PricewaterhouseCoopers chief economist Lullu Krugel says South Africa and African countries have a three-year window to “move and shape” and take advantage of economic growth opportunities during a global economic upturn.
“There is positivity around the global economy and CEOs of companies are reporting that there is a unique opportunity at the moment to take advantage of this growth,” she says.
The World Bank’s global economic outlook and the International Monetary Fund indicates a positive trend in global economic growth confidence.
Additionally, Krugel explains that the World Bank indicates the window in which countries should take advantage of opportunities within the predicted expansion boom, will see a cooling down afterwards.
“At the height of growth, we expect African economies will expand by 4%, on average, despite the negative sentiment around Africa’s delayed development.”
Krugel deems it necessary to change engineers’ view of African expansion and not compare it with Asian expansion, for example. “The economies [in Africa] that are successful, are developing in a different way and changing the perception around how things should be done.”
For example, the fastest growing economy in the world over the last 20 years has been Ethiopia, says Krugel. In 2008 and 2009, the size of South Africa’s economy in relation to Ethiopia’s economy was 50:1. Over the last ten years, that ratio has narrowed to 6:1, showing what compound interest growth can achieve.
“It will take 30 years for Ethiopia to become the biggest economy in Africa, alongside Nigeria, should South Africa not achieve a higher growth rate in the meantime.”
However, Krugel is positive about South Africa’s economic growth prospects – predicting that even 4%, compared to the general prediction of 2.5%, growth is possible if certain stumbling blocks are overcome.
Krugel notes that a different thought pattern is necessary to determine and take advantage of the opportunities that are available in Africa now. For example, there are between 300-million and 500-million people in Africa that are moving into the middle class, which is good news, but it means that more than half of those people are barely out of poverty.
“Therefore, when we want to do business on the rest of the continent, we need to keep that market in mind.
“People moving into the middle class base will need infrastructure, food and other basic essentials of life, but it will require creating the market first and understanding how we can help stabilise this middle class on the continent to then create a market for certain products and services,” she explains.
Krugel cites a World Bank market research survey ‘Africa’s Pulse’, which, most recently focused on infrastructure, specifically electricity infrastructure. One of the key points found was that only two energy utilities on the continent are currently profitable, with the rest at break-even or making a loss.
She says this shows that engineers and developers do not necessarily understand how to address demand in African countries. “People are not using electricity the way that we thought they would. For example, people first need to buy fridges before they are able to use the electricity.”
African industrialisation studies undertaken by the United Nations University note economic growth drivers to be “industries without smokestacks” – industries without large physical infrastructure such as massive manufacturing plants that one would typically expect, says Krugel.
“The typical thing economists expect to see around development in a country is moving from the agricultural and mining sectors on to manufacturing and then services.
However, expanding economies in Africa are not following that footprint. “These countries are following industry development that has similar characteristics to manufacturing, but it not necessarily the same kinds of industries,” explains Krugel.
For example, in Ethiopia, tourism has ensured economic growth and job creation.
The global average contribution of tourism to gross domestic product (GDP) is 9%, but on the African continent, despite world-class tourist attractions, the average tourism contribution to GDP is 3%.
Anotther industry that contributes to growth without needing massive amounts of infrastructure is information and communication technology, as is agroprocessing.
“Agriculture is starting to change from subsistence farming to commercial farming. The countries where agroprocessing is successful realise they lack infrastructure and are, therefore, treating groups of farmers as commercial entities – giving them access to logistical infrastructure, manufacturing and processing infrastructure through special economic zones and thereafter giving them access to the market,” comments Krugel.
She adds that perhaps South Africa should think differently about its own demand as well.