Tracking the future. Daniel Silke
damage to the continent.
Estimates for 2010 indicate that almost a million Chinese farm labourers are already working on African soil. With a reluctance to utilise local labour, Chinese firms aren’t only denying Africans a job, but these land deals are being kept ‘in-house’ with any skills transfer from the Chinese to Africans somewhat unlikely.
A second trend is that foreign buyers are reducing the supply of arable land for domestic farmers. In the Gambella region of Ethiopia, Indian companies have been on a spending spree. As a result, displaced locals now find themselves without any recourse to land and seem destined, if they are lucky, simply to work for the foreign entity. In the Sudan, communal lands are under attack from commodity traders. The size and importance of these transactions can lead to state fragmentation, while dispossession can contribute to sustained domestic political strife.
We can therefore expect to see a divisive edge to foreign land acquisition on the continent. As food security becomes a household concern – just as global warming has become – then a multitude of foreign players will be seeking out additional tracts of land. A key trend for Africa will be the interest shown by international agri-business, investment banks, hedge funds, commodity traders as well as pension funds, foundations and powerful individuals keen to secure the potential of an attractive rate of return. Farmland in Africa is giving a 25 percent return a year – pretty attractive for any fund strategist or investor seeking a return in a tight rates environment.
Of course, Africa can benefit if technology used by foreign companies to increase crop yields can be employed beyond the foreign-owned land for domestic food production. This will be crucial in avoiding the destruction of domestic farming at the expense of foreign land deals. Similarly, the displacement of existing farmers will need to be addressed through providing adequate compensation from the state. Together with the much-vaunted state spending on agri-business in general, can Africa take these trends, as threatening as they are, and perhaps develop a positive outcome?
Infrastructure development
If there are question marks about Africa’s ability to really leverage its exceptional landmass to feed its people and others, there remain similar doubts about its ability to satisfy the demands of its citizenry through adequate infrastructure spend. Again, higher economic growth rates mask the often perilous state of such basics as access to potable water and sanitation.
We noted earlier that African consumers will have more to spend. They will also demand more from their governments. African cities that are currently bursting at the seams due to mass migration from rural areas will not only house wealthier inhabitants, but their own crumbling or non-existent infrastructure will also need massive overhauling. Expect a huge increase in infrastructure spend across the continent, which in turn is likely to attract even more people from rural areas. Together with consumer-oriented industries, agriculture, resources and infrastructure together could generate as much as $2.6 trillion in revenue annually by 2020, or $1 trillion more than today[19].
For decades, Africans have been hamstrung by inadequate or non-existent fixed-line telecommunications. It is perhaps in this sector that the domestic populace are now seeing – and will see – the greatest positive change to their lives. Communications are the mainstay of any society and a key driver of economic growth.
In the last decade alone, more than 316 million subscribers have been signed up by cellular companies across the continent. The number of users is now at least 400 million. The replacement of unreliable fixed-line and state-run telecommunications companies has been critical to an African coming of age. Telecom revenues on the continent have increased at a compound annual growth rate of 40 percent – unmatched by most other industries. Spending on it and communications technology in Africa will more than triple to $150 billion by 2015. Given population increases and further urbanisation, this aspect of infrastructure improvement is likely to continue unabated.
The real trend here is the replacement of state-run infrastructure by private companies or public–private partnerships. A critical way for Africa to overcome the gross inefficiencies of state-run enterprises of the past will be continued outsourcing or partnership routes. Although the state will play a heavy hand in such enterprises and collusion will keep pricing structures high, the benefits will still drive the continent. Private companies will need to hone their relationships with government or city authorities as these partnerships take root. Controversially, this may necessitate a very flexible and pragmatic relationship with political leadership at local or regional level to ensure access to consumers and planning permits.
For the foreseeable future, the continent will need approximately $95 billion per year to speed up its deficient power, transport, waste and irrigation services. Again, the tardy state of much of these essential services will lead to a massive rollout over the next few decades. Infrastructure spend will potentially be akin to a gold rush; all that is holding back its efficient implementation are capacity constraints and governance issues, which are not insurmountable problems for direct foreign ownership of infrastructure such as in the ict industry.
As noted, Africa has defied the doomsayers in the worst possible economic times. In future this will be seen as a tremendous asset and attribute for further investment as the continent derives political benefit and clout by virtue of the old adage, ‘Nothing succeeds like success.’ Investing in Africa has become the vogue for the start of the second decade of the 21st century and, ironically, investing in the mature markets of the United States or Western Europe looks a lot less attractive.
The China effect
No one quite understands Africa’s potential from both an economic and political perspective like the Chinese. Chinese diplomatic and business exposure, which has increased manifold over the last decade, looks set to be an enduring trend for the next decade and beyond. China–Africa trade has increased from $3.5 billion in 1990 to almost $100 billion in 2009 and is projected to top $350 billion by 2015[20].
Beijing certainly is not new to Africa – it has been giving aid since the 1950s – but its dramatic recent forays have left many concerned about political influence in future. No doubt, China has simply identified Africa as a market wide open for business. Although the United States and the European Union have often neglected Africa in the past, China’s approach is simply good business with foresight into an expanding economic zone. The neglect and resultant lack of foreign investment from the West has enabled Chinese companies to fill the gap.
Serge Michel and Michel Beuret’s superb account China Safari: On the trail of Beijing’s Expansion in Africa[21] assesses the extent of the Chinese presence. By 2010, there were already 900 Chinese companies active across Africa. The stated long-term goal of the Chinese authorities is to move 300 million people from China to Africa. Already more Chinese are living in Nigeria than British at the height of the Empire, while Cameroon’s Beijing Embassy processed 700 000 visa requests from Chinese citizens in 2008/2009[22].
Chinese labourers can earn five times in Africa what they can in China – $500 a month versus $100 a month. Chinese goods in Africa sell for a quarter to a fifth of what Africa’s own products sell for. Chinese farmers in Sudan growing vegetables for sale to the large Chinese population there are making ten times what they could at home. China is now also close to being the premier purveyor of small arms sales on the continent.
Critics have often argued that the Chinese were all about shoring up oil and strategic resources. While this certainly is a critical component of engagement, it is surely not the only reason for increased trade volumes.
Although the term ‘new colonialists’ is often bandied about in assessing the trends in Sino–African ties, the Chinese in large part are hardly worried about land grabs or political interference. In 2008, Chinese firms exported more than $50 billion in goods to the continent, more than France, the United Kingdom or the United States. The largest and fastest-growing sector was not textiles and the cheap consumer goods