Africa's Emerging Market Boom
11 March 2014
These days, the mere mention of emerging markets is probably enough to make investment bankers break out in a cold sweat. Recent darlings of the investment world-India, Brazil, Turkey, Indonesia, Russia and others-have all stumbled, in part as a result of the US Federal Reserves decision to dial back its economic stimulus. Yet African markets appear more buoyant relative to their emerging market peers.
Currently home to five of the worlds dozen fastest-growing economies, Africas comparably strong performance over the past five years is about more than commodity supercycle and the boon of debt relief.
Improved macroeconomic management has played its part, and increasingly, so has the rise of the African consumer. A growing middle class concentrated in urban areas, coupled with a youth bulge across the continent bolster the case for Afro-optimism.
But if there is cause for optimism, there is also reason for concern. Africa is home to most of the worlds least competitive economies. Underdeveloped infrastructure, persistent inequality and flagging job creation in the face of steady population growth pose considerable challenges. And the governments that must address them will face the scrutiny of a public that is better educated and informed than previous generations.
As detailed in Control Risks recent RiskMap report, the middle class is less a force for change in sub-Saharan Africa than in other regions. The more politically releva nt group is at the lower end of the income scale, with the poor still making up the majority of the population and increasingly concentrated in urban areas with greater capacity to mobilize against unpopular policies.
Over recent years, unrest has tended to erupt in response to unpopular reforms, such as removal of fuel subsidies in Nigeria, utility tariff increases and other service delivery issues or, in countries where organized labor is strong such as South Africa, wage negotiations.
Near-jobless growth combined with rising inequality also presents a deeper challenge to the legitimacy of leaders, as events in North Africa over recent years amply demonstrate. Frustration and resentment over inequality and elite corruption are sources of political headwinds, particularly around elections.
Anti-corruption narratives resonate strongly with certain segments of the electorate and can change the status quo, as seen in Mozambique with the rise of the `third party Mozambique Democratic Movement over the last five years.
One sign of progress across the continent has been that these political tensions are less likely to spark armed conflict than they might have been in the past. The continent has experienced far fewer conflicts, and casualties, over the past decade than in preceding years.
With a few notable exceptions, most politicians appear more likely to mobilize political protests rather than paramilitary campaigns when contesting unfavorable conditions. Political violence remains a risk, but managing it will require more nuance than it once did.
Overall, the continent is bristling with potential and tempered by a complex combination of economic and political risks that will make unrest more common and political trends harder to read. Nations that can successfully navigate the difficult terrain will prosper-as will investors who can do the same.
Africas growth forecast for the next decade is brighter than most other regions, and countries that can diversify and build flexible labor markets while managing expectations will have particularly positive stories to tell. But it will almost certainly be a bumpy ride. The companies that succeed will most likely be those that can tailor their risk management strategies to specific business activities and local contexts.