There is little dispute about what the most significant trend of the last 30 years has been: the relentless rise of the East, and the relative decline of the West. Economic power and influence have steadily drained away from Europe and the United States. Led by China, the global economy is increasingly dominated by Asian capital and companies. There isn’t a commercial decision or an investment strategy that is not, to some extent, influenced by that. And yet, right under our noses, that is starting to change. The next big centre of growth is Africa.
As a report from Renaissance Capital this week pointed out, 11 African countries are now growing faster than most in east Asia. Many are poised to break through the 10% annual growth rate, where economies really lift off.
Charles Robertson argues in his report for Renaissance that Africa can therefore no longer be written off as a backwater in the global economy. The 1970s and 1980s were wasted years, but after a generation of relative decline and stagnation much of Africa is on the move again.
From 2000-2008, as many as 11 of its countries racked up annual growth rates of 7% or more, compared to only three in the previous two decades. Nine of those 11 were in sub-Saharan Africa, usually thought of as relatively underdeveloped. And although six of them benefited from higher energy prices, five had no significant energy or mineral exports to help them.
A century and a half of economic history suggests that just about any country can industrialise, given the right set of circumstances. Africa has come late to the party. But once it starts to catch up, it should be able to make a lot of progress very fast. Three countries are already growing at more than 10% annually, and a few more could join them very soon. Nigeria, for example, has been growing at 9% per year, so it would not take much to get it past 10%.
There is a huge scope for further improvement. Education has been getting steadily better. The secondary-school enrolment rate is now 29% across sub-Saharan Africa, compared with around 3% in the 1960s. That is comparable to Mexico or Turkey in the 1970s, as those two countries prepared for economic lift-off. Not only will young people be better educated, there will be more of them as well. Africa is one of the few places in the world with a rising labour force. Even Asia is facing steep demographic decline.
Of course, Africa’s relatively poor infrastructure still holds it back. But as it gets richer, it should move into a virtuous circle, where more wealth allows more to be spent on roads and power systems, so generating more wealth. That’s what Asia did a generation ago, and Africa is doing right now. What very few people have started to think about yet is what this means for the global economy. After all, the Asian miracle was not just about Asia. It impacted on the whole world. An African renaissance won’t be any different. How will it play out?
First, it will give a huge stimulus to global economic growth. The world may be suffering a slowdown from paying up all the debts built up during the bubble. But African growth will increase trade and prosperity everywhere. It is hard to see many things that are going to kick-start the global economy right now. But Africa is one of them.
Next, we should see a lift for Europe. The old colonial powers still have strong ties to many African countries. That is going to help their firms and entrepreneurs get a slice of markets that will be booming. France and Britain, the countries with the closest ties, should benefit the most. Germany, which has a great track record exporting to Asia, not so much. And the US, which has few links, even less so.
Thirdly, the competition for resources is going to get a lot more intense. The arrival of a few hundred million extra consumers from the BRIC nations has already pushed up the demand for everything from food to oil to raw materials. As a series of African countries join the developed world, that will push up prices even further. It is yet one more reason for staying heavily invested in commodities and raw materials.
But the biggest change will be the global tilt towards the southern hemisphere. Couple Africa with Brazil and it will compose a powerful South. If Renaissance is right and Africa can grow at 10% a year, then by 2016 its GDP should be around $3.3trn, putting it on a par with Brazil. And that will mean it will be where the action is. Every CEO will be parroting lines about their Africa strategy. Every fund manager will be boasting of their connections around the continent.
By 2020, the world will have three major economic blocs – the Atlantic, comprising the US and Europe, Asia, and the South, comprising Africa and Latin America. There may well be a natural alliance between the Atlantic and the South. After all they have shared links of history and language, and Africa is as much an Atlantic power as it is a Pacific one. Indeed, before too long it may even be Asia that is worrying about its gradual decline – and that will be a change that will take some getting used to.