EARLIER this year, the World Bank cut its growth outlook for sub-Saharan Africa as a result of insufficient policy responses to the commodity price crash.
As the biggest African economies show little or no growth, many might overlook the boom in East Africa. The region’s gross domestic product (GDP) is strongly outperforming sub-Saharan Africa as a whole, but some are questioning the sustainability of this growth, pointing to the lack of manufacturing.
“We are under scale regarding manufacturing as a percentage of GDP,” says Dylan Piatti, Deloitte’s chief of staff for consumer business in Africa.
Renaissance Capital believes East Africa is what Korea was in 1960, with a small manufacturing sector and agriculture representing 40 per cent of GDP and exports 3-5 per cent.
“In the 1960s, the country had a massive current account deficit, but the most successful middle-income countries are known to have deficits of about 10 per cent of GDP during their initial growth,” says Charles Robertson, chief economist at Renaissance Capital.
He says the Korean development model is often misunderstood because too many focus on the 1970s (when electronics and heavy industry became the focus) rather than the 1950s and 1960s when the country began to transition from agriculture to light industry. The latter period has similarities with East Africa.
For the continent to achieve the developmental trajectory seen in Asia, proactive, business-friendly growth models will need to be forged, according to a report by Deloitte Africa.
However, Mauritius and Rwanda are emerging as emulators of the Asian Tigers. Both countries are incorporating key traits into their economic model – openness to trade, ease of doing business, economic agility and an efficient government.
Piatti says some South African companies are not seeing significant growth opportunities in the country and are looking for the next option.
“East Africa is where they want to play. Five years ago, West Africa was the darling of the continent. However, with companies recognising that East Africa is now the entry point, there is still high-risk aversion,” he says.
Robertson says a number of investors are steering clear of the continent, due to no growth in South Africa and acute exchange rate problems in Egypt and Nigeria. But from Morocco to East Africa, there are signs of better trends.
Dr Martyn Davies, the author of the Deloitte report, says almost all the countries that have grown from low- to high-income have undergone industrialisation. It has helped them to diversify, upgrade production structure and relinquish their dependence on agriculture and natural resources.
“Africa’s non-inclusive growth model must adapt for real economic transformation to occur,” he said.
Ruchir Sharma’s book, The Rise and Fall of Nations, highlights that countries must push investment and manufacturing up to 30 per cent of GDP or gross value-added respectively, which will lift exports to 50 per cent of GDP.
For years the World Bank has been suggesting Africa can absorb Asian manufacturing jobs.
During the first industrial revolution, the rise of labour-intensive light manufacturing played a significant role in pushing up incomes.
“If we do not see industrialisation within five years, then perhaps services will come to the rescue. We cannot be certain that East Africa (or Nigeria) will begin to industrialise in the next five years, but what they are doing implies the region is ripe for this shift.
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