Monday, August 24, 2009

Bigger, but Not Better

The announcement came last week that Africa’s population is now one billion people, is growing at a rate of 24 million a year and should double to nearly two billion by the year 2050. That puts Africa on track to be more populous than India, projected to reach 1.7 billion by 2050, or China, projected to reach 1.4 billion by the middle of this century. So why is it that Africa is not seen as a prime market for products and services the way India and China are?

First of all, the most obvious reason is that Africa is not a single country like China or India, but rather more than 50 separate countries with various tariff rules and other regulations, not to mention inadequate infrastructure to move goods in and out efficiently. Second, incomes on the continent do not give providers of products and services the feeling that a growing middle class in African nations will buy their iPods or BMWs. Certainly, cell phones are selling like water in the desert, but there is iffy potential for high-ticket items when a majority of Africans are said to be living on US$1 a day and one in three Africans are malnourished. Only 25% of Indians are below the poverty line, while only 8% of Chinese are considered poor.

Third, Africa is experiencing a brain drain in which tens of thousands of professionals are laving the continent each year to earn a more profitable living in the developed world. This puts African countries farther and farther behind the development curve, limiting advances in science, technology and innovation that would create a stimulating atmosphere for investment and an assurance of product safety. Meanwhile, expatriates are returning to India in large numbers, resulting in projected economic growth of 7-8% in 2009 and creating new economic opportunities due to the shattering of Western financial markets.

Fourth, in commerce, governance plays a critical role, especially in creating a trust factor for exports. American sanitary/phyto-sanitary regulations are often cited (including by me) as a major constraint on U.S.-Africa trade. However, truth be told, there has to be a level of trust in the quality of meats and produce for them to be found acceptable for purchase. We buy Chinese products for now, despite the more than occasional contamination issue, at least partly because the Chinese government can move quickly in the face of crisis when it has to do so. When the Severe Acute Respiratory Syndrome (SARS) broke out in 2003, the Chinese government dealt with it rapidly and effectively. With the H1N1 flu virus still a global health issue, it is unlikely that African food products will be trusted any more than they are now in the near future because of lack of faith in government follow-up to potential serious health concerns.

So despite having slightly less than 14% of the world’s population, Africa is not seen as a leading, attractive trading partner except for energy products, minerals and some manufactured goods. However, African poverty will not begin to be alleviated and incomes will not rise appreciably until agricultural production can increase and quality can be assured. With about two-thirds of Africans involved in agriculture, the livelihoods of hundreds of millions of people depend on progress in this critical area.

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