Africa's bright future

Michael Dynes

Although Africa is experiencing the global economic downturn from a worse starting point than the developed world, the wealth of natural resources, arable land and mineral deposits mean that as a continent, it's primed to capitalise when the upturn comes

When America sneezes, Europe catches cold, Asia develops pneumonia and Africa's tuberculosis gets worse. A few months ago, there were hopes that the continent of calamity - the one traditionally hit hardest by an economic slowdown in the developed world - would escape any lasting consequences of the global financial crisis.

Africa has, after all, experienced its biggest growth spurt since the 1970s. The continent's 48 sub-Saharan countries have been growing around six percent a year for the past five or six years. Inflows of foreign capital have reached record peaks. Billions of dollars of debt accumulated from reckless borrowing in the 1980s have been written off.

Moreover, a new generation of African political leaders have overseen a move towards fiscal prudence and macroeconomic stability that has impressed foreign investors. African still had more than its fair share of despotic and corrupt leaders - Robert Mugabe in Zimbabwe, Omar Hassan al-Bashir in Sudan - but many more were being touted as a new generation of frontier emerging market economies that were on the threshold of taking off.

As the contagion of toxic US sub-prime securities began to spread around the world financial system there was confidence that African banks and financial institutions - whose tight lending policies and stringent foreign exchange controls greatly limited their exposure to Western financial institutions - would largely escape unscathed.

But while Africa managed to escape shocks to its own financial system, it could not escape the secondary consequences of financial shocks elsewhere. Prices for Africa's big foreign exchange earners - oil and base metals - which had reached historic peaks in July, began to tumble as the credit squeeze led to economic slowdowns in America, Europe and Asia.

The consequences for Africa have been dramatic. Hopes of reviving the mining industry in the Democratic Republic of Congo have now evaporated. Expectations for another year of record growth in Nigeria went out the window as oil prices fell to a four-year low, while growth in South Africa - the continent's economic powerhouse - contracted to almost zero in the third quarter.

That's the end of Africa you might think. If so, you had better think again. Africa's rising growth rates predate the 2004-08 commodity bull market - although they were clearly helped by it. Many African governments have been striving over the past decade to turn their backs on past errors and put their own financial houses in order.

Not only will this help them weather the coming recessionary storm - growth for many African economies is expected to fall to around three percent in 2009 compared to less than zero in the US and Europe - but it will also prime them to take advantage of the upturn when it comes.

China's relentless urbanisation will drive a recovery in base metal prices. Africa is one of the few places left in the world with vast swathes of unused arable land needed to feed a global population racing towards seven billion. That fallow acreage will also play host to the emergence of large-scale biofuels industry forecast to grow exponentially over the next decade.

Africa's time will come - and probably quicker than most think.