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2013 - CEED Report: Africa-Europe on the Global Chessboard: The New Opening

2013 - CEED Report: Africa-Europe on the Global Chessboard: The New Opening

Africa-Europe on the Global Chessboard: The New Opening

Africa is on the rise, and so is the heat around the continent. Researchers, business people, and journalists from around the world cherish the transformation that Africa has seemingly made during the last decade. The change in narrative regarding the continent has been dramatic, from the ‘hopeless continent,’ and a ‘scar on the conscience of the Western world,’ to the ‘hopeful,’ ‘rising,’ and ‘dynamic’ continent. Africa is no longer represented by the usual face of a suffering child, but rather by the smiling face of the new middle-class.

The continent’s metamorphosis is undeniable and is likely to be enduring. According to IMF, in the upcoming five years, ten out of twenty of the fastest growing economies will be from Sub-Saharan Africa. Commodities sectors are booming, rapidly growing consumer markets are attracting new foreign investors, and returns on equity are among the world’s highest. Nevertheless, the African business landscape is still not a bed of roses. Political uncertainty, corruption, widespread red tape, weak governance, poor infrastructure, and low labour productivity all make investors wary of the current Africa frenzy. With many positive changes happening, across-the-board enthusiasm is rather misplaced. Africa is home to 56 states, an extremely heterogeneous population, GDP per capita ranging from 300 USD (Burundi) to 36,600 USD (Equatorial Guinea) and political systems ranging from authoritarian regimes (Sudan, Zimbabwe) to democracy (Ghana, Botswana). Therefore, whoever treats the African continent as a monolith, with growth embracing each and every part of it, is naïve or ignorant, or holds this view for a specific reason.

The objectives of this study are threefold. First, it seeks to present and critically discuss major economic, political, and social development trends in Sub-Saharan Africa. Secondly, it is to examine an on-going shift in Africa’s international relations with the outside world where Europe’s clout is waning and South-South co-operation is on the rise. And, lastly, it seeks to better understand the business and political practices of developing countries in Africa, and thus provide food for thought to CEE, whose business presence on the continent has been alarmingly limited.

The report is divided into four parts. The first chapter presents the general characteristics of Sub-Saharan Africa, with particular emphasis placed on the determinants of economic growth and overall development of the region in dimensions such as: GDP growth, influx of FDI, African trade, rise of the middle class, and technological leaps. Having acknowledged the region’s diversity, African countries are grouped into three categories whose names are derived from three prominent African animals: cheetahs, warthogs, and crocodiles. Cheetahs are the fastest-growing countries, which are also characterized by relative political stability and have seen substantial improvements to the business environment. At the opposite end of the spectrum are warthogs – countries classified as fragile, unstable, or outright failed, where the growth process is either shaky or non-existent. The ‘middle’ category of crocodiles refers to countries whose future is uncertain but may often represent lucrative business opportunities. Countries classified in this group so far have delivered mixed results in pursuing transitions in economic, political, and social management.

Taking into account the multidimensional changes in Sub-Saharan Africa, it should be noted that the region has a great potential for growth not only among African cheetahs, but also in the two other groups of states. In the forthcoming years, extractive industries are still expected to attract the vast majority of foreign capital inflows to Africa, but the non-extractive sectors such as banking, telecommunications, retail, and the automotive industry should also be included on investors’ radars.

The second chapter is devoted to the changing dynamics of Sub-Saharan Africa’s trade relations with the outside world and shifts in the influx of the FDI concomitant with the growing interest of the new emerging powers (China, India, Brazil) and other developing countries (e.g., Turkey, South Korea). The so-called South-South co-operation has significantly intensified in the last decade. In 2012, for the first time, FDI inflows from developing economies into Africa outstripped those from the developed world. These on-going dynamics have provoked a sense of unease in the Western World and widespread fears that Europe is ‘losing Africa’ or, at best, is gradually being squeezed out of Africa. Regrettably, this tectonic shift is not a matter of concern for CEE, which does not seem to be interested in gaining a better position in the global economy.

The third chapter discusses political constraints of doing business in Africa, departing from the notion of African statehood, and external factors that determine the political environment of Sub-Saharan Africa. It argues that despite positive changes, the region remains very difficult and institutionally unstable. More recently the relationship between ‘Old Europe’ and Sub-Saharan Africa has started to be framed within the rhetoric of ‘trade not aid.’ Nevertheless, it is too early to see whether the financial crisis and the intensification of relations between Africa and other emerging economies are actually leading to a redefinition of formal colonial powers’ relations with its former dependencies. Having said that, the co-operation of Sub-Saharan Africa and Central Europe could be a potential new axis cross-cutting two already well-established axes of co-operation.

Chapter four presents lessons coming from the emerging countries’ policies in Africa and business models employed by new investors, which may also serve as practical recommendations for countries of Central and Eastern Europe. It discusses matters of political support and political symbolism, which are of the utmost importance for the development of a sustainable business partnership. It also stresses the significance of diplomatic engagement, which is materially expressed in the fast-growing number of diplomatic outposts in the continent, and makes note of an increasing trend of institutionalization of various forms of mutual co-operation between Africa and the developing world, such as business forums, summits, and conferences. All of this is presented against a background of passiveness and a lack of political will on the part of CEE to develop relations with Sub-Saharan Africa, while acknowledging a number of features that in fact might greatly facilitate this. The lack of colonial burden and the generally positive or at least neutral image of CEE in Sub-Saharan Africa, inter alia, are assets that could be used in pursuing a ‘going Africa’ strategy. Central European companies should look for niches in African markets, which, as the Brazilian case demonstrates, still exist in great numbers. In order to nurture mutual co-operation, setting up the CEE-Africa Forum of Cooperation could be a good start.

In conclusion, it should be noted that despite the various speeds of development of Sub-Saharan African countries and the numerous risks faced by investors, the overall trend indicates that in the medium term, the continent will be one of the most attractive places for doing business in the world. Companies from Central Europe must not ignore this, since the price of standing by, while half of the world is rushing to explore business opportunities in Africa, may be too high. They should seek business niches on the continent, think in a large-scale way, and not concentrate exclusively on the mining sector. The CEE policy-makers should also wake up to the fact that Africa is quickly becoming a different place. Much remains to be done in the fields of political support for investment in Africa and changing the perception of Sub-Saharan states as places where doing business is impossible.