Fuelled by China's seemingly infinite thirst for resources, Africa's economy grew at a robust pace last decade. With China slowing down, Africa needs a new partner. Will the Commonwealth fill that gap
When 19th century American explorer and journalist Henry Morton first used the term dark continent for Africa, he perhaps never thought it would stick with the continent perennially like a shadow. Used initially by European historians, economists, explorers and sociologists alike for their sheer lack of knowledge of the huge land mass, it has become symbolic of the inherent backwardness of the region. Beset with under-development, poverty, stagnation and corruption, Africa is by some distance the poorest continent on the planet - 21 of the poorest 25 countries in the world belong to the continent.
Just one statistic gives an idea where Africa stands globally. Its entire gross domestic product (GDP), an aggregation of 54 countries, at $3.3 trillion is less than a sixth of the US economy. These numbers paint a sordid picture but endowed with rich mineral resources, Africa ought to be in fact one of the richest regions of the world. As the second-largest continent in terms of size, Africa accounts for 60 per cent of world's cobalt production, 38 per cent of manganese, 69.4 per cent of platinum, 56 per cent of natural diamond and even 47 per cent of mineral fuels including coal and petroleum.
Economic landscape
Thanks to the upturn in the commodity cycle from 2002, its economy has also got a move on. On an average Africa's real annual GDP grew by 5.4 per cent between 2000 and 2010, adding $78 billion annually to its GDP (in 2015 prices). Foreign direct investment (FDI), another key metric to measure growth of the economy also corroborates the trend. FDI into Africa reached $73 billion in 2014, an over five-fold jump from $14 billion in 2004. Africa today boasts of over 700 large companies which between themselves earn $1.4 trillion in revenues.
The crash in oil and commodity prices in the last few years and political instability in the Northern parts of the continent following the Arab spring of 2010, has however put a speed breaker to this growth story. Between 2010 and 2015, growth has slowed down to 3.3 per cent.
The economies of Egypt, Libya and Tunisia did not grow at all between 2010 and 2015, in stark contrast to average annual growth among the three economies of 4.8 per cent in the previous decade. At the same time, the rate of growth among oil exporters such as Algeria, Angola,
and Sudan fell sharply to 4 per cent from 7.1 per cent. Productivity growth also declined in these two sets of economies. The annual rate of productivity growth in the Arab Spring countries fell from 1.7 per cent to 0.6 per cent, and in Africa's oil exporters from 2.6 per cent to 0.4 per cent.
The rest of Africa remained largely stable. Real GDP grew at an annual rate of 4.4 per cent a year, virtually the same as in 2005 to 2010. Productivity grew at a compound annual rate of 1.7 per cent over the same period, consistent with 1.6 per cent from 2000 to 2010. But there is enough to suggest a lingering passivity in growth in the region.
Chinese influence
A significant part of the growth of the African economy in the first decade of this century can be attributed to China's seemingly bottomless thirst for minerals and oil as it built its infrastructure. In 2009,
surpassed the United States as Africa's largest trading partner in 2009 and the ties have only deepened ever since. China is a destination for 15 to 16 per cent of sub-Saharan Africa's exports and the source of 14 to 21 per cent of the region's imports.
The slowdown in the economy of China since 2014 and the resultant impact on oil and commodity prices hence, is a factor in the slackening of growth of the African economy. In 2010, Africa as a whole was running a small current-account surplus of 0.4 per cent of GDP; by 2015, that had turned into a deficit of 6.7 per cent. Five years ago, most of Africa was booming - 25 of the top 30 economies had accelerated their growth from the previous decade. By 2016, however, the number of countries whose growth was similar or quickening had halved to just 13.
Further, the trade imbalance between Africa and China has begun to irk with some African economies beginning to ask China to open up its market for more than just African minerals and oil. In 2015 Africa recorded a $34 billion deficit with China on total trade of $172 billion.
“As with any country, trade deficit is an issue of concern and we will be pushing to see how we can increase opportunities for Kenyan goods to penetrate the Chinese market,” said Kenyan President Uhuru Kenyata last year. “China has to understand that if their win win strategy is to work, just as Africa opens up to China, China must also open up to Africa.”
Commonwealth potential
Africa needs a new more equitable partner and the time maybe ripe for the Commonwealth nations - a group of 53 countries that were once colonies of the British empire - to perhaps step up. It makes a compelling case in at least 19 countries in Africa that are themselves part of the
.
The Commonwealth is a humungous entity in itself, accounting for 2.4 billion of world's 7.6 billion population and with member-countries that represent one of world's largest, smallest, richest and poorest nations, it is not very homogenous unlike other agglomerations.
Though it is not strictly a trading bloc, business between its members has grown over the last few years. In 2013, trade between the member-countries amounted to $592 billion and it is projected to rise to $1 trillion by 2020.
As the second-largest economy in the group, firms from India have also intensified their ties with Africa. Between 2008 and 2016, Indian companies - both public and private - invested $52.6 billion in Africa, a little over 20 per cent of what India invested globally in this period. Mauritius, Mozambique, Egypt, South Africa, Tunisia, Kenya, Zambia, Libya, Ethiopia, Morocco and Sudan received bulk of the FDI from India. That half of them belong to the Commonwealth is no surprise.
Corporate impact
Companies are also on the lookout to invest and export more to Africa. Domestic utility vehicle major Mahindra and Mahindra, which is also world's largest tractor manufacturer in volume terms, exports a third of its annual export tally of 10,000 units to Africa where the company has small assembly facilities in Chad and Mali. A few years ago, it set up a separate business unit to focus on the opportunities in Africa where it believes the business unit has a potential to grow 10 times to $1billion (Rs 6,500 crore) in seven years.
Similarly, heavy commercial vehicle maker Ashok Leyland has invested in setting up an assembly plant for buses in Kenya while Maruti Suzuki and Hyundai Motor India have been exporting cars made in their factories in India for close to a decade now.
For long, Africa has been seen as the future of the world economy and it continues to be so. With a young population and a growing labour force, by 2034 Africa is expected to have the world's largest working-age population of 1.1 billion. It is also still in the throes of urbanisation. According to the United Nations, an additional 187 million people in the continent will live in cities. That will have a direct impact on the economy, as productivity in urban areas is three times as high as rural areas. It will also prop up the domestic consumer market.
The biggest beneficiary of that demographic dividend would be whoever is best placed then. But the seeds would need to be sown today.