Africa is refuting the usual economic pessimism

Published by The Wall Street Journal (16th April, 2014)

The terrorist bombing that killed 71 people in Nigeria’s capital Monday morning abruptly turned attention from what had been remarkable news. Nigeria became briefly the world’s fastest-growing economy following an overnight transformation on April 6 when the West African nation discovered that its economy had almost doubled in size, with a gross domestic product of $510 billion in 2013. Africa’s most populous country suddenly also has by far the continent’s biggest economy (South Africa’s GDP trails at $384 billion) and has jumped 12 places in global rankings, landing just short of the G-20.

This transformation was achieved by the magic of statistics rather than by any economic miracle, based on the modernization of data collection. While most developed countries reset calculations of GDP about every five years to reflect changes in consumption, Nigeria had failed to do so since 1990. So previous figures excluded the explosion in mobile telecoms in Nigeria, despite 128 million subscribers, and a fast-expanding entertainment sector that is its second-biggest employer.

The gruesome bombing captured headlines, of course. Nigeria faces a grinding struggle against the Islamist terror group Boko Haram, the likely perpetrators of Monday’s carnage in Abuja. But it would be a shame if the explosion overshadowed the pace of change in Nigeria, which reflects a broader economic transformation under way in much of Africa.

For too long, a self-serving alliance of Western aid groups, politicians and journalists presented sub-Saharan Africa as a dangerously failed place in need of outside salvation. They offered only corrosive images of conflict, poverty and disease, leaving tourists scared to visit and making fearful businesses slow to engage. The real story is rather different: It includes the stuttering spread of democracy, impressive economic growth and a continent that now has more people who are overweight than go to bed hungry each night.

Nigeria, which accounts for one-quarter of Africa’s economy, underlines this complex new narrative. It is a remarkably entrepreneurial nation, perhaps one legacy of political failures and state inadequacies. The huge increase in GDP was largely driven by a thriving service sector and, increasingly, by manufacturing. Africa’s richest man, Aliko Dangote, is a Nigerian cement and food supplier. The oil and gas industries that traditionally propped up the economy contribute only 14% of GDP.

The country remains scarred by sectarian conflict, stymied by corruption and riven with poverty. Although Nigeria now has the world’s 24th-largest economy, its estimated 170 million people remain outside the top 100 in GDP per capita, and the rebased GDP figures reveal worryingly low tax revenues. But the superrich have made it Africa’s biggest market for private jets, and an emerging middle class fuels one of the world’s fastest-growing markets for champagne and cognac. Meanwhile, its dynamic movie industry, known as “Nollywood,” turns out 1,000 films a year and has the world’s third-highest revenues behind the U.S. and India.

Goldman Sachs predicts that Nigeria’s economy will be bigger than Canada’s or Italy’s by 2050—and not far behind Germany’s. And this is just one of 54 countries on a large continent that is home to six of the world’s 10 fastest-growing economies and the youngest population on the planet. The same rapid evolution is visible in Ethiopia, Ghana, Kenya, Mozambique or Tanzania. Already Africa has a bigger middle class than India, driving the consumer spending that powers this economic swelling. Contrary to popular conception, the majority of Africa’s most rapidly expanding nations do not rely on natural resources.

Smart multinationals are moving in fast on these lucrative new markets. Earlier this year, General Electric announced that it aims to double sales in sub-Saharan Africa during the next few years, and the company suggested that it could soon sell more gas turbines there than in the U.S. GE will join the alcohol and soft-drink companies seeing double-digit annual growth in Africa, the fast-food firms fanning out across the continent, and the hotel chains searching for sites from Angola to Zambia.

This changing commercial landscape was highlighted by GlaxoSmithKline which has just announced plans to invest $216 million over five years in several new factories. The move reflects the pharmaceutical industry’s growing interest in Africa, with its rising demand for treatments against chronic conditions associated with prosperity. As infant mortality plunges and infectious diseases are restrained, noncommunicable diseases such as cancer and heart conditions are expected by the World Bank to account for almost half the continent’s deaths within 15 years.

Yet as millions of households gain discretionary spending power, they are confronted by poor public services and the paucity of pensions. As usual, capitalism and consumerism are driving change. Prudential, the British insurance giant headed by an African-born chief executive, recently bought a Ghanaian group that provides protection to people living on less than $2.50 a day. In Kenya and Nigeria even poor parents often opt for private teaching rather than rely on second-rate state schools, undermining all that aid-lobby boasting about free education. African geeks are coming up with technological solutions to circumvent problems such as poor infrastructure, counterfeit medicines and the lack of banking services. Some of the solutions, such as Kenya’s famous mobile-money system, M-Pesa, are worldbeaters.

Surveys by Ernst & Young and other organizations have shown that investors already in Africa are overwhelmingly positive, while those without a presence there display the pessimism still prevalent across the West. I recently suggested to the chief executive of a British Premier League soccer team that the club become the first to tour West Africa and exploit the region’s phenomenal passion for his sport. He laughed, saying the team would need an army for protection; his myopia is sadly all too typical.

Even if the overnight expansion of the Nigerian economy was a statistical quirk, there is nothing illusory about the rapid growth and rampant change across the continent. Profound problems remain, as in other parts of the world—but much of Africa stands on the brink of takeoff comparable to China’s. Those who fail to see this are likely to regret their anachronistic attitude.

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