The Demographic Dilemma – Africa’s economic growth under the microscope
16 January 2014
by J Brooks Spector
Only a few years ago Africa was labelled the hapless continent, a result of an era of colonial exploitation that was followed by decades of kleptocratic rule, civil wars and worse in many nations. Then, surprisingly, the popular narrative switched – it became a story of Africa rising. This catch phrase was everyone’s lips - and even on the covers of such usually-sober journals as The Economist. But, has the pendulum begun to swing away from an irrational exuberance for the continent’s future? J. BROOKS SPECTOR attended an African business futures conference, organised by the Frontier Advisory organisation, to attempt to glean some clarity on the question.
To hear co-CEO of Standard Bank Sim Tshabalala tell it in his typically understated way, speaking the tones you wish your bank manager would use in dealing with you, he remains rather bullish on Africa. Increased economic growth in Europe and America in the coming year (as well as the continued Chinese procurement of commodities to fuel its economic boom) would help trigger further growth on the continent but most of the flags seem to be pointing the right way.
However, downside risks to growth for Africa do remain. These include the possibilities of financial contagion from the still on-going, slow motion Euro zone crisis, a “talent war” that puts Africa at a disadvantage in bidding for the scarce professional skills that re crucial for economic growth, the growing risks of cyber crime, and a requirement that the financial sector needs to innovate so it remains relevant to the needs and demands of clients – especially the previously unbanked - on the continent.
Speaking more directly about his banking sector, Tshabalala argued the banks in Africa must find innovative ways to service growth – offering home loans in environments where deed registries, for example, to measure ownership and risk, are neither standard nor complete. And most importantly for the financial sector, given the enormous – and still-growing – presence of mobile smart phones, banks that can capitalise on cell phones for the fullest possible range of banking activities will be the winners across the continent going into the future.
But if bankers are looking at Africa and seeing a half-full glass, Jay Naidoo, the international social activist, former South African cabinet officer, and veteran Cosatu organiser from the Apartheid era, peppered the audience with the potential dramas of a glass that is half empty – and that has a possible hole or two in the bottom to make things more difficult. Naidoo’s contention was that while African growth really is impressive, nonetheless, “if [there is] no strategy of shared growth, it will explode in our faces.”
Naidoo then spoke of a ticking demographic time bomb for Africa – but one that can cut two ways. Roughly half the continent’s population of a billion people is under 19 and in less than a hundred years, half the world’s young people will be Africans. And they live, now, in a world that contains hundreds of millions of cell phones that are changing everything.
Naidoo made it clear that this explosion of young people was not just a negative - it could also be a major economic benefit. A population that is disproportionately young and vigorous (and employed) sustains economic growth – as it spends on the goods and services such people desire - and their economic efforts counter the drag of supporting the needs of the elderly in society.
But of course this will only true if they can find jobs or can create their own remunerative work. But if they can not, then the balance shifts and it becomes a demographic time bomb in which African societies will consist of a vast pool of young people, most of whom will be unable to fulfil their ambitions and with continually growing frustrations. Naidoo argued education is a primary pathway to placing the young on what he called “the ladder out of poverty.” But education can’t simply be an education for how to look for a job, rather than a means for people to create their own wealth.
For Naidoo, the way onto that upward ladder is not simply training young people to find that elusive but good government job. There is a health care services deficit of some 1.5 million jobs across the continent. And on a continent with about half the world’s remaining good agricultural land yet to be commercially exploited, Africa has enormous opportunities ahead here too, but only if the educational system can provide entrepreneurially minded agricultural producers with the skills to be competitive internationally. But at this point, only about 2% of the continent’s university graduates eventually specialise in agriculture. And this is despite the fact that agricultural products represent about a quarter of the continent’s GDP. The task ahead, here, is how to move from traditional subsistence agriculture to agriculture being a major income generating sector – and thus one where women can much of the gains so they can put their earnings into future-oriented spending like education for their children.
Returning to his larger topic, Naidoo said that while it is clearly true that for some African countries, economic growth is improving their lot, it is the bottom tier where those states are imploding inward instead. Moreover, while it is similarly true that inter-state conflict is receding as an African condition, intra-state conflict is growing.
Moreover, there is a false dichotomy between two economic models, the mainstream prescriptions for economic stability, the so-called ‘Washington consensus’, and the governmentally determined developmental state, something he called the “China consensus.” Instead, Naidoo argued that it must be up to the continent’s people and governments to define what it is they want out of their economic futures. “What is Africa’s agenda?” he asked.
At this point, Naidoo argued another key, real challenge for Africans is to be robust in their defence of democratic gains and to change the prevailing ethos of government civil servants and their leaders to one of service to citizens. And here, the role of the civil society sector is crucial in putting flesh on the bones of the democratic project – generating pressure on governments to perform and carry out the functions they are supposedly designed to do.
Following Tshabalala and Naidoo’s scene-setters, there were three panel discussions. The first spoke to the question of consumer behaviour in a growing Africa, the second discussed the security and governance outlook for the region, and the third weighed the financial future of the continent in the coming year.
In the consumer behaviour panel, the head of an Australian high-end consumer goods company, Busby, was joined by the South Africa head of L’Oreal, as well as the chief economist of a major bank. David Hughes of L’Oreal insisted that his company was particularly bullish on African consumer demand growth – so much so they were going to establish a research and development centre for the continent in South Africa as part of their expanding operations in Africa. A continent of young people eager to join the middle class and try out fancy cosmetics – sounds like a match made in heaven, doesn’t it?
Meanwhile, David Miller of Busby, the Australia-based clothing and accessories conglomerate, pointed to the fact that by 2030, disposable income in Africa would rise to a trillion dollars as close to half of the continent’s people finally enter the middle class – and that middle class would have three fourth’s of the continent’s total disposable income. As a consequence of such income shifts, his company is already finding that big markets for his company’s products are in countries like Angola – the site of so much new oil wealth and people eager to enjoy the fashionable, nicer things of life.
Dennis Dykes of Nedbank then noted that the wellsprings of the economic shift now washing over the continent started, surprisingly, with the major debt forgiveness measures of a number of years ago, debt forgiveness that took place in exchange for a range of conditionalities on government finance and economic policy. Then, the shifting terms of trade – for example, the rise in Chinese demand for commodities and the shift downward of manufactured goods prices (as a result of new producers like China) - contributed further to the growing prosperity on the continent. Dykes did note that some possible developments could well cloud the rosy picture. The effects of climate change on Africa could be a real game changer for the worse. And the policy of slippage on financial management by the various governments could also significantly change the picture in a negative way.
As the discussion moved to security and governance, with Fred Swaniker of the African Leadership Academy, Wits academic William Gumede, Sivu Maqungo of the Institute for Security Studies, and Tiaan van Schalkwyk of Deloitte’s, the panellists essentially agreed the security environment is better than a decade or so before, but that the effective institutionalisation of government services remains at risk in Africa. Van Schalkwyk, especially, noted that the very progress derived from the growth in mobile phone-driven connectivity can also contribute to fraud, corruption, sustained attacks on citizen privacy and larger social instability - as well as economic benefits.
By the end of the day’s proceedings, Sola Mahoney of ABSA Capital, Konrad Reuss of Standard and Poor’s, Christopher Cameron of Deloitte and Charles Okeahalam of the AGH Capital Group discussed the financial outlook for Africa in 2014. Among this group, the consensus emerged was that there might be increasingly stormy financial weather - once the days of really, really easy money begin to recede, once the US Federal Reserve Bank tapers off with its quantitative easing in the coming months. Almost as an aside, Reuss from Standard and Poor’s reminded the audience that their rating of South Africa would continue to be negative. Ouch.
Summing up, the speakers and panellists were battling over two different ways of evaluating the continent’s economic future. On the one hand there is the conventional focus on the broad-gauge measure of economic growth as a measure of progress - and as a way of measuring risk and supporting investment decisions. On the other, there is the understanding that creating jobs and employment is the crucial element of putting the continent’s growing reserve of young, would-be earners to work.
On this latter point, asked if the continent’s demographic dilemma was that there was a rapidly growing number of young people in Africa that equals both great opportunities and real risks for the continent, Martyn Davies of Frontier Advisory, responded, “Yes! More risk, I’d say!” The challenge, then, is for the governments on the continent to figure out how to make growth synonymous with growing employment, rather than simply being a measure of increased investment in increasingly efficient factories, farms and harbours across the continent – but using less and less labour for each unit of output.
In the coming weeks and months, the writer is prepared to wager a nice lunch that the economic and business futures conferences taking place in South Africa will begin to embrace this conundrum, but that the answers to this problem will continue to be hard to come by.
Daily Maverick