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Amid headlines declaring Africa the new frontier for investment, experts wonder how long it can last.
Michael Moran is co-author of "The Fastest Billion: The Story Behind Africa’s Economic Revolution."
MANAMA, Bahrain — “Africa Rising” shouted the cover of Time late last year. Proctor & Gamble’s CEO, Bob McDonald, in global retail a figure akin to the pope, dubbed Africa “the next frontier” in a January speech.
“It surprises me many US investors don’t realize the opportunities this creates, [with] some African stocks gaining 15 percent to 20 percent returns,” he told an investment conference.
“The hopeful continent” was the verdict from The Economist on its cover in December, going so far as to write an apology for dubbing Africa the “hopeless continent” on a cover 10 years prior.
“We have lots of work to do, but today Africans are making progress across the board, and the world is beginning to notice,” says Fred Swaniker, a Ghanaian born entrepreneur who now runs the Africa Leadership Academy.
And yet, in spite of a decade in which many sub-Saharan African countries have grown at 6 percent and more, wariness persists, and not just among Western hacks eager to write self-aggrandizing stories of misery and famine in far off lands.
For all the tales of new gas and oil discoveries, and for every genuine uptick in statistical measurements of fiscal health, governance, GDP growth and human development, the fact remains that Africa suffers from acute infrastructure, ethnic and “human capital” problems that will take a generation to solve.
“Are there profits to be made in Africa,” asked Martyn Davies, CEO of Johannesburg-based Frontier Advisory, a consultant on emerging market investing. “But the largest non-government employer on the continent is still G4S,” the giant American security company that supplies armed security for companies operating in dicey areas.
Davies and several dozen other Africa hands from the academic, military, corporate and financial worlds, gathered here under the auspices of the UK’s Institute of International Security Studies to poke and prod a bit at sub-Saharan Africa’s place as investor darling. In two days of intensive, sometimes emotional debate, these experts — many of them African, many not — debated whether the hype is justified.
Indeed, many of the opportunities that Western and other companies are pursuing on the continent underscore the lack of local capabilities. Shakir Merali, a partner at Nairobi-based investment group Aureos Capital, notes that filling the gap between local needs and what local governments can provide is a thriving market. This includes health care, education, banking and other services.
“The good news is that there is a growing middle class population with disposable income that is demanding these things,” he said. “But in the long run it raises the question: Can the boom continue if local government’s can’t — or won’t — provide the basics?”
As in many such exercises, the answers are mixed — and the ultimate outcome will rely on so many variables that any attempt to broadly generalize is fated to fail. For every positive — the peaceful transitions of power in an increasing number of young democracies, the falling infection rates for HIV/AIDS, malaria and fewer deaths caused by warfare, old specters like corruption and a terribly underdeveloped infrastructure will test the boom’s staying power.
The recent discovery of gas and oil deposits in East Africa, rightly portrayed as potential game changers in Uganda, Kenya, Tanzania and Mozambique, could equally turn out to be a curse. Besides the well-documented risk that political elites vacuum up any revenues such finds produce, Ken Menkhaus, an East Africa expert at Davidson College in North Carolina, said that internal and cross-border tensions could lead to conflict as the gas and oil start flowing.
“The sad fact is that many of these resources are located in ethnic buffer zones or on national borders,” he said, noting that if the continuing resource-fed violence in the Democratic Republic of Congo is any guide, the region could be in for a series of petro-conflicts.
Several took issue with this dark scenario, including David Zounmenou, a researcher at IISS. “I think Kenya, with its central position geographically, has the leverage to make sure all these parties' issues are satisfied. This is a potential windfall for the whole region, after all.”
But others warned that the vast and growing population of sub-Saharan Africa — projected to reach 2 billion people by 2050 — will not be impressed for long by stories of GDP growth and what might be.
“How long will our young people be patient?” asks Olusegun Obasanjo, former president of Nigeria and now a United Nations' special envoy for Africa. “GDP growth does not translate automatically into job creating,” the former general warned, “or into alleviating poverty, or satisfying youth. We must satisfy our young people.”