“‘IS ANYONE here actually hoping to make any money, or are
you all just trying to minimise your losses?’ The question, asked at a dinner
in London for investors who specialise in Africa, showed how the mood has
changed in the past year. The financiers around the table—mostly holders of
African bonds—all said they were simply trying not to lose money.”
The
opening of the article is mildly misleading. The article from the economist,
actually goes on to argue that even though African’s growth as a whole has
slowed down in the last decade (from 7%-8% to 3%) it is in better shape than it
ever has been for economic prospects. The article, draws attention to the fact
that the majority of African countries are no longer warring territories.
Furthermore, of the still remaining warring countries it is only small sections
that remain in chaos. Additionally, “Africa is also far more democratic than it
was. In the 1960s, 1970s and 1980s, only one sub-Saharan government was peacefully
voted out of office. Now nearly all face regular elections, which are harder to
rig thanks to social media. Voters have real choices—one reason why policies
have improved.” Along those lines the article mentions that, the percent of
African’s living in absolute poverty has fallen by over 15% in the last decade.
Not to mention that African school enrollment has also risen by 20% (remember
this is on a rather large average). All these circumstances, point to a far
more profitable future in terms of investment bonds in Africa. Though, the
article shows that at the moment most investors are looking at losses, long
term investments could be prospers as Africa as a continent growths.
The article does raise a small degree of hesitation pointing
out “There are some worrying signs. Leaders once hailed as democrats are
amending constitutions to escape term limits. In Congo, Joseph Kabila’s efforts
to cling to power risk restarting a civil war, as the president of neighbouring
Burundi already has.”
How do you feel?
Although the growth of Africa has slowed, it seems that the potential and past progress are indicators for future progress. I find this article and topic very interesting because Africa isnt a country that is usually discussed. However, it does seems that additional to the progress made, the decrease in inter-continental wars and corruption may put Africa on the radar for global trade as risk is reduced, offering more opportunity. It does seem that even though the mentioned investors are hoping solely to reduce loss, that this may be a more pessimistic perspective.
ReplyDeleteThis article provides some very promising data on the growth and potential of Africa. The data showing that Africa is in better shape than it ever has been for economic prospects is impressive. On the other hand, it is worrisome that they may not be stable when it comes to politics. It will be interesting to see what the future holds for Africa.
ReplyDeleteHaving Africa thrive would be a great thing for all the poverty that exists there. Despite some countries being rich in natural resources, it can become dependent on those resources and not prosper. It's also a good sign that war has been reduced by a lot there, because that can be such a drain to resources and more importantly, human quality of life.
ReplyDeleteInternationally, we have seen a decline in the emerging markets and to some degree, I feel as though it is largely due to some actions by large corporation players such as Johnson and Johnson. When we view emerging markets in the Indies, Asia, or Africa; as investors, we hope that a middle class will eventually emerge and then they will function as a free market trading partner and consumer of American innovations including cosmetics, financial services, jets, cars, etc. At the beginning of 2015, international investment began to contrast in these countries and it was realized in the markets over this past summer. Why did investment contract? Uncertainties in bond markets and G-Bonds being deemed below investment grade - a signal of future defaults. When Greece showed us that it was possible for a seemingly civilized nation to go butt backwards to the IMF and demand a bailout, and then not receive one and then face possible default - we became weary of borrowers who have less worthy credit. Therefore, a slowdown in international investment and an ever diminishing potential for future growth. If Ford, Tyson Chicken, and Cocono Phillips decreased investment in Africa in 2015-16, it just doesn't imply slowed growth for 2016 - a decrease in the rate of investment will obviously decrease future growth rates as we learned in class.
ReplyDeleteAnthony I think you bring some good rivaling points up (that is a complement). Yes I am sure that large corporations have a hand in the investment. The current issue is rather that at the moment the individuals (corporations) that have invested are trying to self-off their bonds. Partially, as you mentioned, the middle class never took hold as they were hoping. But, really who would have guessed that a continent dominated by predominantly absolute poverty would not develop a middle class in a decade? (Sarcasm) Yes, people are rather afraid of default, but the article primarily is trying to say; BUT in the future these payoffs will be far greater. The Economist seems to think that there exist a lag for when the continent will catch up as in terms of prosperity. Meaning that Africa is not quite a sunk-cost just yet and if corporations can sustain short term losses they may be in fact in for some long term gains. I would also like to note Greece may be a drastically different example, since Greece citizens were trying to keep a standard of life that was being threatened they were unwilling to bargain and let go. Africa on the other hand can hardly get any worse off by our glorified standards. Meaning they are on their way up. (I will acknowledge this is a far less information approach to the explanation, hopefully this clears things up)
DeleteAfrica has been an interesting country to watch over the years. China has been one of the largest contributors to the development we have seen in the country thus far. While Africa poses many challenges even beyond its current economic state, if progress is able to be made further, there would be a lot of money to be made and growth to occur. It will be interesting to see how this develops going into the future and whether or not the limitations are able to be solved.
ReplyDeleteIn my economic development class we looked at how bad governance and bad neighbors has an effect of growth. The turn around rate for a failing state is 1.6%. Which means that places such as Zimbabwe and Liberia are most likely to remain failing. In order to fix the growth of Africa they will need to focus internally on the governance in place and its openness to world trade.
ReplyDeleteI agree with Johannes regarding the focus on internal governance. Although the numbers seem promising and potential in Africa seems rather positive, one has to look at long run stability and assess the risk of future investment.
ReplyDeleteThe risk of long term stability as well as a slowing growth rate makes it hard for investors to put money into something. I don't blame their logic either. Also, i didn't know China was the largest investor in Africa. I would have thought it was Britain.
ReplyDeleteI agree. Despite African markets suffering a decline currently, in the long run I think there will be lots of growth. The increase in school enrollment shows that the population of Africa is becoming more educated and thus, human capital is increasing. African workers will be more apt to handle jobs that require advanced skills and the economy will benefit.
ReplyDeleteThe unsuitability would definitely affect the investments negatively, however, I believe that in the long term, the economy would be still growing. The rise in school enrollment would increase educated population. Educated labors with high skills would increase production and benefit the whole economy.
ReplyDeleteStability and institutional strength are great indicators of potential for economic growth. Investors will not invest and foreign governments will be less willing to send aid if they believe that there is an institution and a government that has the capacity to use that money effectively and wisely.
ReplyDeleteYes if you look at the Failed Index it might seem that Africa is the worst continent, however, this index takes into account disease and since there is quite a lag in the prospect of data retrieval you’re only seeing previous years status. So most of the countries from Africa that are rated as failing are the ones who suffered from the ebola outbreak over two years ago now. I would also like to point out that the article at large is making the point why Africa is really not as risky as people try to make it sound. Investors are actually worried at the moment because of the points you brought up. Yet the government structure in Africa is actually catching up as hinted by the article. Part of the articles point is that Africa as a whole is far more civilized.
Delete