(BUSINESS INTELLIGENCE BRIEF) It appears that there are two dominant schools of thought when it comes to the prospect of economic growth in Africa. There are the optimists who assert that Africa is on the verge of becoming the next big thing as far as development is concerned. They point out that Africa now has a total population that rivals that of China and assert the urbanization that has been taking place for the past decade has allowed the African population to provide the critical mass needed to bolster business. There are several politically stable African states that have been sporting growth rates that rival those of the Asian states. Additionally, Africa remains a destination where developed nations go for raw materials and exceedingly cheap labor. Pessimists are ready with a laundry list of challenges.
pause comes from the reality that more than a dozen wars being waged on
the continent to the fact that almost half the population of the
continent is in abject poverty, living on less than five cents a day.
They also point to the low education level, ongoing health crisis --
including AIDS, cholera, typhus, malaria, etc. - and rampant government
corruptions that leaves some nations generally too weak to defend their
positions when there is genuine investor interest.
are correct as far as they go. Africa is a place of stunning contrasts,
and there is both opportunity and threat for the global business
community. One of the key differences between Africa and the other
developing parts of the world is the focus of intense efforts to perfect
development and there has been a battle here as well. There are the
forces of aid and the forces of trade, and they are often at loggerheads
with one another.
The more traditional approach to African
development has come from the aid community and they have been active
for decades, funneling billions of dollars there. The notion is simple
enough - provide monetary and tangible assistance to the impoverished
nations so that they can advance with the basic building blocks of
society - an educated and healthy population that is lifting out of the
mire of pure poverty. Unfortunately a great deal of that assistance has
been wasted as governments have either fallen prey to corruption or they
just lack the capacity to handle the aid. Critics of the aid approach
have asserted that this builds a kind of welfare state dependency that
is akin to what happens with individuals who get stuck on the dole and
can never seem to break the cycle.
The problems of aid based
assistance gave rise to the theory that what Africa needed was trade
based assistance. If the Africans were encouraged to get engaged in
global trade, they would be able to emulate the success of the Asian
states that have used the export as their ticket to economic growth.
Both Europe and the United States tried to encourage trade with Africa
by reducing tariffs for goods made in these nations. It worked in a
fashion, but the impact has been far less than anticipated as there is
much more to participating in global trade than being able to dodge some
tariff barriers. The first rush of business to come to Africa after the
United States reduced these barriers was in the textile trade and that
didn't really work out the way planned. The Asian clothing makers simply
shipped in the cloth and used the local African workforce for assembly
work on cheap items that were then sent to West. It didn't do much for
the development of the African states, and it allowed the Asian
manufacturers to avoid the duties that had been imposed in the US and
Europe to control their exports. U.S. companies were further damaged by
the cheap competition while the African nations that had been the
intended target for assistance got little.
The ultimate solution
is for the African states to develop their own domestic economies to
the point that they can sustain the populations. This will take
additional aid in many cases, and it will require additional export
activity but moist of all it will require an environment that supports
the entrepreneur. That may yet be the single biggest barrier as the
majority of states in Africa are still judged to be the most difficult
environments for starting a business in the world due to heavy
regulatory burdens, inefficient bureaucracy and taxation that is uneven
and capricious. Add to this a lack of solid banking and business
security, and the challenge intensifies.
Chris Kuehl PhD, of Armada Corporate Intelligence, is NACM's Economic Advisor