The apparent end to the commodity super-cycle has sent shockwaves across the global economy. It has sparked turbulence in world stock markets, put pressure on currencies, and fuelled major concerns about prospects for growth and the stability of public finances.
Africa has not escaped this pessimism. Questions have been asked about the continent’s economic future, with widespread fears that the remarkable gains of the last two decades could be reversed. The mood reminds me of the IMF/World Bank meetings I attended at the height of the Asian Financial Crisis nearly 20 years ago, when analysts were predicting the Asian miracle was at an end. They underestimated the potential of Asia then, and I believe the potential of Africa is being underestimated now.
As someone who led the African Development Bank for a decade until 2015 and witnessed first-hand the continent’s economic transformation, I believe Africa is much more resilient than this current knee-jerk pessimism suggests. Instead, I believe that if the right policies are put in place and well-targeted private investment continues, the continent’s progress will actually accelerate.
I am not suggesting that the rise in demand and prices for commodities has not been important for Africa’s economic progress. But the continent’s turnaround began well before the commodity bull-run.
The focus on commodities has downplayed the importance of other sectors such as IT and services. Recent statistical reviews of the economies of countries such as Nigeria and Ghana, for example, have shown the size and growth of these sectors have been consistently under-estimated.
Nigeria, of course, as a major oil producer, is among the African economies more heavily dependent on natural resource revenues. For these countries, tough decisions will be needed to find alternative sources of revenues. There may be short-term pain, but many countries have seen the benefits of such reforms in the past
The reality, however, is that only a very few out of Africa’s 54 countries are heavily dependent on mineral wealth. It is investment and growth in regional trade and consumer demand, which have been the main drivers of their growth.
These economies – which include Côte d’Ivoire, Ethiopia, Kenya and Rwanda – stand to gain from lower oil prices. They are already seeing less pressure on their balance of payments.
Even among the relatively few countries where mineral wealth is a major driver of growth, there are other factors which give reasons for optimism. In particular, Africa stands to gain hugely from its demographic dynamics.
Record numbers of young people will be entering the labour market in the next decade. This technologically engaged young workforce can become drivers not just of African but also of global growth.
The challenge is how we ensure we don’t waste this huge opportunity. Private capital has a crucial role to play.
In 2005, under my leadership, the AfDB took the decision to encourage private investment in the continent. As investors began to realise that risks – largely related to the cost of doing business – were outweighed by returns, we saw private sector lending grow rapidly from $500 million to $3 billion a year.
Intelligent use of private capital, such as private equity asset classes, can drive Africa’s next leap forward. Thoughtful long-term investment is needed to meet the continent’s energy and infrastructure needs. But it can also enable African companies to grow to seize the opportunities a fast-growing population will create, in sectors from education and healthcare to household utilities.
This is why I work with TPG/Satya, which is looking to partner with talented African entrepreneurs to help them build their companies. I have seen for myself time and time again the ability of Africans to innovate. Private equity can help play a transformative role on the continent by providing the capital to scale up and globalise African companies so they become household names across the world.
Africa’s future progress is, of course, by no means guaranteed. It faces plenty of challenges. But the answers are known, which include better regulations, predictable policies, modern infrastructure and deeper economic integration.
But provided these solutions are put in place and well-targeted private investment continues to flow, I believe Africa can look forward to a new and bright chapter. Far from the softening of commodity prices reversing Africa’s economic gains, I see a prosperous future built on real, sustainable growth rather than simply nature’s inheritance.