market for investment. 19 Sub-Saharan states have credit ratings allowing foreign governments and corporations to buy their bonds. They may well be snapped up in 2010 as investment firms and sovereign wealth funds looks for ways to diversify away from increasingly precarious Western debt markets. The much publicised debt troubles of countries like Greece, the UK and Japan may help boost demand for African bonds, which will be key in enabling governments to wean themselves off foreign aid and handouts from organisations such as the International Monetary Fund (IMF). African banks, notably South Africa's Standard Bank and First Bank of Nigeria, are exerting a growing influence over financial sectors both regionally and internationally.

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