The continent’s future depends on people, not commodities
“IS ANYONE here actually hoping to make any money, or are you all just trying to minimise your losses?” The question, asked at a dinner in London for investors who specialise in Africa, showed how the mood has changed in the past year. The financiers around the table—mostly holders of African bonds—all said they were simply trying not to lose money.
Only a few years ago people were queuing up to invest in Africa. As recently as 2012 Zambia paid less than Spain to borrow dollars. Private-equity funds dedicated to Africa raised record sums to invest in shopping malls and firms making everything from nappies to fruit juice. Businessfolk salivated at the prospect of selling to the fast-growing African middle class, which by one measure numbered 350m people. Miners sank billions into African soil to feed China’s appetite for minerals.
Now investors are glum. In the short run, they are right to worry. In the long run, as our special report on African business shows this week (see article), the potential rewards from a market of 1.2 billion people are too juicy to ignore, despite the risks.
From oil in the gears to sand in the wheels
For decades, sentiment about Africa has followed commodity prices, rising and falling like a bungee-jumper at Victoria Falls. The recent plunge has caused a 16% drop in sub-Saharan Africa’s terms of trade (the ratio of the price of its exports to that of its imports). Growth across the region will slow to about 3% this year, predicts the World Bank, down from 7-8% a decade ago. That is barely ahead of population growth of 2.7%. Nigeria and Angola, two big oil exporters, will probably need bail-outs from the IMF within a year.
Yet Afro-pessimists should remember two things about commodity busts. They don’t last for ever. And they don’t hurt everyone: 17 African countries with a quarter of the region’s population will show a net benefit from the current one, thanks to cheaper energy. More important, by focusing on the minerals markets it is easy to miss some big trends that are happening above ground—and these are mostly positive.
The first is that Africa is far more peaceful than it was even a decade ago. The wars that ripped apart the Democratic Republic of Congo and sucked in its neighbours, causing millions of deaths, have largely been quelled. A few states, such as Somalia, South Sudan and the Central African Republic, are in chaos. But overall the risk of dying violently in Africa has tumbled. The latest ranking of the world’s most violent countries by the Geneva Declaration includes just two African states (tiny Lesotho and Swaziland) among its top ten.