Don't you sometimes wish you had bought property in Moscow, Shanghai or Rio 10 years ago? You would have more than tripled your money. Well, 10 years from now, you will regret not having bought in Accra, Cape Town or Nairobi today. Sub-Saharan Africa -- "Africa," for short -- is about to emerge. Some of the reasons for optimism are fairly obvious. But most are not. This article is about what has happened so far, and why. Its sequel ("Part 2") will discuss the drivers that will take the continent to the next level.
First the facts. Over the past decade, Africa has grown fast and continuously -- its economy expanded at an annual rate of more than 5 percent. That is almost three times faster than the decade before. Actually, the continent had never grown at that pace for that long. It even breezed through the 2008-09 global crisis -- it slowed down but did not shrink. Part of this was due to better policies, fewer wars and, ironically, no financial sophistication. But much has to do with China's new presence in the region, with booming international prices for commodities, and with the virally quick spread of communication technology -- that is, with "the three Cs." Let's dissect this.
China is becoming Africa's largest trading partner, investor and financier. One day, it may also be its largest employer. Numbers are fuzzy, but an estimated 1,500 Chinese-owned companies have set up shop in Africa, primarily operating in oil, gas, minerals, construction and transport. They are said to have committed more than $50 billion in investments and $15 billion in loans since 2005. If true, that would make them comparable to the financing provided by the IMF and the World Bank combined. The difference is that there is still plenty of room for the new relationship with Beijing to grow -- Africa still supplies less than 5 percent of China's imports.
Not only is China buying much more of what Africa sells, but what Africa sells has gotten pricier. From cotton, coffee and cocoa to gold, petroleum and platinum, commodity prices are high -- and are projected to remain that way. By now, they account for 80 percent of the region's exports. Yes, in the past these bonanzas would tend to end in tears. As loads of foreign currency flowed in, local industry would be unable to compete with imports. Larger public budgets would feed corruption. And the extraction frenzy would pollute the environment. Today, the systems to control all that have improved -- they are far from perfect, but they are much better. Think of more competent central banks, more independent prosecutors and more active NGOs.
While selling more -- and more expensive -- natural riches, Africans have begun to connect with each other. From virtually none a few years ago, four in every 10 Africans have a cellphone today -- and they use it with gusto. No other region has embraced the technology that fast. The service is provided mostly by private companies competing with each other for the next customer. Even remote rural areas are getting coverage. This brings prosperity. Imagine farmers getting the latest information about the price of their produce without having to travel to the market. In fact, every 10-percent increase in the number of cellphone users is said to add half a percent to the economy's rate of growth -- forever. (To give you an idea, that would be enough to double the size of all cash transfer programs for the poor.) A similar expansion may soon happen with the Internet, as Africa has recently, and literally, been wrapped by underwater cables, to which coastal countries are beginning to connect. Only one in 10 Africans uses the web at the moment -- watch them catch up.
So, it looks promising. But will Africa's new shine disappear if China's demand for raw materials cools down and the expansion of cellular technology reaches its peak? What are the risks? There are two kinds. Some are highly probable but manageable. Decentralization of government to states and municipalities will spread the already-limited administrative capacity very thin. Local currencies will appreciate and complicate exports of anything that is not commodity-based. And recalcitrant, old-time incumbents who lose elections may opt for violence, rather than accepting the results.
Others risks are "black swans," that is, political, financial or natural events that are highly unlikely but could prove devastating. Political "Springs" in East Asia might one day disrupt trade in raw materials. The traditional flow of grants from rich countries might suddenly stop -- not unthinkable when you look at the new austerity sweeping through Europe, the U.S. and Japan. And climate change could spoil the continent's agriculture, not just gradually but through a succession of single catastrophes.
With those clouds in the horizon, why should you still buy your next investment condo in Africa? Because the emergence of Africa will be driven by 10 factors that are not yet so visible -- they range from institutions to integration, from geology to technology, from demographics to peace. We will look into them in "Part 2" of this blog, two weeks from now.