March 18, 2011

World Bank Economist: Africa on the Brink of a Takeoff

Today we came upon a great video post by Dr. Shanta Devarajan - the World Bank’s Chief Economist for Africa, which can be found here and which discusses why Africa is on the brink of a takeoff. The post begins by reiterating Africa’s strong growth before the financial crisis, and the positive impact that growth had had on poverty and development.

What we found especially interesting (and we agree) is Dr. Devarajan’s claim that as a whole Africa has taken significant meaningful steps in the past decade to enact policy reforms which encourage growth. Even during the financial crisis when growth ground to a halt, Dr. Devarajan notes that even while developed countries were increasing deficits and nationalizing banks, African countries were largely going in the opposite direction, with some even accelerating reforms. These reforms have the potential to have some significant positive impacts on Africa’s growth.

Dr. Devarajan also discusses the factors impacting Africa’s continued deficit of private sector investment – at 15% of GDP, he notes that private sector investment is about half the level in Asia. A large reason this is true is because Africa has significant infrastructure needs (which we should add, typically require significant public sector support). However, of the $48BN per year he claims are necessary to bring Africa to the level of Mauritius (which we agree is a good comparative tool), $17BN can be financed through improvements in policies and institutions. His example in this case is road transport. Interestingly, although the price of transport in Africa is extremely high compared to the rest of the world, the actual vehicle costs are not substantially different. Rather, he claims that lack of regulation and competition allows transport companies to achieve extremely high margins. For example, he notes that recent de-regulation in the trucking industry in Rwanda has helped to lower transport prices by 75%.

He continues into impediments to agriculture, healthcare, and education which have been mitigated by corrections in government policies, and notes that continued reform could lead to sustained economic growth and policy reduction that compares to India 20 years ago, or China 30 years ago.

Without a doubt, we agree with much of what he is seeing. A culture of reform and transparency is becoming ingrained in many African nations, and their economies and citizens are reaping the rewards. For example, the banking sector in Nigeria emerged from the crisis more transparent, better regulated and capitalized, and poised for growth (which we have already begun to see).

We would encourage you to watch the video.

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 or info@nilecapital.com

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