Africa as the last frontier of global growth – and where the US and China are headed
It is now exactly a year ago, in February 2021, that Brendon Jones and Rudolf Pretorius, Directors at Adansonia Holdings (Singapore) Private Limited, interviewed one of the pre-eminent commentators on Africa’s economic landscape – @Colin Coleman. This exciting podcast, that discussed the evolution of Africa’s economic affairs in a post-COVID context, built on an insightful white paper released by Colin in February 2020 titled ‘China vs USA: A battle for Africa’s future’, that he revisited in our podcast by the same name, in the aftermath of the pandemic.
Taking a pause to introduce Colin Coleman, our expert speaker served as the CEO of Goldman Sachs for Sub-Saharan Africa from 2000 onwards and left this exciting C-suite role in January 2020 to become a distinguished lecturer at Yale, where he was appointed as a senior fellow at the Ivy League university’s Jackson Institute for Global Affairs. Currently, Colin co-chairs the Youth Employment Service, and is a non-executive board member of South Africa’s leading conglomerate, The Foschini Group.
Today, we take the opportunity to republish the podcast, that remains most relevant with the pandemic continuing to rage in the world. This thought leadership goes beyond Colin’s insights from the podcast to evaluate how Africa is faring amid the global economic fallout of COVID, and to assess if this last frontier of global growth has indeed been able to steer towards its economic destiny despite the strong headwinds of this worldwide scourge.
Population threatens to overcome economic potential
Insightfully enough, Colin Coleman began the podcast by exploring the premise that 40% of all people by the turn of the century will hail from the continent, and this means that African economies must start performing at a rate that meets the expectations of a fast-rising, and mostly young, population. The statistics indeed speak for themselves. Africa has a population of more than 1.3 billion people, growing at a rate of 2% in most territories – further to this, 50% of the population is below the age of 25, which speaks to the increasing demand for economic opportunities by this youthful population.
But are the aspirations of this youthful population on track to be met? Indeed, it appears that the funding gap for young entrepreneurs has only been exacerbated by the COVID crisis, with the International Finance Corporation having estimated back in 2017 that the African SME sector had an annual financing gap of over $USD136 billion. Further to this, SME’s account for up to 90% of active business on the continent, which is the sector that has been impacted the most by the prevailing pandemic. All the while, Africa’s population is expected to double in just over 25 years to further validate the exponential market potential within – making it more crucial than ever to support SMEs and take them to the next level in a COVID context.
US making inroads in Africa – but China’s influence continues strong
Building on Colin’s insights is a recent article by another academician, a distinguished fellow at Stanford University and member of the World Economic Forum’s Regional Action Group on Africa, Landry Signé, who postulates in a nine-pronged essay on Brookings that:
- Africa’s economic transformation and business potential are more substantial than most people think: The continent has seen the two best cumulative successive decades of its existence in the 21st century. Trade in and with Africa has grown 300% in the last decade, outperforming global averages (196%), becoming home to many of the world’s fastest-growing economies.
- The fast population growth on the continent could be turned into demographic dividends, or threats to global prosperity and stability. Africa was home to 17%of the world population in 2020 – and is expected to host 26% of the global population in 2050 (2.53 billion people). If Africa is not successfully integrated into the global economy, it could pose a major threat to global prosperity and stability.
- The growth of household consumption and business spending: By 2050, Africa will be home to an estimated USD 16.12 trillion of combined consumer and business spending. And Africa’s growth might offer tremendous opportunities for US businesses in household consumption (USD 8 trillion) in areas such as food and beverages, housing, hospitality and recreation, health care, financial services, education and transport, and consumer goods, but also B2B spending (construction, utility, and transportation, agriculture and agri-processing, wholesale and retail, etc.).
- The rise of global partnerships and the competition between traditional and new players: Soberingly for US’ aspirations in, and for, Africa, between 2006 and 2016, China’s trade with Africa surged – with imports increasing by 233% and exports increasing 53% – as they did for several other global players as well. During the same period, the US lost ground in exports to Africa (-66%). Indeed, China’s influence goes beyond trade relationships: It is the first destination of English-speaking African students, and currently outperforms the US and the UK.
- Fast urbanisation but also fast rural population growth: By 2030, Africa will be home to 5 cities of more than 10 million inhabitants and 12 other cities of more than 5 million inhabitants. Cities in Africa are becoming powerful economic centers, and a city-based approach to not just foreign policy but also trade and investment, will be critical to outperform competitors and build mutual prosperity.
- Africa has made tremendous progress in mobilising resources for infrastructure development, while working hard to bridge gaps in ICT, energy, water and sanitation, and transportation: In 2018, the African Development Bank (AfDB) found that Africa’s infrastructure requirements are between USD 130 and 170 billion a year, leaving a financing gap of USD 68-108 billion. China has played a key role in financing, and has become the largest bilateral infrastructure financer in Africa (Chinese FDI grew 40% annually from 2010 to 2020). However, the US has the chance to make a monumental difference when it comes to investing in infrastructure development in the ICT domain, with all its ability to transfer knowledge from Silicon Valley to Silicon Cape.
- Fast digitalisation, increased technological innovation, and an accelerated Fourth Industrial Revolution (4IR): The Fourth Industrial Revolution (4IR) is characterised by the fusion of the digital, biological, and technological world, and technologies such as artificial intelligence, big data, 5G, drones and automated vehicles, and cloud computing. As a world leader in technological innovation, digital transformation, and 4IR, the United States is well-positioned to play a leading role in the African digital space and contribute to Africa’s pursuit of now-vital technologies. For example, crucially in COVID times, this could translate into faster access to medicines on the ground, through Drone Delivery, for instance.
- Fast regional integration and the African Continental Free Trade Area (AfCFTA): With the official launch of the AfCFTA in January 2021, African growth prospects and business opportunities have been magnified. The continent is giving the world just one more reason to invest in it with the creation of the world’s largest new free-trade zone per number of countries, since the creation of the WTO. The AfCFTA will accelerate Africa’s industrialisation as well as incomes, which will lead to the increase of both household consumption and business spending, generating unique opportunities for US trade and investment.
- The sustained demand for accountability, democracy, and stability of African citizens, and policy priorities aligns with US core values. Afrobarometer surveys reveal that 7 out of 10 Africans support democracy and accountable governance, and approximately two-thirds are opposed to a single party or military government. Importantly, areas in which the US has a sustained competitive advantage, given its global leadership in democracy and human rights, and its support for such issues as health and education, are priorities for Africans too. Given China’s leadership in infrastructure, the US could grow its footprint in this area but by partnering with other players such as the G7 and the European Union countries. Crucially from a governance standpoint, this approach will be welcomed by African citizens, who prefer the US model of development (32%) over the Chinese one (23%).
Africa: Future forward
Similar to the 2008 Global Financial Crisis, which led to the unbridled growth of disruptive unicorn technology companies that have since changed the world – technology start-ups Uber and Airbnb as well as venture capital firm Andreessen Horowitz being founded at the peak of the said crisis – it is clear that COVID has also sown the seeds for digital innovation worldwide, with Africa leading the way. Hearteningly, African tech startup funding increased over 40% in 2020 to over USD 700 million, which, while a fraction of tech startup funding outside of Africa, augurs well for the way forward.
Indeed, as we know, the race to build unicorn after unicorn out of Africa is underway and tech start-ups with unicorn status in the continent recently reached double digits – with Andela, Chipper Cash, Fawry, Flutterwave, Go1, Interswitch Group, Jumia Group, OPay, Swvl, Wave Mobile Money making up the ten unicorns hailing from the region.
We foresee 2022 bearing witness to new unicorns coming out of Africa, and it is no wonder that global economic giants such as the US and China are going out of their way to woo the continent and its aspiring youth who are approaching the masses with their brilliant innovations that solve large-scale problems plaguing the region. Is the US listening or will China get there first? Only time will tell…