Wednesday 14 October 2015

Africa: Land of the plenty or obstacles?

A good news story coming out of South Africa, General Electric wants to seek out more opportunities in the African region by building locomotives in South Africa. The company who won a lucrative contract to supply Transnet a railway state owned enterprise for the next four years, plans to expand it's operation which is based in the capital Pretoria to supply other nations in the continent.

Although a major boost for the South African economy who has seen a drastic shrinkage in industrial production due to labour relations, Transnet itself is battling to revitalize an aging railway system which hasn't been upgraded in decades.

It seems that more and more multinational companies are using South Africa as a base to spread their products into Africa which does highlight the significant growth potential that is being tapped into. My gravest concern is that the country is not fully embracing the trend by jumping on the bandwagon and finding locally owned businesses to deal directly with their African neighbours.

Why would such a move be advantageous to Africa's second largest economy?

Firstly the country has a wealth of entrepreneurial talent that is carving opportunity to find profit potential added to the fact that the nation is by far the most developed out of all African nations. Secondly the country is dealing with chronic unemployment that stifles the government's efforts to curb poverty in an economy where the effects from decades of segregation skew income equality, so by creating exports to the rest of Africa evokes an increase in the need for labour.

The ruling party, the African National Congress has expressed its intention to focus on creating more black industrialists, I think the time is more ripe than ever the real question is will they action their statements or will it turn into another empty promise?
General Electric cites the need for road and rail transportation as necessity when it comes to the development of a country as one of the reasons it sees opportunities in Africa with this case in Uganda being no exception. The country has recently found large reserves of crude oil, approximately 6.5 billion barrels but problems arise that the Uganda is a landlocked nation and access to ports would require it to build pipelines through other nations.

It was announced in August that Uganda and Kenya had agreed to building a pipeline but it would seem that the prevailing slump in commodities has forced the Uganda to seek out the cheapest transportation route by negotiating with Tanzania although this doesn't highlight the only risk that is present.

The uprising of terrorism in Africa is becoming problematic for many leaders, something that Kenya has been grappling with for a while. These terrorists could use areas of the pipeline as strategic points to plan sabotage to draw on government's attention which obviously interrupts from the normal course of business for whoever may be transporting goods.

This will prove problematic for many nations that require these services. I think terrorism in Africa is most likely the biggest risk to destroying an ever growing confidence that has been steadily bringing much needs capital inflows to the continent and if leaders do not actively confront the problem it may lead to the region becoming an easy laying place for international terrorism groups painting a rather bleak picture.
If Africa is going to be the shining beacon in terms of world economic growth it needs to build sound financial systems where participants can feel confident in the safety of their capital together with reliable fiscal policies that realistically forecast economic activity.

In the case of Zambia, a country which has found amazing growth stories, finds itself in a dilemma where it has overburdened itself with debt and the resultant commodities slump has seen copper revenues hit the budget hard with deficits approaching 10% mark.

Zambian Finance minister Alexander Chikwanda has implemented a string of measures to cut back on the deficit but hasn't been met with much confidence from analysts saying that the measures are based on optimistic forecasts and a hopeful bounce in commodity prices, of which most analysts don't envision to materialise anytime soon.

A robust fiscal policy is always top priority when it comes to woeing foreign investments.    
In conclusion we can say that Africa is fast becoming a beacon for world economic growth however there are still many unresolved issues that could hamper this. Every country has their fair share of problems so this is not specific to Africa however because of colonial rule and suppression this has driven back political progression for centuries. The problems left behind do not lighten the load for current issues but I'm optimistic about the future of this continent.
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