Africa: The Emerging Market of the Future?

04 March 2010

Speech by International Development Secretary Douglas Alexander at the LSE Emerging Markets Forum

Thank you for inviting me to address this LSE Emerging Markets Forum - here in the quite splendid surroundings of the Freemasons’ Hall.

I think that in years gone by, it might have been rather unusual for a Secretary of State for International Development – charged with tackling international poverty - to address such a forum – with its themes of entrepreneurship, investment and economic governance in emerging markets.

Because for too long perhaps, those engaged in international development have talked of tackling poverty without defining its starting point in wealth creation.

Yet the experience of the past two decades has served to show what many of us had always known. That just as a job is the surest route out of personal poverty, economic growth is the surest route out of poverty for nations.

The recent history of the emerging markets of Asia in this regard is quite remarkable – where economic growth has helped as many as half a billion people to lift themselves out of poverty since the 1980s. The poorest continent on the planet just 40 years ago – twice as poor as Africa is today – Asia now boasts the fastest growing economy anywhere in the world.

And this emergence of Asia brings benefits for us all – from the cheap products available to our consumers, to the new markets available to our producers. To take one example from the constituency I represent in Parliament – Paisley – Chivas Regal has profited in recent years thanks to the growing market for premium whisky in India and China.

While Asia is providing an emerging market today, and I am sure that there are many people here either from, or with an interest in Central, Southern and East Asia, I want to address my comments this morning to a different continent.

For while I suspect that many of today’s discussions will focus on either Asia or Latin America, I want to suggest to you this morning that - notwithstanding the considerable challenges that it still faces - Africa could be the emerging market of tomorrow.

Europe’s neighbour, a continent of 900 million people, a growing Africa could provide opportunities for all of us gathered here.

So I want to use my remarks this morning firstly to examine some of the progress made and the challenges that remain across Africa; secondly to examine the pathways forward for that continent; and finally to examine the role that the international community can usefully play in supporting its emergence within the global economy.

Progress – the promise of African emergence

Of course the first point to make about Africa is that it is rarely helpful to generalise about a continent of 53 countries with a huge diversity of economies, culture, demographics, landscape and history.

Yet with only fifteen minutes available to me this morning, addressing each of those countries individually might be a stretch. So I will have to speak generally, while employing Mark Twain’s caveat – that ‘all generalisations are false, even this one.’

So in that spirit I want to suggest that, notwithstanding the impact of the global recession – to which I will turn - Africa has made significant and widespread progress over the past decade.

I remember, almost two years ago at the launch of the Business Call to Action in Canary Wharf, the African entrepreneur Mo Ibrahim asked the audience to raise their hands if they could name the President of Botswana – one of the continent’s best performing economies.

I think around half a dozen hands went up. Mo’s next question: ‘who is the President of Zimbabwe?’, got a better response – with more than a hundred hands.

Too often, perceptions of Africa are dominated by those countries in which misrule continues, conflict rages and poverty persists. Yet we know that Africa is a more complex picture. Botswana has maintained one of the world’s highest growth rates since independence in 1966, and is the continent’s largest continuous multi-party democracy. Its President, in case you were wondering, is Ian Khama.

And Botswana’s story of progress is not unique. Across Africa, violent conflicts have fallen by a half over the past decade. More than half of the countries across the continent are today democracies – compared with just five at the end of the Cold War.

And economic growth over the past decade has averaged over five per cent. In 2006 foreign investment in the continent overtook aid for the first time. Some of this growth has been fuelled by commodity prices, but also by economic and governance reforms – four years ago it took 153 days to set up a business in Mozambique, now that time has been cut to 26 days.

And this growth is also partly thanks to a growing domestic market – the largest outside India and China. In the past four years, some estimates suggest that the surge in private consumption of goods and services has accounted for as much as two-thirds of Africa’s GDP growth.

The incredible explosion in the use of mobile phones across the continent is emblematic of this new consumption. Mobile subscriptions in Africa rose from 54 million to almost 350 million in the five years to 2008 – the quickest rate of growth anywhere in the world.

Africans are using mobile technology to leapfrog their historically poor telecommunications infrastructure. And Kenyans are now using mobile phones to make payments – leapfrogging their poor banking infrastructure too. This experience has shown that there are markets available in Africa for those businesspeople willing to invest and able to meet the need of African consumers.

Threats to African emergence

Of course, amidst these opportunities, we must retain a sense of realism - Africa is at the very frontier of emerging markets, and remains the poorest region in the world today.

The progress we have seen across the continent is today threatened by a combination of forces: the global recession; climate change; and continuing conflict and fragility.

At one time economic observers argued that Africa would be insulated from the effects of the financial crisis, given the continent’s lesser degree of integration to the global financial system. Yet while Africa has performed well in comparison with other regions of the world, it certainly has not fully escaped the impact of the global financial downturn.

Africa’s vulnerability to falling commodity prices, the flight from risk by investors, and the loss of income from remittances have combined to create a negative impact on economic performance across the continent – as surely as elsewhere.

So while Africa as a whole registered some 2 per cent growth last year – outperforming almost every other global region – that still represents a significant fall when compared to the trends of 6 per cent growth over the past decade. Indeed per capita GDP actually declined by an estimated 0.8 per cent last year – the first such fall in a decade.

These economic effects have real life consequences – with some estimates suggesting that as many as 50,000 more infants may have died of malnutrition last year as a result of the combined effect of the food, fuel and financial crises.

My Department is helping to protect the most vulnerable people across the continent from the worst – our social safety nets programme will help some 50 million poor people in more than twenty countries.

We are also helping people across Africa to respond to the impact of climate change – which for many of them is not so much a future threat, but a lived reality.

From the Kenyan man who told me that the seasons he remembered as a child have simply disappeared; to the women I met in Ethiopia, forced by drought to walk further to collect water until they were travelling 5 hours a day simply to drink from a watering hole shared by people and animals alike.

So we are helping countries across Africa respond to these twin, global crises of finance and climate. And we are helping to address the fragility and conflict that still affects too much of the continent – including in the Democratic Republic of the Congo, where fighting and looting in the east not only creates a terrible burden for the people of that country, but for the whole region.

Through our development programme, the United Kingdom is helping Sub-Saharan Africa to deal with these threats of financial instability, climate change and conflict.

And we are also working to help African countries to make the most of the opportunities that I’ve already outlined. For alongside these global and regional challenges, too many business-people in the poorest African countries still face barriers to trade, because too often their own environment counts against them.

Helping Africa to compete

Transport costs are some 70 per cent higher in Southern Africa than here in the continent of Europe.

Setting up a business in the Democratic Republic of Congo costs four times the average annual salary of somebody who lives there.

Almost two billion people across the developing world have no access at all to even the most basic financial services.

So if Africa as an emerging market is to deliver on its promise, it must tackle these challenges. It is in the international community’s interest that we should support Africa to do so. My next meeting today will be with Pascal Lamy, Director-General of the World Trade Organisation, and we will discuss ways in which the international community can further support Africa.

The UK Government is now stepping up its efforts to help countries trade their way out of poverty. Indeed our investment in Aid for Trade is now higher than ever – at some £800 million.

This investment – representing an increase of 60 per cent since 2005 – demonstrates our commitment to help people and nations lift themselves out of poverty through trade.

Our investment is helping developing countries to reach into developed markets. Our support for the fishing industry, for example, in Mozambique helped to secure EU accreditation for their produce – safeguarding jobs for more than 70,000 fishermen.

And our investment will help African countries to trade not only with the developed world, but critically with each other. Our support for Africa’s North-South Corridor project – which will improve transport links from the copper belt of Zambia down to the ports of South Africa - could provide a boost of tens of millions of pounds a year to the African economy, and thousands of jobs across the region.

Conclusion

Why do we continue with this level of investment at a time that we all recognise there is great and continuing economic uncertainty?

We do so because it is right, and because it is wise. Because in the words of the G20 last year, here in London, our ‘prosperity is indivisible’. And because in a world of cross-border risks and opportunity, fighting poverty is – to put it bluntly - in all of our interests.

For it has become increasingly apparent at the start of this century that we are ever more interdependent. The evidence of this is all around us – from the internet to the financial crisis, from the label that says ‘made in China’ to the swine flu pandemic that began in Mexico.

Our common prosperity depends on shared and sustainable economic growth.

Our common security depends on the emergence of effective and peaceful states around the world.

Our common climate requires us to take steps now to safeguard the planet for our children and our grandchildren.

None of this will be easy. But it is in all of our interests that we grasp the opportunity to bring about real and lasting change in Africa. More than ever before, our future prospects are linked to those of the poorest people elsewhere on the planet.

So the UK Government will continue to support the people of Africa to build a better future for themselves and their continent – and perhaps to become the emerging market that we will all be talking about in years to come.