Wednesday, 2 January 2013

The second scramble for Africa

The proposed Lamu  transport corridor in Kenya :
A potential beneficiary of the East-West rivalry

 AFRICA IS IN the middle of a long economic boom. And over the next five years, she shall be the fastest growing region in the world posting more than five per cent growth per year, says a World Bank report.


Consequently, Africa -“a hopeless Continent” just a few years ago- is now something of a village beauty-attracting plenty of suitors. Even the once cynical West is beginning to sit up and take note-with their cheque books on hand.

 And this new attention on the continent is taking the shape of a second scramble for Africa.This time around it is not the Berlin Conference seeking to dissect Africa into spheres of influence by Europe. Contrary to the first scramble that under-developed Africa, the second scramble  is a major competition to develop Africa by both East and  the West. The east is led by China, arguably Africa’s largest benefactor in the recent past. Although it is not clear how much China has sunk into Africa, estimates place the figure at nearly US$100 billion. This money has been used to build transport and energy infrastructure.

To some measure, China and the African Development Bank are rolling the West’s influence in Africa back. Initially the West sat back and chose to demonize China’s growing influence. This cut no ice with Africa and china was still welcome in Africa.

If you can’t beat them, join them, so the old adage goes. Europe has learnt the lesson pretty fast. Consider the following headlines: Norway wealth fund eyes more exposure in Africa; IFC to issues bonds in Africa. Consider this statement: “Group DML is 100% convinced that the major chances for European economic growth lay in Europe's front yard, namely AFRICA and nowhere else.Group DML has developed a new financing instrument to allow European contractors to compete heads-on with Chinese State Companies for infrastructure projects in Africa.”


These statements reflect a changed perception of Africa even by the Private sector in Europe. Africa is a land of opportunity … whoever strikes first is the winner. This is a truth China learned while the rest were napping. So perverse is Chinese presence that every project done by Chinese contractors is assumed to be funded by China.

proposed Kigamboni Bridge in Tanzania:
 Build by Chinese funded by Tanzania
This perception is so widespread that project financiers such as AfDB, have had to place huge bill boards on the project to Advertise that they are the financiers.  AfDB funded the 50 Km 8- lane Thika super Highway in Kenya  but many still believe it was funded by the Chinese.

The competition can only benefit Africa. Last year, Kenyans witnessed  such competition between the Chinese and the Japanese. Projects were approved and funds released even before the contracts had been advertised. This was the case Thewith the Japanese funding of the Southern by pass in Mombasa and the widening of Ngong road in Nairobi. The funds were released even before the contracts were advertised.  The World Bank, broke its own record when it approved a US$300 million project to build an over pass on uhuru highway in a record two months.

If IFC issues local currency bonds in 10 African countries, pension funds in the West, which perceived Africa as a bad business proposal will follow suit. IFC will be deemed as the underwriter. In addition, IFC bonds will remove a critical bottleneck in the growth of SMES in Africa. Most of these firms are below the regulatory threshold for listing companies in the local bourses, say experts. IFC can invest in these firms, wet nurse them until they reach the threshold then float its stake in the capital market.  Lack of capital for expansion has been the Achilles heel for most SMES in Africa.

Such moves are a vote of confidence in Africa and its capital markets, say economists. “Therefore it is for Africa to leverage this advantage to direct investment into critical sectors,” advised the UN-Economic commission for Africa. So far the continent is demonstrating a clarity of objectives.

The Proposed double decker highway in Nairobi Kenya:
 Avoid potential white elephants
So how did Africa turn from a” hopeless continent in 1985 to a hopeful one in 2013?” Good House Keeping, commodities boom and Africa’s own demographics. For a while now, Africa, a whole has posted growth rates way ahead of population growth driven by the commodities boom.

Between 2000 and 08, around a quarter of Africa’s growth came from higher revenues from natural resources.  Other factors include the growth of local enterprises which reduced profit repatriation. Africa has witnessed a rapid growth of highly profitable local enterprises, spread across all sectors, which boosted employment, tax revenue collection and domestic investment as they invested in further growth.   This saw per Capita domestic revenue collection rise to $441 compared to development which shrunk to US$41 per Capita. Consequently, implementation of development programming in Africa became feasible and certain, feeding further growth

 The growth of ICT in the continent is the fastest anywhere in the world. Fromm tiny 25 million handsets in 2000, mobile phone penetration in Africa is around 75 per cent. According to  a recent World Bank report, ICT contribute 7 per cent to Africa’s economic growth as there are now an estimated 700 million  handsets in the continent.

The second reason: economic growth. Over the past decade six of the world’s ten fastest-growing countries were African, says the Economist. “In eight of the past ten years, Africa has grown faster than East Asia, including Japan. This growth has added another 60 million to Africa’s middle class whose per capita is $3,000. This number is expected to rise to 100 million in 2015, says the Economist.

Third,demographics. Africa is the only continent which is not faced with an aging population crisis. Its young productive population is still growing. This creates the suitable conditions for further economic growth because of a large growing domestic demand for domestic goods.

The frequent discovery of oil and gas deposits in eastern Africa, the only region that was lagging behind in this respect, is also brightening the prospects for the region’s economy. The region has attracted quite a tidy sum in FDI to the hydrocarbons sector.


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