CAN’T SEE THE FOREST FOR THE TREES

Sometimes we are in danger of not seeing the forest for the trees, meaning we are so caught up in the day-to-day grind that we fail to see the big picture. Many times it takes a new pair of eyes to give you an alternative perspective. This week I came across a report on Africa’s future prospects as an investment destination. The report, by the McKinsey Global Institute paints a picture of Africa – despites it chaos, disease and political uncertainties, on the verge of take off albeit with many challenges none of which the report thinks are insurmountable.

"A snap shot of the Africa of the future shows a continent with a collective GDP of $2.6 trillion, a consumer expenditure of $1.4 trillion, 128 million households with discretionary spending – an annual income of $5000 or more and a more urbanized population with 50% of Africans living in towns. All this by 2020....

. Over the last few years Africa’s economy continued to grow despite the global economic slowdown and this was due to more than higher commodity prices. The report titled “Lions on Move: The progress and potential of African economies”, was therefore prompted by an endevour to identify the continent’s sources of economic growth and whether this growth is sustainable. To begin with the growth since the nineties has come from improved political and economic stability and adoption of policies to kick start markets. Uganda’s experience with macro-economic stabilization, trade liberlisation and privatization illustrates this point in real terms for us. Looking ahead the report’s authors suggest that growth will be sustained by increased demand for natural resources, greater urbanization, the rise of the middle-class consumer and expanding labour force, which will be larger than that of India or China in 10 years. However the exploitation of these factors will not be uniform across the continent. Dividing Africa’s nations into pre-transition, transition, oil and diversified exporters the report shows that differing development paths will be necessary. Uganda was categorized as a transition economy where per capita incomes are largely below $1000, agriculture and resource sectors account for a third of GDP and two-thirds of exports but have fast growing economies. Assuming the compounded average rate of economic growth for the first eight years of the decade of eight percent, Uganda’s economy would double every nine years.

To sustain this rate Uganda – as a transition country, will have to beef up its infrastructure, increase the productivity of its oagricultural sector and improve the quality of its human resource.

 

In this respect the challenges are enormous. Africa’s average power usage is less than half of the emerging markets of Brazil, Russia, India and China whose road and rail networks are five and two times denser than our own. The World Bank estimates the continent needs to invest $118b a year to address the shortfall, which $46b more than is currently being laid out on infrastructure development. For agriculture to be a greater growth driver – and this can apply specifically to Uganda, opening u p new lands, increasing yields through use of better technologies and a shift to high value crops, will be critical. And of course it goes with out saying that beyond increasing school enrollment the quality of our education will need to improve substantially. Two things struck me about the report. Firstly, that it talked about Africa as one big continent, not homogenous but as if as one country and that is the way we need to be thinking in order to harness our potential. In registering the trend towards greater urbanization and the emergence of the middle class I was surprised the report paid short shrift to the political upheavals that these two trends signal.

With greater urbanization and improved incomes the clamour for more inclusive and transparent politics – read democracy, will mount and depending how it is handled will either slow growth on the continent or halt it all together for indeterminate stretches of time

. The report’s tone seemed to be regardless of our lack of planning, corruption and poor infrastructure the continent is on the move, governments will be best advised to stabilize the environment – political and economic and get out of the way.