From the ridiculous to the sensible. Julius Malema’s misguided take on the economy is delightfully contrasted by this thoughtful contribution from Frontier Advisory’s CEO Dr Martyn Davies. It is a synopsis of a presentation which Davies gave to New York’s Columbia University earlier this month. We live in a complex world. Nobody knows absolutely what is around the corner. But those like Davies who think deeply about these issues – complemented by extensive travel and research – have a better appreciation that most. – AH
By Dr Martyn Davies*
The Africa Rising narrative was underpinned not by sweeping and proactive economic reforms by sub-Saharan African (SSA) states but rather high commodity prices driven by China’s stellar growth performance and more importantly, the extreme resource intensity of its growth model through heavy spending in fixed asset investments.
This was exacerbated by the approximately US$600bn infrastructure stimulus spending package implemented by Beijing from Q1 2009 in response to falling exports to western economies after the onset of the financial crisis. There has thus been a “coupling effect” of growth between China and resource-dependent, often single resource-dependent, SSA economies, albeit at about a 3-4% differential. Strong growth performance of all emerging markets (EMs) prior to 2008 also supported African gross domestic product (GDP) quantitative growth.
Bottom line: SSA growth has been externally and factor-driven and is now vulnerable due to reduced commodity prices and negative EM sentiment
The Growth “Model” needs Re-thinking (and quickly)
The correct question to pose is “have African governments taken advantage of the last decade’s growth spurt to move toward diversification and long-term investment into people and productive assets in the country”? If Africa is to deliver on the hype of the simplistic “Africa Rising” narrative, it is imperative that its economies diversify. This can only be done through sustained and sizeable investment in people – the need to generate, retain and create opportunities for talent in the domestic economy. For Africa to mimic Asia’s developmental trajectory, SSA states will need to forge pro-active business friendly growth models rather than aid-supported reactive commodity price driven ones that result in nothing more than dependency.
Bottom line: SSA governments may be able to rely on commodity prices for headline (quantitative) GDP growth but qualitative growth can only come from economic diversification
The African Nation State has no Future! (in most cases)
I have often argued that the developmental failure of most SSA countries lies in their governments’ inability to forge a coherent nation and unified social structure. It is very arguable that imposed models of electoral and political governance have only served to exacerbate the problem. Without a nation-state – one which instills a sense of togetherness amongst its peoples no matter how ethnically, racially or religiously diverse – and provides equality of opportunity for all, there is no bedrock for long-term sustainable development. A country that stands out in recent history that understands this and is laying the foundations for embedded development is Rwanda. Where one finds failed economies, one will always find failed nations. In SSA, the examples of this are many. Rather than focusing on the regularly heard phrase of “institution building”, the real first priority should be on nation-building.
Bottom line: Governments that pro-actively enhance the livelihoods of all citizens rather than a single group are the most progressive toward nation-building
Seizing the “First Mover” Corporate Advantage
The most accurate “Africa Rising” story is the strategy of consumer facing companies expanding their footprints across the continent to serve a previously untapped consumer market. It is demographics-driven – capturing clusters of consumers and consolidating the business through more efficient supply chain management. The first-mover advantage is crucial in such fragmented SSA markets. But certain corporates are leading this process in key sectors. MTN (mobile telecoms), SABMiller (alcoholic beverages), Shoprite and Massmart (retail), Huawei and ZTE (ICT), MIH (broadcasting & media), and G4S (security) are notable first movers. Most of these firms are listed on the Johannesburg Stock Exchange, giving credence to the claim of South Africa being the “gateway” for the continent – at least in stock & capital markets.
Bottom line: Not unlike other sizeable EMs such as China and India, companies that are “first-movers” and are able to consolidate and localise will be the winners, delivering strong shareholder return
* Dr Martyn Davies is the CEO of Frontier Advisory, a Young Global Leader at the World Economic Forum and a visiting professor at Henley Business School. This is a synopsis of his presentation at Columbia University earlier this month.
