An Arc of Growth from Asia to Africa
Rarely has Africa been in the news so much. Or so it seems. As football fever has gripped much of the world - including the financial markets - it has also allowed a greater focus on what is happening on the ground across much of Africa.
The immediate issue is will the tournament be a success? Although the initial focus is on the hope for safe and successful tournament in sporting terms, one should not overlook the economic implications. Once the players, officials, fans and media have gone, what will be the lasting on-the-ground effect on South Africa and on the rest of the Continent?
Most countries that host major sporting events say they bring significant economic benefits, plus hard-to-quantify intangible gains. One would hope that for South Africa, it is both. In fact, the intangible benefits may be higher for a country and a continent that may not have a high international media profile.
In economic terms, there are clearly some one-off gains, such as increased visitor spending and higher consumption associated with the tournament. It is harder to gauge fully the longer-term impact on growth. New stadia built in some countries previously have been seen as white elephants. But in South Africa, this increased spending has been part of a process of boosting the country's infrastructure. In fact, increased spending on the road and rail network has become a continent-wide trend.
The intangible benefits of this World Cup should be boosted by the smooth running of the tournament and an event that is seen as a sporting success.
Already, this year's World Cup has generated increased global interest in how the African economy is faring. That has to be good. Indeed, just as Beijing's Olympics were a statement of China's growing global importance, so too one hopes the 2010 World Cup will be a statement of Africa's continued rise.
Whilst much of global economic attention has been on China's and India's rise and the renaissance across Asia, Brazil and much of the Gulf, it has been all too easy to overlook Africa's changing economic landscape.
There has been phenomenal change in recent years on the ground across Africa. Whilst Africa was hit hard in 2009 by the global recession, we should not overlook the fact that 2008 marked its fifth successive year of growth above 5 per cent. That was impressive. Just as importantly, this year, Africa is clearly rebounding quickly from the global downturn.
In the past, Africa was always a laggard. Not now. There are many reasons for this, including better use of counter-cyclical policy, increasing trade ties with Asia and a number of other factors that may prove longer-term in nature. More African experts are genuinely asking is this a turning point for the Continent? I think it is!
A key feature behind Africa's improved performance over the last decade has been improved macroeconomic policies. Inflation across the continent has fallen considerably from high double digits in the 1990s to low rates in many countries. Perhaps one of Africa's biggest challenges is to sustain such credible economic policies as it emerges from recession.
Africa's success has also seen more countries wean themselves off international aid. Yet the latest crisis highlighted that international financial institutions still have a crucial role to play. Measures such as an emergency liquidity facility and the African Development Bank's trade finance facility last spring all helped, as did the knowledge that the resources at the International Monetary Fund's disposal had been boosted in the wake of the crisis.
Just as the crisis highlighted differences within Asia between domestically-driven economies such as China, India and Indonesia and more export-oriented countries, a distinction was also seen across Africa -- between the oil producers and the rest and, in regional terms, between the energy rich West of Africa and the rest. Curiously, West Africa has a big representation in the World Cup! Apart from hosts South Africa and Algeria from the north, the other four countries are from the West: Cameroon, Ghana, Côte d'Ivoire and Nigeria.
The rise of the commodity producers is testimony to the way the world economy is changing. New trade corridors are opening up between emerging economies, representing increased flows of goods, commodities, people, investment and ideas. This would have once been called South-South trade. For some time now, we have highlighted China's increased involvement across the African continent, inviting African leaders to Beijing, continuing to provide investment and assistance, and even hosting the annual African Development Bank meeting in China in 2007.
When commodity prices soared during 2007-08 it highlighted the lack of investment in many commodity-producing regions, including Africa. This is now being addressed. I would expect it to continue, with China taking a leading role. Africa is still a commodity- and agriculture-driven continent. Despite increased flows of people into cities, agriculture is still the biggest provider of work. Boosting agricultural productivity and diversifying economies is important. Infrastructure will play a vital role here.
The infrastructure needs across Africa are huge - as they are for Asia and the Middle East. The last few years have seen a big focus on this in South Africa, and not just because it is hosting the World Cup. Its port and power sectors have been in focus. In fact, an infrastructure boom is taking place across the continent, as evidenced by the building of ports, roads and rail networks. Much foreign money is flowing in to fund this.
An interesting future development will be how African countries interact with one another? In the past, trade has been primarily in commodities, and with markets in the West. Intra-regional trade flows are low. That will change, but it will require many things, including the ability to transport goods within the continent. This will not be easy, as most of the roads are connected to the ports and not to neighbouring countries. As the African Commission Report produced by the UK government in 2005 highlighted, even in southern Africa, there were three different rail gauges, making it difficult to use rail as a means of transportation. The Commission's report, which included inputs from Standard
Chartered, also highlighted the need to boost Africa's small and medium-sized enterprise (SME) sector.
The World Cup will highlight how keen Africans are about football. Many firms hope they will be enthusiastic shoppers as well. Indeed the growth of the domestic market is an exciting prospect. Already, the region's middle classes are growing in size, feeding rapid growth in retailing and construction across many countries. The increased use of mobile technology and the rise of microfinance are both helping to empower people and firms alike.
Africa is also witnessing the development of its capital markets, albeit from a small base in many countries. International investors are increasingly seeking out ‘frontier markets', allowing more African countries easier access to international capital markets.
In the past, there have been many false dawns for Africa. Politics has often been the downfall. Thus, the many key elections approaching over the next year or so will be a vital guide to Africa's progress.
Despite such hurdles, I take a positive view of Africa's prospects. In the future I believe there could be an Arc of Growth stretching from China through India and South Asia and into Africa. This would be driven by Africa's abundant resources and the possibility that it will eventually become a manufacturing hub, helped by its huge population - now around one billion and expected to double by the middle of this century.
If this happens it would allow Africa to make significant inroads in the coming years and decades in solving some of its biggest challenges, including poverty, health and jobs. The challenge is there. So too is the opportunity. The World Cup may give a taster of future success to come. Whoever lifts the trophy on July 11th, Africa may emerge as the real winner!
Dr. Gerard Lyons is Chief Economist and Head of Global Research at Standard Chartered Bank