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As the new economic year settles in, a new contender for the attention of the global financial sector has surprised some business observers in Denmark – Africa is on the rise. Several things are pointing in this direction according to an article in the Danish newspaper Jyllands-Posten. The African continent has had an overall growth of more than 5% in the last decade and contrary to popular belief, it did not crumble in the face of the global financial crisis. At the moment, Africa is actually said to churn the biggest profits from investments.
But has the tide really turned? Periods of economic growth has spurred optimism before but subsequently reverted to zero. African nations are still experiencing conflict, poverty and corruption while it continues to be difficult and risque to maneuver in a market prone to backlashes from political instability.
The optimism stems from the fact that development seems to be supported by a combination of change in internal structure and favorable international tendencies this time. Years of reform has first and foremost created a foundation for political and economic stability in a growing number of countries south of the Sahara. Countries such as Liberia have achieved peace after many years of devastating conflict. At the same time, African countries are slowly getting a handle on their public finances; inflation is curbed and the foreign exchange reserve is stable.
Several countries have also managed to cultivate the private sector by improving its framework conditions. According to World Economic Forums’s yearly index of global competitiveness, the best placed African countries – though still not at the top – are over the OECD-average in areas such as institutions, macro-economic stability and development of the financial market. At the same time, the combination of a decade of growth with the fact that Africa will soon reach a billion people, has create a rapidly expanding market. Alongside greater urbanization, the poorer demographics have also been included in what is called ‘the Base of the Pyramid’ or BoP-markets. It constitutes people who as individuals do not have a great buying power but as a whole make up a very large market segment.
The larger markets are also facilitates through regional cooperation – a phenomenon which is proving increasingly important. Even though the economy of the African continent is the size of Russia’s, it is split between 53 countries with different regulations and currencies which make the individual economies small. However, the East African countries have already established a regional trade union and the next step is the creation of a wider internal union with a potential market force of more than 133 million people
Finally, it is worth noticing that the African economy has increased its diversity in recent years from being overtly natural resources driven. Despite still playing a significant part, the period between 2000 and 2008 showed that natural resources only contributed 25% to the overall growth. The sectors which are taking over are trade, transport, telecommunication and construction – all showing increased productivity according to African standards.
In combination with these internal developments are the external factors which are especially facilitated by China and other Asian super-economies. Their continues demand for raw material and willingness to invest are tendencies which Africa are expecting to benefit greatly from in the future. For these reasons, the optimism from foreign investors might turn out to make Africa a key player on the global financial stage.