Stuart Simpson, 23 October 2007
‘A scar on the conscience of the world’ is Tony Blair’s description of Africa. There you have the miserable morality tale in a nutshell: angst-ridden Western politicians wringing their hands over the unholy alliance of corrupt African governments in league with greedy multinationals while the disease-blighted, fly-addled masses starve. The West needs to get over its scarred conscience about Africa as well as its lip-trembling confusion between exploitation and oppression. Things are looking up for Africa because it is on the verge of being properly exploited economically. And it is this, not End Poverty Now or any other pop-goes-politics campaign, which is going to bring African economies into the twenty-first century.
Africa is resource rich, but development thinkers tell us that this is a curse as governments grow fat off the profits and the poor are excluded. So ingrained is this way of thinking that the impact of the world’s emerging markets on African economies is often discussed in negative terms. It is argued that this is a new imperialism, providing little benefit for Africa’s poor. It is said that Africa has been exploited by the West before and that what is needed is not more of the same but a new approach - one that takes into account the needs of the excluded, the voiceless and powerless in Africa.
The sad truth of the matter is that Africa generates very little wealth because its resources have never been properly exploited. Most of Africa’s resources lay buried in the ground or are still waiting to be discovered - Africa accounts for three-quarters of the world’s undiscovered oil. Sudan, now a major oil exporter, was a net importer of oil until as recently as 2003. A shocking number of Africans are unemployed as little investment capital finds its way into the continent. Foreign direct investment (FDI) in the African continent is still only a fraction of FDI into the UK alone.
China, the workshop of the world, has seen its trade with Africa grow ten-fold in a matter of years due to its insatiable appetite for oil and other resources. But China’s much hyped trade relationship with the continent at over $50 billion in 2006 still comes in at only half the level of trade it conducts with the district of Los Angeles. Oil may be important, but by itself it ain’t worth a dime.
Recent developments may see things change. Africa is increasingly seen as a place to invest. Western credit and equity investment, for so long absent from the continent, are beginning to open up as sources of capital. This change can only reinforce the recent economic boom seen across many African economies - the vast majority of which have outgrown the world economy for the last five years. Many countries in sub-Saharan Africa offer a benign economic environment, benefiting from rising demand for exports along with rising prices. Given the low base from which most economies are starting, Africa represents massive potential for growth.
Last month Ghana blazed the trail for African economies by accessing Western credit markets, issuing $750 million in Eurobonds. This is the first time a sub-Saharan country other than South Africa has entered the commercial credit markets. The bond was issued in the midst of a credit crunch and yet was still four times over subscribed. On the equity front, Africa is receiving much more attention from investment banks and fund managers. Last week the Russian investment bank Renaissance Capital launched a financial index for sub-Saharan Africa (excluding South Africa) - a FTSE for Africa, providing information on what Renaissance Capital describe as ‘a particularly strong growth market’. And this talk is followed by real money. Fund manager New Star’s Heart of Africa fund will seek initially to raise £100 million to invest in sub-Saharan Africa. This is the latest in a line of funds that have been designed to channel investment into the continent.
While it is generally acknowledged that investment in many African economies is high risk, many are now accepting that the risk is worth it. Much of the credit for the positive economic environment rests with the dynamism of the world’s emerging markets, most notably the BRICs - Brazil, Russia, India and at the forefront China.
The new-found interest of Western investors in Africa is a direct response to the growth that has been generated from the East - driving up demand for Africa’s exports, increasing prices and providing direct investment and loans for infrastructure projects. Africans don’t want End Poverty Now. They want Investment Now. As the president of the African Development Bank Donald Kaberuka says: ‘My concern about Chinese investment in Africa is that there’s not enough of it. And that goes for all the investors in the world.’
Stuart Simpson is a financial analyst and journalist with a particular interest in development issues. Stuart writes on the economies of developing countries and international development for spiked, Novo and Die Welt. He is also the author of Debt and Development: Ghana - a case study.
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