06 January 2011

Is Africa the World's Most Exciting Investment Story?

Yes, says Stephen Jennings, the co-founder and CEO of Renaissance Capital.

In a presentation to the Global Economic Governance Programme at Oxford University's Department of Politics and International Relations, his argument goes like this:

  • Economic growth in Africa has averaged 6% in the past decade
  • Between 2000 and 2008 economic growth accelerated in 27 of Africa's 30 largest countries
  • In 2009, despite the collapse of commodity prices, Africa was the only region of the world not to record a single quarter of negative growth
  • This growth is fast enough and sustained enough in many African countries to move the into the "emerging economy" realm with many opportunities for private investment, external and internal
  • The growth is not differentiated much by resource endowments and geography, but more by the decline in conflict and the increased domain of the market
  • Economic growth transforms institutions, which are very heterogeneous and often very different from the Western models--institutions don't have to be developed to get growth
  • Because of the low starting growth base and the opportunities for technology leapfrogging, Jennings predicts that Africa will become the fastest growing region in the world in the next 5 years
This seems like a positive picture (and is echoed by Calestous Juma in the previous post). And it is positive, as far as it goes (although the facts presented are not referenced).

But we also know that:

  • growth has pretty uneven effects on income poverty reduction. Its effects depend on initial inequality, the sector growth occurs in, and its governance,
  • Income poverty is just one dimension of material well-being,
  • Not all forms of well being are material, many consist of freedoms
None of these issues are mentioned by Stephen Jennings in his very readable paper. The implicit assumption seems to be that growth is a cure all.

We need more conversations going between those who worry about how to get growth (and where to invest to spur it on) and those who worry about what different types of growth will do for poverty and well-being.

Nothing new in that plea, but the two tribes remain stubbornly separate. How do we get them to join up their thinking? This is an important challenge - especially for the many new initiatives on private sector development and development.

We need more research on the how different types of growth impact on poverty, especially private sector-led growth.


Paul Isenman said...

I agree that Jennings sounds very optimistic. Whether he is under the
illusion that growth will solve all poverty and other problems, solving those other problems would surely be easier the closer he is to being right that Africa will be a high growth region and that the sources of that growth will be diverse.

Laurence said...

First, growth is not a cure all, but in a region as poor as Africa, it is a sine qua non for poverty reduction.

Second, "growth has pretty uneven effects on income poverty reduction", but on average, growth has a powerful effect on poverty reduction, and benefits the poor as much as it does any other income group.

Universal recognition of these established principles would, I believe, help bring the two tribes together.

Joshua Smith said...

Thank you for helpful tips. It was easy to read, but I'd like to add that if your business needs to be updated try outsource software development.

Arman Dalton said...

I think Africa should reform their mining laws and make sure that the monetary benefits trickle down to the poor. Efficient tax collection is also key. One day, Africa will be buying gold bars for investment purposes.