Some Myths About Africa

by Developed Africa 27. November 2016 14:50

 Ludovic Subran and Stéphane Colliac of Euler Hermes set the record straight for CNBC Africa

Myth 1: All African countries are the same

Most African countries have a complicated business environment. Nonetheless, there are differences among African economies in the pace of growth and level of diversification. There are three groups of countries in Africa. First, the strong links such as South Africa and Morocco with an attractive business environment, but their growth (+0.5% and +2% respectively in 2016) remains moderate, although stable. Then the change champions, including Ivory Coast and Ethiopia. These economies record strong growth rates (7.5% and 7% respectively in 2016), pushed by their will to diversify and improve their business environment. Finally, lagging behind are countries such as Nigeria or Cameroon where change needs to be fostered.

Myth 2: Africa only relies on raw materials

Africa has tremendous raw-material sources and is often viewed as an indispensable pool of labor for the near future. But the African economy is also a hotbed of innovation. Compared with Singapore and its 2% of GDP spent on R&D, Africa ranks lower. But this gap is going to narrow very rapidly thanks, for example, to hubs and the will to overcome the infrastructure deficit. Each region has its own champion: Kenya (0.9% of GDP) in the west, South Africa (0.75%) in the south, and Morocco (0.8%) in the north. This innovation effort is also reflected in the creation of technologic hubs, whose number is steadily increasing in the African continent. At present there are 24 hubs in South Africa, 11 in Kenya and 7 in Uganda. In Kenya, the technologic incubator iHub has contributed to the development of 150 companies since 2008, an evidence of its role in the growth of African economy.

Myth 3: African infrastructures are non-existent

The infrastructure gap (water, electricity, internet, transport) in Africa remains important. The example of Nigeria is striking: to fill its infrastructural gap, the country must spend USD 1900bn by 2030, that is nearly USD 130bn a year (25% of current GDP). This gap penalises African economies and costs two percent of growth to the region every year, according to the African Development Bank. But the development of African infrastructures is also an economic opportunity, and African countries cannot finance these infrastructural investments themselves. In the long term, this should trigger significant investments in the region, that will contribute to finance the regional economy.

Myth 4: Africa is isolated from the world

African foreign trade continues to grow - well, almost. In 2016, Africa is expected to lose USD 12bn exports by value (totaling USD 560 billion) because of the commodity shock. In 2017, demand to Africa should increase by USD 30bn. This is not only in the short term. Actually, by 2025 African countries should continue to open up and the continent's heavyw'shts, Nigeria (+USD 210bn of additional exports in ten years / + USD 150bn of imports), South Africa (+ USD 140/180bn) and Egypt (+ USD 83/79bn), will see their trade with the rest of the world soar. The favourite destination of African exporters remains China (27% of African exports in 2016). However, the raw material part in African exports to China has decreased from 97% in 2010 to 83% in 2015, in contrast with low-value-added manufactures (3% in 2010 vs. 7% in 2015).

Myth 5: African institutions are non-existent

Next to countries where institutions do not (or have stopped to) evolve, there are countries launching important reforms. Rwanda for example has strengthened its fight against corruption, by setting up a national anticorruption council and an entity supervising the award of public contracts. The purpose of this is to reduce the differential quality between institutions in Rwanda and those in more developed countries such as Brazil or Italy. On the other side, the needs of public-service users are changing and the same occurs with demands for social security. Moreover, institutions have to respond differently: The digital revolution can help African institutions to skip several stages of development. South Africa, Rwanda and Ghana have already developed online public services of relatively good quality, and this is how institutions in these countries are catching up with international standards.


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