Building BRICs In Africa?

Courtesy of The Financial Times, two interesting – and contrasting – viewpoints on the potential for Africa (South Africa, in particular) to join the league of BRICs.  First, the argument in support of Africa’s likely potential:

The visit by South Africa’s President Jacob Zuma to China this week with a large entourage of businesspeople and officials has understandably drawn a lot of comment. He is no doubt keen to promote close ties with Beijing, which just last year rose to become his country’s largest trading partner. It is against this background, with a number of African nations appearing to have escaped the hang-over from the global credit crisis, that increasingly I am asked whether the “s” in Brics may be worthy of becoming an “s” for South Africa – and whether Africa collectively should be thought of as having the same bright future as the Brazilians, Russians, Indians and Chinese in that group?

After South Africa’s successful hosting of the football World Cup more and more people are focusing on the opportunities of Africa. The continent’s combined current gross domestic product is reasonably similar to that of Brazil and Russia, and slightly above that of India. Moreover, of the “next 11” countries – as my colleagues and I have dubbed the group of populous emerging countries after the Brics with the most promising outlooks – two are in Africa: Egypt and Nigeria. In this context, and as South African officials talk enthusiastically about their aspirations for a quasi-Bric status, I have been giving further thought to Africa’s potential to become a Bric-like economy.

If you were to think about Africa collectively, and consider it in the same framework that informs our 2050 scenarios for the Bric, next 11 and other major economies, you would see an economy as big as some of the Brics. If you then look at the potential of the 11 largest African economies for the next 40 years (by studying their likely demographics, the resulting changes in their working population and their productivity) their combined GDP by 2050 would reach more than $13,000bn, making them bigger than either Brazil or Russia, although not China or India.

Interestingly, nearly half of this GDP would originate from Egypt and Nigeria, so the progress of those two nations is crucial to the continent’s potential. Among the other 11, South Africa has a critical role to play as it is more developed than the others, and also somewhat of a gateway to southern Africa. South Africa itself however does not have enough people – just 45m – to be a Bric in itself. But Nigeria, at 180m or more, is not far off 20 per cent of Africa’s population. It could, if it got everything right, be bigger than any of Canada, Italy or South Korea by 2050.

If Africa wants to be thought of as a Bric it should not be as hard as it is often made out. We maintain an index of 13 different variables that are critical for sustainable growth and productivity. We call this our Growth Environment Score (GES), and estimate the data annually for nearly 180 countries around the world. The scores can range from 0 to 10, with higher scores indicating higher productivity or sustainable growth. Of the next 11 countries, South Korea has a score of 7.4, the highest, a level consistent with the best of the developed world. Nigeria has a score of 3.5, the second-lowest.

This might seem bad, but for the four Bric economies the score is only 4.9. For the 11 African countries, the average score is 3.5. So to achieve their 2050 potential, the African countries have to raise their scores significantly. Stable macroeconomic policies focused on low inflation and avoiding excessive government and external debt are perhaps the easiest targets. Among the micro components, we identify the stability of government, improving the rule of law, improving the most basic levels of education, spreading the use of mobile telephone and internet – there have already been impressive developments here – and perhaps most importantly eradicating the chronic corruption seen throughout many African nations.

South Africa demonstrated it was a worthy host for the 2010 World Cup. Now it is up to Africa’s major countries and their leaders to build on this. Let us hope an idea such as muzzling media coverage, a current proposal of South Africa’s ruling African National Congress, does not become law. This would be a step very much in the wrong direction. Transparency and helping to foster an environment conducive to business are what Mr Zuma and other African leaders should be concentrating on. Otherwise the dream of an African Bric will remain just that – a dream.

Now, the rebuttal:

“…Prompted by this week’s application from South Africa for Bric “membership”, the man who coined the acronym – Jim O’Neill of Goldman Sachs – asks in today’s FT whether Africa as a whole could become the next Bric.

On several measures he says the continent has a reasonably strong case, but he notes that its biggest economies would still need to raise their games on many fronts – and he misses some more profound weaknesses in the Africa-as-a-Bric idea.

O’Neill created the Bric acronym in 2001 as a neat way of grouping together four countries that shared the potential for generating rapid growth, attracting foreign investment, and reshaping the global economy.

Ngozi Okonjo-Iweala, managing director at the World Bank, latched onto the idea of Africa joining the group in a speech earlier this year in which she sold it as a “trillion dollar economy”.

It’s high time Africa saw and presented itself as the fifth Bric, an attractive destination for investment, not just aid. This is realistic and within reach. As Nelson Mandela said, “It always seems impossible until it’s done”.

But before you can decide where to squeeze an “a” into the acronym, old Africa hands will jump in to say that it’s nonsense to compare it to a single country: not only is Africa a continent, it’s arguably the most diverse on the planet in terms of economics, politics, culture and the environment.

What’s more, 20 African countries have populations of less than 5m people. O’Neill is alive to that and focuses his discussion on the biggest African economies.

If you … look at the potential of the 11 largest African economies for the next 40 years (by studying their likely demographics, the resulting changes in their working population and their productivity) their combined GDP by 2050 would reach more than $13,000bn, making them bigger than either Brazil or Russia, although not China or India.

But even those 11 are highly diverse – including two of the biggest, Egypt and Nigeria. And due to Africa’s lamentable roads and railways, as well as its internal border restrictions, many of them function as isolated economic islands.

Afro-optimists would say regional trading blocs are changing that, but the reality is that only about 10 to 12 per cent of African trade takes place with other African countries, according to a study from the UN Economic Commission for Africa and others.

For those reasons, it doesn’t make a lot of sense to suppose that Africa’s biggest economies will follow the same development trajectories over the next few years, let alone the next few decades.

Yet it’s worth remembering that the Bric grouping initially attracted flak for not having any coherence either, but its runaway popularity with western businesses and investors has given the four countries more in common than they had before.

Funnily enough, one thing they share is a growing hunger for mineral resources from Africa (notably Nigeria, Angola, the Democratic Republic of Congo, and Sudan).

But it’s doubtful whether any country other than South Africa has the right mix of factors to make it an attractive destination for serious western investment, across a broader range of sectors, which could rival that going to the Brics.

Earlier this year Shanta Devarajan, the World Bank’s chief economist for Africa, responded with a dose of scepticism to Okonjo-Iweala’s call:

The distinguishing feature of the Brics is that they are both middle-income and large. So it’s not clear how any individual African country can aspire to being a Bric. Countries such as Malaysia or Chile may be more appropriate models for most African countries.

To achieve their “2050 potential”, O’Neill says African countries need more macroeconomic stability, less external debt, a stronger rule of law, better education, (even) more mobile telephones, and a purge of corruption.

But it’s worth paying more attention to the parallel trends of population growth (seen as a good thing by many investors in India and Brazil) and job creation (a difficult task that most African governments are failing to manage).

Each of the Bric countries have their own pockets of poverty, and in some parts of Africa poverty is actually falling. But too many countries are producing more people than they can employ. And not only does that limit their potential as new consumer markets. It has ugly consequences in terms of crime, conflict and social unrest that can strangle economic growth.”

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