Africa: potential, challenges & risks–Q&A session

This Economist Intelligence Unit webinar was presented by the Regional Director for Africa, Pratibha (Pat) Thaker on Wednesday, April 4th, 2012.   The following are my notes from the Q&A session held after the webinar.

1.  What is prospect for increased regional cooperation in the future?

Regional trade is increasing; prospects are good for future, provided progress is made in infrastructure, regulation, and political commitment by member countries.

2.  To what extent has current prosperity in Africa been built on current commodities supercycle?

To be sure, Nigeria, Angola, and Ghana are the key drivers of continental growth related to oil, and this growth has been stimulated by the commodity price bubble.  However, there has been a diversification into non-oil and natural-resource based growth in the past decade as well.   This diversification has been supported by governmental reforms and private development.

3.  Why is China so heavily invested in Africa compared to Western countries?   Is it driven by oil and natural resource consumption?

China is an important part of Africa’s economic story today.   China’s investment in oil and natural resources has gone on for the past 14 years.   It is one of the largest investors in every region of Africa.   Even the last global downturn in 2008 did not affect this relationship.   However, since 2008 the investment in manufacturing has tremendously increased.   The investment in natural resources is driving investment in infrastructure and the investment in manufacturing is driving investment in skills.

4.  What are the top investment opportunities in Africa?

There are investment opportunities in infrastructure, natural resources, and services (health care, retail, and finance).   The fastest growing opportunities (besides natural resources) are health care, retail, and consumer goods based on the increasing level of urbanization and the growth in the middle class.

5.   What are the long-term challenges for Africa with respect to politics?

Demographics is the biggest challenge:   rising young population will have increasing economic expectations of growth, jobs, and quality of life.  If governments and corporations cannot deliver on these expectations, that will be a huge challenge.

6.  What are the effects of human rights concerns on economic development?

Treatment of local labor issues is important for governments; for example, in the mining industry in Zambia, this was one of the key electoral issues in the last election.   Treatment of local workers has been brought up by various international human rights groups.   Governments are concerned; they need investment and money to make sure development takes place, and they do not have organized unions like in South Africa, but they face pressure from the people not to tolerate abusive treatment of local workers.

7.   Has there been a movement from microfinance to more formal banking structures?

The opportunity for growth in banking is large:  as economies grow, services sectors grow, and most of the people in Africa do not keep money in banks.   Microfinance is growing, but won’t be replaced by traditional banking for at least the next 5 years.

8.  What is the prospect for long-term political stability in Africa?

There are countries where political risks are high, but in general there has been a change in quality of leadership, with fewer coups.   There has been a greater consistency of government; and improvement in governance.  Ghana is good example of how good governance has shown benefits to economy.   However, corruption remains a problem across most of the country.  It remains a major deterrent for investment.   The most unstable area of Africa is probably Somalia, which is a risk to all of North Africa, particularly Kenya.   Regional security in North Africa is an ongoing concern.

9.  How are governments increasing the skill level of the workforce?

Quality of labor market depends on quality of education and training.  Besides infrastructure, the lack of a highly skilled workforce is of most concern to investors, particularly those in manufacturing.   Governments are concerned about this because they want to attract investment, and therefore are allocate increasing amounts of money to improve education.

10.  How has investment in agriculture improved?

It has been growing, but from a very low base.   Only 10% of the agricultural land is being cultivated at present.   Ethiopia is an example of a country where investment in agriculture has paid off.

11.  How are governments developing a tax mix between income, corporate and indirect taxes?

As part of reform programs from IMF and World Bank in exchange for debt relief in 2007 and 2008, better fiscal machinery was required.   Much of the fiscal revenue was dependent on taxation from natural resources.   This will have to shift to corporate taxes, but the shift will not happen overnight; it will take a decade.


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