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Industry and Free Markets will accelerate Africa's growth

Where will you find the fastest-growing economies in the world this year? Among the newly-industrialised states of South-East Asia, with their turbo-charged export industries? Among the oil-rich statelets of the Gulf? Or the liberalised, free market economies of Eastern Europe? Actually, it is none of those. The really rapid expansion right now is in Africa, and in sub-Saharan Africa in particular.

The economy of Africa consists of the trade, industry, agriculture, and human resources of the continent. As of 2012, approximately 1.07 billion people were living in 54 different countries in Africa. Africa is a resource-rich continent.Recent growth has been due to growth in sales in commodities, services, and manufacturing. Sub-Saharan Africa, in particular, is expected to reach a GDP of $29 trillion by 2050.

In March 2013, Africa was identified as the world's poorest inhabited continent; however, the World Bank expects that most African countries will reach "middle income" status (defined as at least US$1,000 per person a year) by 2025 if current growth rates continue. In 2013, Africa was the world’s fastest-growing continent at 5.6% a year, and GDP is expected to rise by an average of over 6% a year between 2013 and 2023.Growth has been present throughout the continent, with over one-third of Sub-Saharan African countries posting 6% or higher growth rates, and another 40% growing between 4% to 6% per year. Several international business observers have also named Africa as the future economic growth engine of the world.

Countries such as Mozambique and Ghana are now notching up the kind of 7.5pc-plus annual growth rates that until recently only China could manage.

Plenty of people are quick to dismiss the African growth miracle as nothing more than a short-term boost from foreign aid, or at best from rising commodity prices. They still complain that the great capitalist powers are keeping Africa down, and the old colonial powers are being replaced by newer ones as China takes ever bigger stakes in the continent.

But none of that is really true. What are powering African growth are the same crucial factors that powered growth in Europe 150 years ago, North America 120 years ago and much of Asia in the decades after the Second World War. Industrialisation and free markets.

True, Africa still has plenty of problems and its development is still fragile but, if it can keep going the way it is right now, there is no reason why it can’t be the great growth story of the first half of this century.

Economists specialising in the region refer to what they call “BBC syndrome” to explain why African growth remains one of the under-appreciated factors in the global economy. Mainstream news broadcasters spend so much time focusing on regional wars and famines they miss out on most of what is happening in what is, after all, a very big continent. It is rather like concentrating on the conflict in the Ukraine to describe the whole of Europe. There is a lot of other stuff going on.

In reality, Africa is developing very fast. An analysis of World Bank projections of global growth for the years 2013-15 showed that, of the 20 fastest-growing economies in the world, 11 were in Africa. Sierra Leone, on 25pc growth, was probably an outlier – its economy was so bombed out, just returning to normal meant a big bounce back – but the rest are countries chalking up high, consistent growth rates.

Mozambique will average 8.3pc growth over those three years; Ghana 8.15pc and Angola 8pc. Those are the kind of growth rates that lift countries out of poverty very quickly.

As the Renaissance Capital chief economist Charles Robertson pointed out in a recent TED lecture, real incomes in Africa have doubled since 2000, whereas, if you take out debt, they have hardly grown at all in this country. A year is being added to average life expectancy every three years. “Africa is going to go from a $2 trillion economy today to a $29 trillion economy by 2050,” he argued. “That’s bigger than Europe and America put together in today’s money. Life expectancy is going to go up by 13 years. The population’s going to double from 1bn to 2bn, so household incomes are going to go up sevenfold in the next 35 years.”

That is not an exaggeration. When Nigeria re-based its GDP earlier this year to get a more accurate measure of its output, it overtook South Africa as the continent’s largest economy. It is now the world’s 24th, ahead of Argentina and Austria and on a par with Poland and Belgium. Many other African countries will soon be moving into the same category.

It is easy to dismiss that as just the result of higher commodity prices. True, Africa produces a lot of minerals and raw materials, which have generated a lot of extra wealth, which in turn has made it easier for home-grown industries to develop.

Plenty more will dismiss it as just the result of debt forgiveness and aid programmes. It isn’t so. In fact, what is driving African growth is the same forces that drove it in Europe, the US and Asia in the past – industrialisation and liberalised markets. A recent paper by Margaret McMillan of Tufts University in the US – 'What Is Driving the African Growth Miracle’ – identifies at least half its recent growth as resulting from workers moving from low-productivity agricultural work to high productivity factories and offices. Farm workers produce relative little, so as people move off the land their output expands dramatically. That is what drove the industrial revolutions in the rest of the world and the same process is now under way in Africa.

Studying 19 African countries between 2000 and 2010, McMillan found that the share of the population working in agriculture fell by 10 percentage points, a huge shift only matched in recent times by China. The share working in manufacturing rose by two points and in services by eight points.

At the same time, Africa now has relatively low state spending and debt. Taxes only amount to 14pc of GDP in Nigeria (admittedly because the government is not very good at collecting them) and the average across sub-Saharan Africa is only 26pc.Public debt is only 10.5pc in Nigeria, a laughably low number by our standards. Over the whole of sub-Saharan Africa it is o about 40pc of GDP, while private sector debt is running at about 30pc of GDP, compared with 200pc or more in most of the developed world.

Africa still faces massive obstacles. Many governments are corrupt, infrastructure is poor, and there are still places where conflict is endemic. Then again, most poor countries are corrupt and, as a general rule, they become more honest and more open as they get richer – which Africa already is. It has rising levels of education and workforces are still growing.

By the 2020s, much of the developed world will have shrinking populations. So will China. Africa will be the only continent with lots of young people still entering the workforce, with a population that is set to double. So long as it keeps industrialising and opening up markets, it can keep growing. Very few countries have grown strongly with falling populations – and equally few have failed to grow with rising ones.

Over the next two decades, Africa should join the developed world. And it will have done it the same way as the rest of the world – by encouraging industrialisation, respecting property rights and allowing free markets to gradually lift countries out of poverty.

African Industries is a diverse West African Multinational with over 8,000 employees from more than 10 countries worldwide. The Group currently operates in eight different locations within Nigeria, and exports its products to other West African nations and is increasing investments in neighbouring countries. Its origins lie in trading soft and hard commodities imported from Europe and Asia. 

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