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Economy

Winner or loser? Africa and the global economic crisis

Economic growth in Africa has grown faster than in other continents over the last few years. The crisis in the eurozone could put the brakes on, but Africa is better prepared than in the past.

children collecting raw materials

Raw materials are important for Africa's future

Clear statements are the trademark of the British weekly newspaper The Economist. Ten years ago, an editorial branded Africa "The hopeless continent." Today, the statements are just as clear cut but the tone has changed. A recent leading article on Africa's economy carried the headline "The sun shines bright." The Economist's assessment is shared by other experts. The World Bank is predicting a 5.3 percent growth rate for Africa in 2012.

"Things are looking good," says Anver Vasi, editor-in-chief of the journal African Business. "Seven out of 10 countries with the highest economic growth worldwide are to be found in Africa," Vasi told DW, quoting statistics from the International Monetary Fund.

Economists at the African Development Bank (ADB) in Tunis are predicting growth of more than five percent for the African continent this year. But behind all the optimism there is still a big question mark.

a coalmine in South Africa

Many African countries depend on exporting raw materials

"If the economy in the member countries of the Organization for Economic Cooperation and Development (OECD) takes a different course, then that will have serious consequences for Africa," says Desire Vencatachellum, Director of the ADB's Development Research Department. The OECD groups the leading western industrialized nations. Experts recall the events of 2009 when the World Bank had predicted a growth rate of 5.1 percent for Africa. When the global economy plummeted following the collapse of financial services firm Lehman Brothers, Africa's growth also slowed down, reaching just two percent.

Raw materials could put Africa at risk

"A decrease of one percent for Europe's economic growth means a decrease of half a percentage point in Africa," said Vencatachellum. One reason is the dependence of many African states on the export of raw materials. Seventy percent of African countries' income comes from the sale of raw materials. If the prices for coal, timber or metal collapse as a result of falling demand from Europe, then that puts the brakes on growth in Africa. So far this has not happened and African countries can also look elsewhere for help. In addition to Europe, Asian nations such as China or India are also battling over Africa's natural riches. That means the prices remain high, even if Europe buys less.

An African man using a cellphone

Africa's middle class is an important factor for economic growth

"In the long term, things could become more difficult as Asian countries such as China also depend on Europe's economic strength, since they export many of their products to Europe. So if they are affected, then of course their demand for raw materials from Africa will also go down," Anver Vasi of African Business said.

The World Bank sees two additional potential risks. Income from tourism could suffer if visitors from Europe stay away because of the crisis. Particularly hard hit would be countries such as Kenya, South Africa and Mauritius. Crisis nations such as Somalia depend to a large extent on financial transfers from Africans living abroad. Should they lose their jobs because of the crisis, the amount of money transferred would fall significantly. But as things stand now, the World Bank estimates that foreign transfers will rise to $24 billion (18.3 billion euros) during 2012.

Interest in Africa is growing

Hope of a positive economic development are further nourished by the strong interest of foreign investors. Despite the crisis, many want to invest in Africa. "We are registering increased interest," said Michael Monnerjahn of the German-African Business Association. "Many companies are realizing that markets in Asia are no longer growing as quickly or that there is strong competition," he told DW. "They are hoping to gain access to new markets in Africa."

His findings are confirmed by a study carried out by The Economist. Half of the investors questioned agreed with the statement that, in the next 10 years, Africa will become one of the most attractive investment regions in the world. A third of them plan to put at least five percent of their future investments in Africa.

Kenyan students visit an exhibition on China at Nairobi University

Trade ties between China and Africa are well-established

That is not much in comparison to other countries - but it's more than in the past. Previously more than half of those questioned had not invested in Africa at all, or only to a very small degree. Growth impulses also come from within. A middle class is slowly emerging in a number of African countries. More people have money that they are looking to spend. "They are thinking, for example, of moving into a bigger apartment, of getting an electricity connection, of buying a cellphone, or they want to use bank services. Companies see a lot of potential here," Monnerjahn said.

More trade within Africa

To combat the effects of the crisis, experts advise African countries to reduce their dependence on export markets in Europe. The number of free trade zones on the continent such as the East African Community or the Common Market for Eastern and Southern Africa has grown in recent years.

According to Desire Vencatachellum, there is still far too little trade between African countries. "This means that, whenever there is a problem in the global economy, Africa is quickly affected. It would be very helpful if regional integration could be intensified." Steps are already being taken in this direction. Member countries of the East African Community are discussing the introduction of a single currency.

Author: Daniel Pelz / sh
Editor: Rob Mudge

DW.DE