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How is Africa Doing? The Positives and the Challenges

Posted By Guy Pfeffermann, Monday, April 29, 2013
Updated: Tuesday, April 23, 2013

Guy PfeffermannThis month I talked about Africa at Chicago’s Booth School of Business, a GBSN member. So I thought I would put on my development economist hat and take a fresh look at the continent – meaning Sub-Saharan Africa. Nothing about management education this time around.

Things have definitely improved, especially since world commodity prices started soaring around 1995. There is so much exuberance about Africa that a recent issue of "This is Africa” is entitled "Over-hyped? Competing narratives on the African growth story”. I thought it might be interesting to compile two lists: what I see as positive factors and the challenges.

Let’s start with the list of challenges:

In spite of its enormous size and population, Africa is small economically, accounting for less than 2 percent of the world economy. Three economies – South Africa, Nigeria and Kenya – produce more than half of Africa’s GDP. On average, the other countries have small markets – the size of Albania or Cambodia or about $ 10 billion. As there is little inter-African trade, incumbent firms tend to dominate each of these small markets.

Poor infrastructure increases costs. Shipping a car from China to Tanzania costs $4,000, but getting it from there to nearby Uganda costs another $ 5,000. Forty percent of produce trucked into Lagos spoils in transport. Power shortages are daily occurrences. For businesses, energy adds up to 10 percent of total costs, compared to 3 percent in China. Labor costs are high by international standards in relation to productivity. Partly because of this, Africa has the world’s lowest share of manufacturing, and it continues to decline.

While some public institutions have improved, corruption is pervasive, as evidenced by recent Transparency International and African Development Bank surveys. This is a drag on property rights and law enforcement. Public education systems yield very poor educational outcomes.

Last, but not least, Africa’s economies are more than ever vulnerable to drops in commodity prices (i.e., the economic health of OECD and BRIC countries).


Map of Africa with other continents fitting in it



Fortunately, there are lots of positive developments as well:

Growth has accelerated from only 2 percent a year in the 1980s (when population was growing by 3 percent a year) to 5 percent in this century. At this rate Africa’s market will double in about 12 years. Macro policies have improved greatly, and inflation is no longer a major concern. The volume of oil and other mineral exports keeps growing.

Private capital inflows, including public and private investment from China, now exceed foreign aid, putting Africa on the desirable path of "development without aid dependence”. Private capital is flowing into a whole range of sectors: telecommunications, banking, tourism, construction, health and education facilities and, importantly, because they generate a lot of employment, agri-business and retail shops.

Perhaps more than any other factor, the spread of mobile phones has transformed Africa, bringing several hundred million persons out of isolation. As internet connectivity improves, the next wave of innovation is underway with the increasing spread of smart phones. This revolution has begun to transform retail banking, health and agricultural services. Education will be next in line – including business and entrepreneurship education.

To end on a cheerful note, the University of Michigan’s World Value Surveys asked persons in some 80 countries: "Taking all things together, would you say you are: 1.Very happy, 2. Rather happy, 3. Not very happy, or 4. Not at all happy?" Nigeria topped the list! On the broader ranking of "subjective well-being”, Nigeria ranked 19th, wedged between Sweden and Norway.


Guy Pfeffermann is the CEO and founder of the Global Business School Network.  He served as a development economist for the World Bank Group for 40 years, including 16 years as the chief economist of the International Finance Corporation.

Tags:  Africa 

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