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STANDARD BANK GROUP BOSS OUTLINES DRIVERS OF AFRICA’S ECONOMIC GROWTH

Posted on: 23 Jan 2012


A surge in population, rapid urbanization, the adoption and absorption of new technologies as well as the continued unlocking of abundant resources and the deepening of the continent’s financial sector are five prominent trends that will propel Africa’s on going economic reinvigoration  in the next four decades, according to Simon Freemantle , Senior Economic Analyst, Standard Bank Group, South Africa.

He made this declaration while speaking on the topic “the five trends powering Africa’s enduring allure” at the Nigerian-South African Chamber of Commerce’s October Breakfast Forum sponsored by Stanbic IBTC Bank.

Freemantle said that as the global attention shifts towards Africa and other emerging markets as centres of future growth, he unpacks the five economic trends that he believed will be crucial to the continent  continuation to realize its economic growth potentials.

However, he cautioned that while this potential is vast, central to the realization of commensurate socio-economic benefits is an appreciation, on the part of African stakeholders , of how pivotal and intensely valuable these opportunities are and to position accordingly.

In a similar development, he said that naturally, Africa’s sheer size, as well as often vastly differing economic and political dynamics within its largely fragmented markets, renders generalization problematic. However, the thrust of these trends is incorporating the majority of the continent’s emerging and aspiring economies.

The first trend is that Sub-Saharan Africa’s population is expected to explode to 2-billion by 2050, which will result in more than a fifth of the world population being African. He added that Africa’s population will become larger and more affluent. This major demographic shift, said provides an array of opportunities and challenges and the continent’s economic growth prospects will depend on it leverages the advantages.

“Two economic opportunities result from this seismic shift. First, when coupled with robust economic growth, population growth will support the emergence of the continent’s consumer base providing support for local firms, creating economic opportunities and inspiring foreign investment”.

Secondly, for countries to be able to provide the necessary institutional support, a youthful and rising population must have the potential to yield a demographic dividend which if leveraged, will inspire a new relevance to Africa’s services and manufacturing sectors-fundamentally altering the prospects of selected economies on the continents said the Standard Bank group, Economic analyst.

The other notable trend is that more than half of Africa’s population will be living in urban areas by 2030 as the continent’s economy continues to advance. By 2050, more than 60% of the 2-billion people expected at the time will be urbanized. This means that 800 million African will either migrate to or be born in urban areas in the next four decades.

He added that for some countries, this alteration will be particularly profound, Nigeria for instance will see 140 million new urban entrants in the next forty years. Also 14 African Countries including Nigeria, Angola and South Africa will be more than 80% urbanized. Mega-cities such as Lagos, Kinshasa, and Cairo are swelling thereby leading to mushrooming of Africa’s prominent commercial capitals.

“The link between economic growth and urbanization is clear and mutually-enforcing. Firstly given the benefits of agglomeration and economies of scale, urban-based enterprise are generally more productive and thus contributed a greater share of GDP, than the rural equivalents. African urban household incomes are more than double rural incomes. Urban poverty rates in Africa stand at around 35% compared to 52% for rural areas” said Freemantle.

The third trend is the mobile phones revolution, internet and social media usage in Africa are expected to continue to surge to record levels in the next five years as the continent’s people vigorously embrace communication technologies. However, internet connectivity still remains comparatively low–leaving room for growth, Africa still lags behind in internet usage. He added that mobile operators have expanded aggressively, examples are Airtel, MTN, and Vodafone telecommunications.

“The availability and affordability of mobile and broad band services can as it already has in key markets, support economic growth and provide one of the means through which Africa’s human capital advantage can become pronounced. The pace of change is likely to continue to be robust; those actors or players can be firms, development institutions or governments-approaching these alterations innovatively will be rewarded.”

The fourth trend is that with food to become the “new oil” of the 21st century, Africa’s agricultural output is set for explosive growth in coming decades as the continent’s largely untapped potential gains elevated attention.

While Africa is known for its dominant share in a number of core commodities, such as platinum, chrome and cobalt that are in great demand, agriculture is also expected to feature prominently as a key driving force in the continent’s resurgence.

“Regarding agriculture, the opportunities is immense. Though much is required and a collective inertia still in large part remains, there are increasing signs of how Africa’s agricultural fortunes is changing. There could be a doubling in African agricultural out within the next decade.

Demand for upstream products linked to the broader agri-business sector will also result, creating new economic opportunities for a range of African and international Enterprises” He said.

The final emerging trend is the growing importance and deepening of the financial services sector, in response to the continent’s altering economic reality. Mr. Freemantle said the growth effect of Africa’s deepening financial access is already evident.

Africa has forged a new macroeconomic path with the financial sector expansion creating room for host of new corporate champions. Although the European Union (EU) as a whole continues to dominate Africa’s trade, that dominance is receding, especially in imports: the EU now accounts for only a little over a third of the continent’s inward trade.

With new markets in which to sell their goods and alternative sources of financing, African countries have been able to lower their dependence on traditional partners in Europe and the US.

While China dominates in terms of sheer numbers, trade and investment with other emerging markets, such as Brazil, India and Malaysia, has also been rising sharply in recent years.

On the South African side SA’S big four banks have expanded northwards.

“Urbanization and rising incomes are bringing more people in reach of financial institutions and in so doing giving a formal identity to swathes of the continent’s young and aspired population.

Meanwhile technology and pioneering innovative business strategies are allowing the financial sector unprecedented reach. And Africa’s businesses are becoming increasingly attractive for local and foreign investors and as a result, Africa’s traditionally illiquid stock markets are growing and private equity funds are elevating in both size and stature,” Freemantle observed.

He also said that Africa’s economic portrait has altered dramatically, the growth rate between 2010 and 2011 is on the average, and the economic freedoms are drastically improving.

On a final note,  the chairman of the Nigerian-South African Chamber of Commerce, Foluso Phillips, tasked that all hands must be on deck in making frantic efforts so as to make Africa very attractive to the foreign investors and also commended Simon Freemantle for his thoughtful and inspiring presentation.