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#02
10 May 2011
Is Africa about to take off?
 Economic growth in Africa has increased markedly since the start of this
century. Both “exogenous” (such as rising commodity prices and increased
trade and capital flows with emerging markets) and “endogenous” factors (such
as improvement in macro-economic policy and political stabilisation) have
explained this acceleration.
 African growth is expected to continue this path. The continent's growth
potential will be supported by commodities (energy, minerals and soft
commodities) and demographics (i.e. increase in the labour force and
emergence of a middle class).
 However, strong growth doesn’t automatically translate into true social
development. Many political challenges remain, including consolidating
democratic progress. Lastly, if the “overall” growth potential of the continent is
undeniable, individual/regional performances may prove uneven.
Clément Gillet
+33 1 42 14 26 34
[email protected]
Real GDP growth
decade average
9
8
x 1.1
7
x 2.2
6
x 1.1
x 2.8
5
x 1.1
4
3
2
1
0
CEE
80's
mo d 1 0
Africa
Asia
90's
Middle East
Latin America
Since 2000
Sources: CEIC, IMF, SG estimates
Economic Studies Department
Economic Studies Department
Over the course of the last decade, real GDP growth in Africa reached 5.4% per year, nearly double
the pace recorded in the 1980s and 90s. Thus, the continent's GDP as a whole reached USD 1.6
trillion, which puts it on par with Brazil or Russia. In addition, Africa withstood the global crisis
relatively well, recording growth of 2.5% in 2009, the second highest performance after developing
Asia.
This acceleration of GDP was among the highest of emerging regions. In comparison, Asia, Latin
America and the Middle East recorded growth rates that were roughly similar between the 1990s and
the 2000s. Eastern Europe was the only region with a higher acceleration of GDP (albeit from a
lower starting point).
What has contributed to growth?
Commodities
This acceleration is related to the sharp rise in commodity prices recorded since 2003. For example,
after having stagnated at around USD 20 between 1990 and 2003, oil barrel price shot up to USD
145 during the summer of 2008, and now amounts to USD 120. Africa has profited from this boom.
The continent’s oil production has risen 24% since 2000, the biggest regional increase (see graphics
1 and 2).
Graph 1: oil price
(USD/barrel)
Graph 2: oil production growth
(between 2000 and 2009)
160
North America
140
120
Latin America
100
Asia
80
Middle East
60
40
Europe
20
Africa
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
mo d 1
Source: Datastream
-5%
mo d 1 0
0%
5%
10%
15%
20%
25%
Source: BP statistical Review
However, we should not restrict the African “awakening” solely to commodities. According to a
study by the McKinsey Global Institute, natural resources, and the increase in the public spending
that has resulted, accounted for about one-third of the continent's growth during 2000-2008. Taking a
step back, African countries without substantial natural resources recorded annual growth of 4.2% on
average over the same period. This performance is not very far removed from that of African
countries exporting commodities (6.6%).
EcoNote – 10 May 2011
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Economic Studies Department
Emerging markets’ dynamism
The continent has benefited from the growth in other countries, led by China and India. Africa's trade
relations have been redirected toward emerging markets, mirroring developments in the demand for
oil 1 . Since 2000, trade with Asia has doubled in percentage terms, reaching 28% currently, while
Western Europe has plummeted from 51% to 28%. The development in "South-South" relations is
also reflected in the amount of foreign direct investment (FDI) that has flowed into Africa: China has
pledged USD 6bn in the Democratic Republic of Congo, in exchange for access to the country's
mineral wealth. More broadly, FDI in Africa grew from USD 10bn in 2000 to USD 72bn in 2008,
before receding to USD 59bn in 2009.
This six-fold increase in FDI inflows between 2000 and 2009 is the 2nd best performance among
emerging regions: only Eastern Europe recorded stronger increase (FDI increased ten-fold). As a
basis of comparison, FDI inflows in Asia and Latin America doubled (see graphics 3 and 4).
Graph 3: FDI inflows
(2000=100)
Graph 4: FDI inflows from emerging markets to Africa
(2006-2008 average, USD mn)
2000
1800
Brazil
1600
Turkey
1400
1200
14
35
Chili
44
South Korea
45
Taiwan
48
1000
800
332
India
600
611
400
Malaysia
200
China
2528
South Africa
2609
0
2000
Africa
2001
2002
2003
2004
Latin America
mo d 1 0
2005
2006
Asia
2007
2008
2009
0
CEE
Source: CNUCED
mo d 1 4
250
500
750
Source: CNUCED
Macro-economic and political stability
Two important factors account for this growth. First, most countries have undertaken sweeping
macroeconomic reforms. On average, public debt in Africa was reduced from 72% of GDP in 2000
to 38% in 2009. Over the same period, external debt was reduced from 130% of exports to 52%. The
business climate has also improved. Rwanda, Zambia and Cape Verde were all among the 10 “best
reformers” in the latest Doing Business report by the World Bank. Second, the political situation on
the continent is getting better on the whole. The number of conflicts has dropped significantly. In the
1990s, 22 African heads of state were deposed in coups; in the 2000s, this number was reduced to 7.
Without drawing hasty conclusions, current events in Côte d’Ivoire and in North Africa apparently
don’t undermine this trend, as they seem to take part in a broader movement towards more
democracy.
However, in terms of governance, the African continent still trails its emerging market counterparts.
In fact, the average ranking for Sub-Saharan African countries was 139th, according to the Doing
Business report. The World Bank's governance indicators, which are more general than those of the
Doing Business ranking, rank Africa last among the other regions (see graphs 5 and 6).
1
The demand for oil (in volume) of OECD countries dropped by 5% between 2000 and 2009 versus a 35% increase for emerging
markets.
EcoNote – 10 May 2011
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Economic Studies Department
Graph 5: governance indicators*
Graph 6: average ranking, by region
(Doing Business 2011 report)
1,5
137
Sub saharan Africa
1
Strong governance
117
South Asia
0,5
Latin America
96
Middle East
96
0
87
East Asia
-0,5
Weak governance
Sub saharan
Africa
d 1 4
72
CEE
-1
North Africa
Latin America
CEE
OECD
OECD
* = average of World Bank's 6
governance indicators
30
Source: World Bank
Source: World Bank
African growth potential is high
Growth on the continent should continue, with growth potential topping 5%.
Commodities still the key
Again, commodities should play a significant role in growth. Africa has large reserves of raw
materials: 10% of the world's oil reserves and 8% of its gas reserves. The continent is home to 30%
or more of the world's aluminium, cobalt, copper, diamonds, uranium and platinum group metals
reserves. Strong growth in emerging markets will be the source of a structural increase in demand for
commodities. For example, according to the US Energy Information Administration, total oil
consumption in emerging markets is expected to grow to 60% by 2035 whereas growth from OECD
countries would stagnate over the same period.
Graph 7: reserves growth
(between 2000 and 2009)
+103.2%
Graph 8: demand for energy
(in mn Kg of oil equivalent per person)
40%
35000
35%
30000
x 1.2
x 2.4
30%
25000
25%
20000
20%
15%
15000
10%
10000
5%
5000
0%
Latin
America
Africa
Oil
mo d 1 0
Europe
Middle East
North
America
Asia
Gas
Source: BP Statistical Report
0
2000
Developed markets
mo d 1 0
2007
2030
2050
Emerging markets
Source: SG Cross Asset Research
Africa could also develop its agricultural potential, which for the time being has not been exploited.
Africa has one-quarter of the world's arable land but it accounts for just 10% of global agricultural
production (see graphs 9 and 10). To develop this potential, the continent will need to respond to
several challenges including the fragmentation of farms (85% are smaller than 2 hectares, versus
11% in Brazil) and the lack of investment and infrastructure…
EcoNote – 10 May 2011
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Economic Studies Department
Graph 9: crop yields: cereals
(hectograms per hectare)
70000
Grap 10: distribution of farms, by size
(% of land holdings)
100
11
4
8
60000
80
50000
60
40000
85
80
95
89
30000
92
96
Germany
US
40
20000
20
10000
5
0
15
20
0
Africa
North America South America
1970
mo d 1 0
Asia
Eastern Europe
China
Africa
>2 hectares
2009
Source: FAO
mo d 1 8
India
Brazil
<2 hectares
Sources: World Census of Agriculture, FAO
The "demographic" dividend
In the longer term, demographics will be the principle source of growth. In fact, other countries have
either finished the demographic transition or are well on their way to doing so. Africa has barely
begun: the continent will benefit from a strong increase in its labour force (15-64 years of age).
According to UN projections, the proportion of the working age population as part of the total
population will begin to decline in Europe and North America in 2010 (see graph 11). This transition
will take place in 2030 in Asia and in South America, while in Africa the transition will not take
place before 2050. The continent's working age population (estimated at 500 million today) is
projected to exceed 1.3bn in 2040, greater than that of India or China. Urbanisation has also taken
off: in 1980, only 28% of Africans were city-dwellers, now 40% of the population live in urban
areas. The urbanisation phenomenon often reflects the structural drop in the number of agricultural
workers (sector with low productivity) in favour of industrial and service sectors (higher
productivity). Therefore, urbanisation usually leads to higher productivity.
This demographic growth will usher in a burgeoning middle class. Africa has more middle class
households (i.e. those with incomes >$20,000) than India. The emergence of the “African consumer”
has attracted the attention of large multinationals. For example, Wal-Mart announced that it was
planning on buying South African retailer Massmart, which has stores in 13 African countries, for
USD 4.6bn.
EcoNote – 10 May 2011
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Economic Studies Department
Graph 11: population aged 15-64
(% of total population)
75
70
65
60
55
Africa
Western Europe
Asia
Latin America
20
50
20
40
20
30
20
20
20
10
20
00
19
90
19
80
19
70
19
60
19
50
50
Eastern Europe
North America
Source: United Nations
mo d 5
Challenges remain
To fulfil its growth potential, the African continent will need to overcome certain hurdles related to,
notably political stability/governance and infrastructure issues. On the political front, the recent
events in Côte d'Ivoire and North Africa (Tunisia, Egypt, Libya) show that, while the number of
hard-line regimes has dropped, consolidating democratic gains remains a work-in-progress.
Graph 12: political regimes in Africa
30
25
28
28
20
23
20
19
18
17
22
15
9
10
5
4
9
4
0
1980
Free
mo d 1 8
1990
2000
Partly free
2009
Not free
Source: Freedom House
Besides these substantial challenges, the African takeoff must not mask two realities.
First, this strong growth may appear on the “books” but living conditions remain low for most
Africans. GDP growth in Africa has yet to translate into higher living standards, as measured by
EcoNote – 10 May 2011
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Economic Studies Department
GDP per capita (see graphs 13 and 14). This is explained both by a particularly low “starting point”
in Africa 2 , and by a strong population growth.
Graph 13: % of population living with less than 1.25 USD
80
70
East Asia
Sub saharan Africa
60
50
South Asia
40
Middle East &
North Africa
30
Europe &
Central Asia
20
Latin America
10
0
1981
1984
1987
1990
1993
1996
1999
2002
2005
Source: World Bank
mo d 5
African countries continue to finish last in most development rankings. Out of the 24 countries with
"low human development", 22 are in Africa.
Graph 14: growth without development
(hatched areas: 1998 / full areas: 2008)
16 000
3,2%
GDP per capita (USD PPA)
14 000
CEE
12 000
7,0%
3,1%
10 000
2,1%
8 000
MIDDLE
EAST
7,1%
ASIA
6 000
LATIN
AMERICA
4 000
1,7%
12,1%
2,1%
2 000
1,5%
6,6%
AFRICA
0
2
4
6
8
Average growth over the last 10 years
Sizes of bubbles represent the nominal
GDP of each region as % of world
Sources: CEIC, IMF, SG estimates
Second, although their “collective” growth potential is high, the performance of individual countries
may prove uneven. Heterogeneous groups of countries, confronting different challenges, can be set:
2
e.g. if revenue/capita in Africa were to continue to grow 2%/yr. over the next decade, the gain over 10 years would only be USD
460 (in PPP). However, if revenue/capita in Japan were to grow by 1%/yr. over the same period, the gain would be USD 3,200 (in
PPP) i.e. 7 times the gain in Africa. Thus, the absolute difference between revenue/capita would increase, despite the relative gains
in Africa.
EcoNote – 10 May 2011
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Economic Studies Department
1. Advanced countries: South Africa, Tunisia, Morocco and Egypt. These economies are
characterized by large manufacturing and services sectors (83% of aggregate GDP in the
four countries). Their growth is less volatile that in the rest of the continent. These countries
have gradually tried to export increasingly valuable goods and services but their domestic
markets are limited in size and they have had to compete with other “advanced” emerging
markets such as China, India, Brazil but also Malaysia and Mexico, for example.
2. Oil exporting countries, which must diversify their economies. For example, Indonesia,
Algeria and Nigeria have extracted the same quantity of oil since the 1970s. However, in
Indonesia the secondary and service industries account for 70% of GDP versus less than
45% in the two African countries.
3. Intermediary countries: Ghana and Kenya, which have relatively low GDP per capita but
have fairly diversified economies. The expansion of intra-African trade will be a key factor
in the economic development of these countries, which have small domestic markets for the
most part. Improving infrastructure and regulations will also be a deciding factor 3 .
4. The least-developed countries, such as the Democratic Republic of Congo and Chad, which
have institutions and a business environment that are wholly lacking. These countries,
despite their vast mineral wealth, must improve governance considerably before they can
really take off.
3
A study by the Center for Global Development (Africa's Private Sector: What's Wrong with the Business Environment and What
to Do About It) reveals that the lack of infrastructure and poor regulations are the main impediments to developing the private
sector in Africa, more than wages (which remain, in general, low) or productivity.
EcoNote – 10 May 2011
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Economic Studies Department
Previous Issues
The dollar: The Americans' currency, their problem?, 31 March 2011, Econote n°1 Benoît Heitz.
EcoNote – 10 May 2011
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Economic Studies Department
Société Générale
Risk Division
Economic Studies Department
75886 PARIS CEDEX 18
http://www.societegenerale.com/en/Our-businesses/economic-studies
Tél : +33 1 42 14 55 56
Tél : +33 1 42 13 18 88
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Group Chief Economist
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Information specialist
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