The Rise of Sub-Saharan Africa and the Downfall of South Africa

Today an article from the Economist addressed the fact that capital and labor has begun to steadily flow into Sub-Saharan Africa because economic stability, and therefore, investor comfidence in the area has increased. Multinational corporations are specifically targeting this region because it "desperately needs two things: more capital and skilled workers," which are exactly the two things that are abundant in the West. Furthermore, in terms of labor, Africa provides younger business people the opportunity to "work at a senior level with relatively little experience." The article cites four reasons that the Sub-Saharan Africa economy is gaining strength:

1. Healthy population growth--longer life expentancies and fewer children per family.
2. Urbanization--major cities are luring investors. I believe the growth of African cities has greatly contributed to economic development; the book I am reading for the precis, African Economies and the Politics of Permanent Crisis, states that "the growth of cities has been critically important to the historical development of both capitalism and the modern states." The book further claims that Africa now boasts some of the world's largest cities.
3. Technology--When I was in Ghana this summer, I was surprised by the prevalence of cell phones. Though they were far from a smart phone, they definitely did the job of connecting people over great distances. In fact, yesterday I listened to Lois Quam, the Executive Director of the Global Health Initiative, speak. She said that a surprisingly large number (I believe she said around half) of business transactions in Africa are done via texting.
4. Better/Less Corrupt Governance--Again, the book I am reading for class definitely addresses this point. In fact, one of the author's central arguments concerns the substantial affect that the ideologies and practices of political leaders/regimes have on the economy both in the short- and long-term.

All of these factors combine to make Sub-Saharan Africa a more viable place for capital and labor flow. If these economies continue to have stable growth, it is a great opportunity for investors because the continent as a whole is extremely large with relatively "non-existant infrastructure." See the Economist's map below to see just how large the African continent is relative to other countries.

 

Due to the investor confidence generated by the four factors I have already mentioned, foreign direct investment in the area has increased by 50% since 2005. Many analysts are optimistic about the continent as a whole; a World Bank economist remarked, "If current trends continue, most of Africa will be middle-income by 2025." Similarily, the IMF says the "continent's GDP will grow by 5% this year." However, it is important to note that the IMF and World Bank are far from skeptics or pessimists when it comes to Africa. In fact, according to my reading in African Economies... it appears that institutions such as the World Bank and IMF tend to be overly optimistic about African development in order to avoid criticism that the aid (much of it attached to toothless statements of conditionality concerning economic and political reform) that they have pushed into the continent over the past 5 decades (since African independence) has failed to spur the right kind of change and economic growth.

 

Furthermore, it is important that we not simply generalize about the entire African continent when there are clearly some outliers from the portrait of economic growth that was painted above. For instance, the Economist published another article recently about the downfall of South Africa. Though South Africa still has the most developed and largest economy of all the countries in Africa, it is quickly fading, and Nigeria is rapidly emerging. This is largely due to South Africa's horrible educational system; high unemployment related to a lack necessary job skills, which causes many job openings to remain unfilled; and corrupt governance.

 

South Africa's issues are directly addressed in yet another Economist article. South African politics needs to undergo significant change in the near future. The African National Congress--the legendary party of Nelson Mandella--was at one time a populist party committed to racial equality and anti-apartheid measures. Though there has been much progress in the civil-rights sphere since black-majority rule began, the African National Congress is now forgetting that it is accountable to the people. The political elite are getting richer and richer off of corrupt rent-seeking practices, creating a great divide between the rich and poor. A governmental position is so clearly the cause for material gain that men physically fight (and die) in an attempt to gain a position. Yet a large majority of the people continue to support the ANC, most likely because of its reputation from its past accomplishments. The Democratic Alliance is the next strongest political party, but it only garnered 17% support in the last election. The people view this party largely as the "white" party, so they are hesitant to support it, in fear of a return to racial segregation.

 

I will write more later (especially in my precis) on the economic implications of political regimes. For now, we should keep our eyes on South Africa and the Sub-Saharan countries to see if the one falls while the other rises, as the Economist predicts.