Can Africa become the next big economic success ?

Africa is urbanizing at an alarmingly fast rate, nearly twice the rate of China. According to the African Development Bank, over five hundred million people will move into Africa’s cities in the next thirty-five years. Nigeria’s commercial capital, Lagos, is urbanizing at a rate quadruple the global average. Urbanization has had a tremendous effect on increased productivity. It has reduced transaction costs and increased access to more educational, medical and sanitation facilities.

Can Africa become the next big economic success ?
* Africa needs infrastructure development to match urbanization rates
* Africa needs education to increase and match its growing population
* Africa needs to leverage new technology that can enable it to leapfrog over gaps

Rapid Urbanization + insufficient infrastructure investment = Giant urban slums

In 2009, a World Bank Analysis indicates that Africa needed $93 billion per year to fill the infrastructure gap In 2015, a study tracked a surge in funding for Africa. The key finding is that, despite the progress in raising fiscal revenues, sub-Saharan African countries need to raise more domestic finance—and more generally create fiscal space—to meet the infrastructure gap. While tax revenues to GDP have increased across sub-Saharan Africa to over 20 percent more recently, this increase is mainly attributable to the resource-rich countries. However, tax revenue to GDP varies across the board—ranging from 25 percent in South Africa to 2.8 percent in the Democratic Republic of the Congo. In addition to raising tax revenues, sub-Saharan African countries have increasingly accessed international capital markets with 13 countries issuing $15 billion worth of international sovereign bonds since 2006.

While financing flows seem to be relatively well-distributed across countries and sectors, infrastructure needs and financing options at the sub-national level, especially for growing urban areas, have been largely ignored in the various studies and reports. This lack of discussion was a weakness in the 2009 World Bank Report, and it remains a substantial blind spot in the infrastructure dialogue in sub-Saharan Africa. Compared to other regions, sub-Saharan Africa is still predominantly rural, but that is changing rapidly, with some estimates noting that by 2035 50 percent of the population will live in urban areas. In many cities, the challenge of urbanization and the need for critical infrastructure is already evident. One-third of urban residents in sub-Saharan Africa are located in 36 cities, each with more than a million inhabitants. The United Nations estimates that by 2025, the population in Lagos and Kinshasa will reach 18.9 million and 14.5 million, respectively

The overall numbers indicate four significant trends:
* All major sources of external financing have appreciably increased their annual commitments. From $5 billion in 2003, commitments have risen to almost $30 billion per year in 2012.
* ODF (Official Development Finance) investments, though not as dominant a source of infrastructure financing in sub-Saharan Africa as in the 1990s, have grown appreciably since 2007 and represents 35 percent of external financing.
* PPI has been the largest financing source since 1999—accounting for more than 50 percent of all external financing. Its overall level has remained remarkably stable and unaffected by the recession in 2008.
* Official investments from China have increased from what was virtually insignificant to about 20 percent of these three main sources of external finance

Technology’s Tipping Point

Africa is full of new technologies, particularly those that make social interaction and transactions easier. They have enabled people in rural areas to access information almost instantly, and allowed for millions to begin banking and for millions more to follow current events as they happen. The use of technology for interaction and communication is growing quickly.

Middle East and Africa: Saudi Arabia and Nigeria weigh down smartphone growth

Smartphone demand totaled 42 million units (in the their quarter of 2016), up two percent quarter-on-quarter and four percent year-on-year – the slowest ever year-on-year increase in the region. This was due to year-on-year demand declines of 29 percent in Saudi Arabia and 17 percent in Nigeria. Despite recent political turmoil in Turkey, smartphone demand remained positive, albeit moderating to three percent growth year-on-year. GfK forecasts smartphone demand in the region to grow year-on-year in 2017, with figures to follow next quarter.

A GSMA study ‘The Mobile Economy: Africa 2016’ – reveals there were 557 million unique mobile subscribers across Africa at the end of 2015, equivalent to 46 per cent of the continent’s population, making Africa the second-largest – but least penetrated – mobile market in the world.

With much room for potential growth, the report sees the number of unique mobile subscribers hitting 725 million by 2020, accounting for 54 per cent of the expected population by this point.

By then, smartphone connections in Africa will have more than tripled, rising from 226 million in 2015 to 720 million in 2020.

Last year global smartphone penetration stood at 45 per cent, with Africa trailing at 23 per cent.

The more than 450 million additional new smartphones in Africa will be driven by cheaper devices (sub $50 smartphones are now available), a robust second-hand mobile device market, and the continued expansion of mobile broadband networks.

Education

In thirty-five years, Africa will have the largest labor force, larger than those of India and China. It will be the workshop of the world. Already, the benefits are accruing: vast investment in incipient manufacturing in Ethiopia is flowing in from China. The same is emerging in Rwanda and Kenya. Africa won’t have the problems Japan and Europe have, with a limited working-class population supporting a rapidly retiring workforce. In fact, Africa’s pension funds are growing at extraordinary rates, and the proceeds are being used to fund national development programs. As the population urbanizes and the labor force continues to formalize, pensions will grow even faster. This bodes well for the population. But other institutions need to step in to make sure that the labor force can achieve its full potential. Of primary importance are educational institutions, particularly at pre-university levels. Urbanization may make it easier to create strong schools. For example, it is easier to find teachers willing to work in cities than it is in rural areas. Also, the higher concentration of students and resources makes it easier to use scale as an advantage. Education is still lacking, though. In 2012, projections by the Brookings Institution suggested that there was a rising number of primary-school age children across the continent who were out of school. Africa may have the largest labor force in the near future, but if it isn’t educated as well as it can and should be, then advancements will be limited.

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