The Star (Nairobi)

19 January 2013

Africa: What Is Really Going On in African Countries

opinion

I'm generally not so interested in the spate of the recent 'Africa Rising' stories. Not because I wouldn't want Africa to rise - world peace and cake for all are an eminently desirable.

But there are a lot of stories that seem driven by an almost patronizing 'Look, how astonishing, something's actually working in Africa!' sentiment (ICT sector variant: 'Look, Africans with laptops!'). There's almost a Western cottage industry generating 'good Africa stories' these days.

Even Oxfam recently jumped on that bandwagon when the NGO acknowledged that it wasn't all bad in Africa - turns out that Oxfam worried about 'Africa fatigue' with their donors who might not be willing to provide more funding if they felt that the continent remained a raging disaster (Tolu Ogunlesi didn't really warm up to Oxfam's new campaign that he described as 'a desperate bid to shift the world's attention from African Hunger, to African-Hunger-Backdropped-By-Stunning-African-Landscapes.').

But more important than this whole perceptions issue is the fact that Africa is, of course, a continent with many, many countries. It's useful to have overall data and trends, but those will still tell you little about what's going on in each country - and that's complex enough. An (African) investment banker friend, for example, described the upcoming Economist Africa Summit as 'generic stuff'.

So I found Rick Rowden's article 'The Myth of Africa's Rise' on Foreign Policy magazine an interesting read. Rowden does look at macro-developments, but he dug out some intriguing structural issues underneath the no doubt impressive growth rates of the recent years. In particular, he argues that much of the recent positive macro coverage has ignored the development (or, as it turns out, not) of manufacturing.

He points out the following data on industrialisation and manufacturing value added (MVA): '... despite some improvements in a few countries, the bulk of African countries are either stagnating or moving backwards when it comes to industrialization.

The share of MVA in Africa's GDP fell from 12.8 percent in 2000 to 10.5 percent in 2008, while in developing Asia it rose from 22 percent to 35 percent over the same period.

There has also been a decline in the importance of manufacturing in Africa's exports, with the share of manufactures in Africa's total exports having fallen from 43 percent in 2000 to 39 percent in 2008.

In terms of manufacturing growth, while most have stagnated, 23 African countries had negative MVA per capita growth during the period 1990 - 2010, and only five countries achieved an MVA per capita growth above 4 percent.'

And then there is this: 'The report also finds that Africa remains marginal in global manufacturing trade. Its share of global MVA has actually fallen from an already paltry 1.2 percent in 2000 to 1.1 percent in 2008, while developing Asia's share rose from 13 percent to 25 percent over the same period.'

Today, what exists as manufacturing capacity in Africa is heavily dependent on natural resource based manufacturing, betraying both a low level of economic diversification as well as limited technical sophistication.

I found this a very important point: In East Africa, agriculture still contributes a large share of GDP, and an even larger share of employment and income, both in the formal and, importantly, the informal sector.

But there are limits to how far smallholder agriculture can take people. And at least in its current state, growth in the agricultural sector is extraordinarily vulnerable to weather conditions: a drought has an impact on GDP growth, on incomes, on exports, and, because manufacturing is often agroprocessing, on the manufacturing sector as well.

In East Africa, there is a lot of excitement about extractive industries: oil, gas, mining. Extractive industries can generate massive public revenues that could, in principle, fund important investments in infrastructure, healthcare, education and other areas - but only if governments spend the money wisely (and no, state funerals and obese golden handshakes and fat cars and Karen McMansion loans for MPs don't count).

Just as importantly, extractive industries only generate very limited employment. They are typically not very labour intense to start with, and many jobs in that sector are highly technical and specialist.

Especially in countries with nascent extractive industries, those capacities simply don't exist (to start remedying this, Tullow Oil are now offering 144 scholarships for oil/gas related studies in their countries of operations).

Rowden says: 'Today many African countries need to use industrial policies, such as temporary trade protection, subsidized credit, and publically supported R&D with technology and innovation policies, if they are ever to get their manufacturing sectors off the ground.'

That suggestion has its own challenges: for one, trade protection may violate international and regional agreements. And then there is the ever present governance problem: I just read that amazingly, the Uganda Development Bank - intended for just such development purposes - incurred bad loans of more than UGX20bn (USD7.5m) due to mismanagement and fraud. And this is, of course, not really a new development.

Across the region, both power prices and supplies are a headache for the manufacturing industry. And so on. Even if the environment for doing business is now better than it was, say, ten years ago, it can still be incredibly difficult.

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