How Does Africa Look Now?

When we first launched this blog about 9 months ago, the first piece we put together - while the global economic situation was still fairly optimistic, mind you - made the case for “Investing in unfamiliar territory” by listing 10 compelling reasons that investors should consider Africa much more seriously. Then in September, I blogged about an IMF report that compared the economic prospects of a group of Sub-Saharan African (SSA) countries (largely the same group in which RENEW currently does business) to the position of East Asian economies in the 1980’s, just before their growth took off. The comparison was striking - but does it still hold? The financial sector has undergone major shocks since last summer. What are we to make of Africa as a destination for investment dollars, these days?

Well, this is not a light and heady time for African economies - or businesses - to be sure. Almost a decade of consistently strong GDP growth in SSA has been snatched away by the global downturn; credit is tight and leaders in all sectors feel the pressure.

But financial crises have a funny way of upsetting conventional wisdom in ways that periods of growth and prosperity cannot. Many SSA countries may have been posting impressive year-on-year growth, but that didn’t seem to be enough to catch Western investors’ attention while other options closer to home beckoned - with ultimately illusory returns. Now that Western markets are in upheaval, business analysts are taking a more serious look at Africa.

On the heels of fresh, powerful critiques that question the long-term value of foreign aid to Africa and champion a business approach (see former Goldman Sachs economist Dambisa Moyo’s compelling new book, “Dead Aid,” and her Wall Street Journal summary article, the Harvard Business Review included a piece titled Now’s the Time to Invest in Africa in its Breakthrough Ideas for 2009. Just this week, Time ran its “What’s Next 2009″ feature; sure enough, it includes a strong case for investment growth in Africa titled Africa, Business Destination.

The conclusion these articles draw is not that while Western markets languish in uncertainty, Africa has become the new safe-haven. The continent still struggles in many areas. But global economic crisis has cast in stark relief just how much African economies will grow during the next decade, even in the face of worldwide recession. That doesn’t fit with typical Western expectations of Africa. Time quotes IMF senior advisor David Nellor:

“The private sector is the key driver,” wrote Nellor, “and financial markets are opening up.” War is down. Democracy is up. Inflation and interest rates are in single digits. Terms of trade have improved. "Crucially,"* said Nellor, “growth is taking off.” The IMF puts Africa’s average annual growth for 2004 to ‘08 at more than 6% — better than any developed economy — and predicts the continent will buck the global recessionary trend to grow nearly 3.3% this year.

The Time article, as well as Dambisa Moyo’s article in the WSJ, outline a host of other reasons to take a truly business-led approach to Africa, not least because of the social and civic dividends in accountability, dignity and long-term sustainability that business-led grow will yield. But for our purposes, let’s take a step back and be clear: Africa’s economies, driven by the growth of private businesses, are still growing at a time when Western economies are shrinking. Imagine what these businesses are capable of achieving once capital markets and consumers around the world come out from hiding.