‘Africa poised for growth’

 

Africa is staking its claim as a viable and prosperous investment destination while many of its competitors are falling behind, Absa retail analyst Chris Gilmour said this past week.

Speaking at the World Retail Congress Africa, held in Sandton in South Africa, he pointed out that the developed world was in a long cyclical decline, with even China’s growth rate having been scaled back to 7.5 percent.

“Therefore, Africa’s economic advantage in terms of gross domestic product (GDP) growth is occurring at a time when many other competitor emerging economies are struggling or are experiencing significantly attenuated growth relative to where they used to be,” he said.

Further, as a result of the decline in the prominent world economies, investors needed to find new markets for their products, in much the same way as they needed them in the late 1970s and early 1980s, when the global economy moved out of recession following the bleak years caused by the spike in oil prices, which provided an opportunity for Africa. 

“However, it even took China more than a decade to gain noticeable traction and, therefore, as good as Africa looks, it will be a long haul for all concerned,” Gilmour stated. 

Meanwhile, China was also expected to hit the so-called “Lewis Tipping Point” by 2025, where the country would lack sufficient numbers of people to “man the machines”, owing to its one-child policy.

In contrast, Africa’s population was young and growing, with more than 50 percent of the continent’s population being younger than 20, compared with only 28 percent of China’s population.

However, manufacturing, and especially high-tech manufacturing, was still absent in Africa, and this would have to be tackled.

“Without a large and growing industrial base, Africa’s current spurt in economic activity may not be sustainable,” he said, adding that no meaningful country or region in the past couple of hundred years has made the transition from relative poverty to high-income development without having a well-developed manufacturing base.

Also speaking at the conference, Planet Retail chief economist Boris Planer said Africa was still over-reliant on commodities and that manufacturing companies were not coming to Africa, as productivity on the continent was lower than elsewhere.

“The lack of manufacturing productivity on the African continent came down to a lack of skills and would have to be addressed through improved education programmes,” he noted.

Further, Africa’s infrastructure would also have to be developed beyond trucks and roads, to develop the retail sector, Planer said, adding that aspects such as supplier networks, public administration and energy provision also had to be dealt with.

Better infrastructure and especially massively improved electricity generation and distribution capacity was vital in ensuring Africa’s sustained economic growth, Gilmour reiterated.

He pointed out that Sub-Saharan Africa had the combined electricity generation capacity roughly equal to that of Spain’s capacity, while the whole of Africa’s capacity was roughly equal to that of Germany, and two-thirds of Africa’s total generating capacity was produced by South Africa.

He added that only 25 percent of the population in Sub-Saharan Africa had access to electricity, compared with 50 percent of South Asia’s population and 80 percent of Latin America’s population.

Another challenge facing economic development in Africa was the lack of inclusive growth, Planer said.

“While Africa is growing, much of the growth is not in the mass market and does not reach the greater population,” he said, adding that GDP growth did not necessarily equal social development.

Planer further stated that, given the challenges, he did not believe that Western retailers would enter the African market in a significant way within the next ten years; however, he added that this created a window of opportunity for local retailers to grow, take up some of the market share and become cost competitive.

“The modernisation of Africa will, therefore, largely belong to African players,” he said. – Polity

November 2013
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