Report Optimistic on Africa Economies

Celia Dugger | 23 Jun 2010
New York Times
JOHANNESBURG — Africa is often depicted as a place of war, disease and poverty, with a begging bowl extended to the world. But a new report paints a much more optimistic portrait of a continent with growing national economies and an expanding consumer class that offers foreign investors the highest rates of return in the developing world.

In a report released Thursday, McKinsey & Company, the consulting firm, presented a bullish message to companies, arguing that "global businesses cannot afford to ignore the potential."

"The growth we've seen in Africa recently is much more widespread than is generally recognized," said Arend van Wamelen, an author of the report based in Johannesburg for McKinsey, which advises domestic and international companies investing in Africa. "There are a lot of underlying good things going on in the economies."

The report, titled "Lions on the Move," includes an array of arresting facts from the firm's business and economics research arm, the McKinsey Global Institute. Since 2000, 316 million people on the continent have signed up for cellphone service, more than the entire population of the United States; Africa's billion people spent $860 billion in 2008, more than India's population of 1.2 billion.

From 2000 to 2008, African economies grew at twice the pace that they did in the 1980s and 1990s. Moreover, Africa was one of only two regions — Asia was the other — where the collective economy rose through the global recession of 2009, by 1.4 percent.

In a clear sign of the reorientation of the economic landscape in Africa, China has provided more financing for roads, power, railways and other infrastructure in recent years than the World Bank.

And in a sign of increasing security, the number of serious conflicts in which more than 1,000 people died annually declined to an average of 2.6 a year in the 2000s from 4.8 in the 1990s, the report said.

Many advocates for democracy, the poor and people with AIDS would probably offer a less rosy take on Africa's persistent struggles, but the authors of the McKinsey report contend that the continent as a whole has made solid progress on economic fundamentals.

Often, Africa's economic growth is seen as a result of the boom in prices for its wealth of natural resources — oil, gold, platinum and diamonds, among others. As an example of that, the continent's three largest oil producers — Algeria, Angola and Nigeria — earned $1 trillion in oil exports from 2000 to 2008, compared with $300 billion in the 1990s, the report found.

But the McKinsey researchers also concluded that rising commodity prices directly accounted for only about a quarter of the increase in economic growth in the 2000s.

Economic growth accelerated in 27 of the continent's 30 largest economies, resource-rich and resource-poor alike, they found. Those with great natural wealth grew at about 5.4 percent a year in the same period, while those not so well endowed grew at 4.6 percent.

McKinsey attributed Africa's economic expansion to rising commodity prices, greater political stability aided by a reduction in violent conflicts, improved macroeconomic performance and market-friendly economic reforms.

Africa's collective inflation rate fell to 8 percent after 2000, from 22 percent in the 1990s. Budget deficits declined to 1.8 percent of gross domestic product from 4.6 percent. A private sector emerged. Foreign direct investment surged to $62 billion in 2008 from $9 billion in 2000.

"Obviously, there are places in terrible shape," Mr. van Wamelen said. "We're not insensitive to that. But on the whole, if you look at the number of people who are destitute, those numbers are falling pretty drastically. The economic trickle down is there."

Some of the demographic trends praised in the report could turn out to be double-edged swords. By 2040, McKinsey projects, Africa will have 1.1 billion working-age people, more than in China or India. But even now, South Africa, one of the continent's most dynamic economies, is not growing fast enough to absorb all the young people entering the job market — or providing them with educations that would equip them for the workplace.

Indeed, the report notes that Africa has been getting many more children into school but that it needs to do far better at giving them a quality education.

The report also noted that Africa was urbanizing at a rapid rate. It now has 52 cities with more than a million residents, more than double the number in 1990 and the same number as in Western Europe. The report acknowledged that cities could produce miserable slums, but it also maintained that they increased worker productivity, demand and investment.

"If Africa can provide its young people with the education and skills they need, this large work force could account for a significant share of both global consumption and production," the report states.