With the recent oil slump and reoccurring wars in Burundi and the Democratic Republic of Congo (DRC), much attention has been placed on the riskiness of investment in Africa.
In recent years investment in Africa has risen sharply. Large oil reserves in Angola and Nigeria, China’s incessant need for resources and Africa’s emerging middle class has caused investors to plough millions into everything from mines to shopping malls.
However, the current economic climate is not so positive. April has seen oil prices slip to just $42. Talks focussed on reducing oil output to protect prices in the long-term between the worlds leading oil exporters, Iran, Saudi Arabia and Russia, also broke down this month. This slump is impacting on the world’s global economy. Africa’s two largest exporters, Nigeria and Angola, are already feeling the financially strain of reduced oil prices as 90% of their export earnings derive from oil. Reduced oil prices will also severely deter investment. The Economist predicts that the IMF will have to offer bailouts by the end of the year.
Politically, there are also some worrying developments. Most democratic elections in Africa now end in peaceful government transitions and are much less likely to be rigged, ensuring that Africans can actually vote for what they believe in. However, in Burundi and DRC, the attempts of their leaders to remain in power, a recurrent theme in Africa’s history, has plunged the two countries back into war.
These trends cause investment to flounder and trade to drop. The World Bank claims that trade has slowed by 16% across Sub-Saharan Africa and growth will be a mere 3% this year.
But is Africa really a lost cause? Firstly, as The Economist again points out, Africa is a continent that contains 54 countries. To claim that Africa is not worth investing in is a huge generalisation that ignores Africa’s economic, cultural and political diversity. Nigeria and Angola’s economies may be slowing, but countries such as Ivory Coast and Kenya are still growing quickly.
Moreover, Africa’s mines and oil are not its only potential resources. Africa has one of the largest young workforces in the world with the median age being 25. They are also better educated and much less likely to die young thanks to declining rates of violence and diseases, such as HIV. People are also richer. Investment in mobile phone technologies that allows people to use mobile banking and therefore save and invest has contributed to this.
And despite the violence that continues to rage in Burundi, DRC and Somalia, political instability is far more unusual and efficient governments much more common. Countries, for example Tanzania and Nigeria are leading the way in reducing corruption to ensure good governance.
If Africa continues along this path, this richly resourced continent will undoubtedly continue to tempt global business to invest. However, to reduce the shock of global economic decline, Africa should also look to increase its internal earnings. This can be achieved by focussing on the perpetual issue of minimal taxation, as well as the lack of roads and infrastructure that prevents African countries from trading with one another.
If Africa strengthens internally, the changeable nature of Africa’s economic success could become less volatile. Likewise, foreign investment will become more constant and phrases such as ‘lost cause’ a well-deserved thing of the past.