Africa is well on its way to recovery. Who says? None other than international consulting firm McKinsey.
It writes that the continent’s “economic pulse has quickened” with the third-highest regional growth average worldwide, 4.9%, between 2000 and 2008. The continent is on the crest of a new era, indeed on the verge of an economic boom, argue the consultants in a new report titled “Lions on the Move: The Progress and Potential of African Economies“.
Maybe. Let’s hope so.
But the yardsticks and economic criteria on which the McKinsey forecast is based reveal only part of a complex picture.
Overall, judgment of Africa’s prospects requires answers to three key questions: Why has the African continent, with so many obvious advantages of a young, energetic population and bountiful natural resource base, struggled to touch 5%? The requirements of Africa’s people and Asia’s ongoing growth record (almost double Africa’s during the period reviewed by McKinsey) suggest that 10% (or more) is not only necessary, but possible. And is what we see what we are getting – does 5% growth mean the population as a whole is benefiting?
The answer to the last question lies in whether African countries have improved their systems of governance. Certainly, more are outwardly democratic today than 20 years ago, more than 10 times the number. African countries have also steadily improved their rankings on the World Bank’s “Doing Business” indicators, even though they remain a long way behind other high-growth markets.
Answers to all these questions demand that we dig beneath the skin of Africa’s political economy and go beyond conventional technocratic analysis of the McKinsey sort.
Unorthodox evaluation can reveal much.
Here are a few checks any investor can apply, that are easy to perform and simple to evaluate, beginning with the beer test.
This should have the additional merit of getting them out from behind their computer terminals, out of the First-World bubble of five-star hotels, stand-by generators, air-conditioned four-wheel drives and into the markets. This, after all, is where all but a handful of locals do their shopping — those who can afford it, that is. Nearly two out of three of Africa’s residents still go to bed hungry.
Combine business and pleasure and buy the local brew. Convert the cost in local currency (at the official rate of exchange) to US dollars. You can then decide whether the currency is competitively valued. Few countries can build an export sector — and develop — with an overvalued currency.
Don’t overrate the explosion in the number of cellphones in Africa. True, this is a remarkable phenomenon, but it can also be a measure of the breakdown of the infrastructure, as in the Democratic Republic of the Congo, or the failure of the state to meet its citizens’ basic needs. Such consumptive activities inevitably also divert a lot of expenditure away from more productive investments: in private education, healthcare, nutrition and business.
Applying the unorthodox also means getting out of the capitals, where consultants express admiration for the shopping malls that have sprung up. Rather, greater weight should be given to the number of new roofs on peasant farmers’ homes, an indicator if nothing else of the inequality gap, a feature of African stability that, remarkably, McKinsey fails to mention.
Although the report cites Africa’s high costs to trade, more work is also needed to appreciate the causes beyond the cry for additional aid. Sadly, Africa remains a very expensive place to operate, not principally because of poor infrastructure but because of a pernicious cycle of vested interests, a lack of openness, bad policy and an infrastructure deficit, significantly worse today in some countries than at independence 50 years ago.
Governance is more than about how often elections are held, or how countries perform on Washington’s business indicators. It requires appreciating the inner stuffings of democracy, understanding the relationship between political access and prosperity. The report is ominously silent on this issue.
It demands understanding, not only of how quickly businesses are registered or goods moved in or out of the country, but also whether foreigners are being silently squeezed by indigenisation initiatives or by foot-dragging on the issuing of work permits. It is not enough, as McKinsey’s claims, that “important first steps” in business reform in some countries “enabled a private sector to emerge”. What is needed is a private sector free of political patronage and favour.
The report predicts that an African “green revolution” could treble the value of the continent’s agriculture output to $880-billion by 2030.
Though acknowledging the challenges this sector has to overcome to realise this potential (on land rights, cost of transport, extension services and so on), the report fails to recognise the role that African governments have played in keeping land scarce and neglecting this sector.
Indeed, the role of governments explains why it is that Africa’s growth is now only 5% when, by the admission of many consultants, “catch-up” growth is both the easiest and the most spectacular.
Of course, McKinsey’s claim of an African recovery should be taken seriously, and it’s a positive endorsement of the progress that has been made, where it has been made. But it needs to be accompanied by a health warning. Successful reform is not technocratic, as this report suggests, but profoundly political. Realising the continent’s potential requires the radical reform of the nature of African politics and politicians.
Without such reform, it will prove impossible to end the barriers that make inter-African trade so expensive, smash the cartels that set air tickets for internal travel so high, reduce the freight charges at African ports, free up more land for cultivation, and make contracts subject to enforcement in honest and transparent courts of law.
Doing so requires not only putting in place the facade of private sector reform, but also digging deep foundations that recognise the essential value of free enterprise as partner, not prey. So, don’t hold your breath: Africa’s bad habits will take time yet to die before the lions can really roar.
Michael Holman is an author and former FT Africa editor; Dr Greg Mills heads the Johannesburg-based Brenthurst Foundation, and is an author, most recently, of Why Africa Is Poor — and What Africans Can Do About It (Penguin)