The Africa Question

The birth rate in Africa is one of the most incredible demographic changes of the last few decades, having fallen dramatically from above six babies per woman in the 1980s to around 2.5 now.

Key factors include better healthcare lowering child mortality, widespread sexual education and contraception availability. Once fewer children are dying, women can choose to have fewer babies, and so have more time and resources to invest in each child.

People think of the world in two halves: developed and developing.

But that’s not true any more, as this video shows. In it, the brilliant, enthusiastic statistician Hans Rosling busts that particular myth.

He shows that while that was true 50 years ago, recent decades have seen huge reductions in child mortality and babies per woman across the globe. The world is far more homogenous than people think.

That’s why fears about population growth expanding to truly dangerous levels are overblown: soon, the world average will be at or close to 2.1, the necessary level for maintaining a stable population.  

Child mortality and babies per woman are useful measures in economics because they are both a symptom and a cause of economic development. Let’s go back to Africa to see how.

Last year’s highest national GDP growth in the whole world was achieved by Rwanda (7.7%), and with Senegal and Ethiopia (both over 7%), Africa claimed three of the top five spots in 2019.

Ethiopia is, according to some measures, the third fastest growing economy since 2000, after having suffered years of stagnation through war, famine and disease.

Since 1990, its child mortality rate has fallen from a highly distressing 20% to around 5.5% in 2018. Still not low enough, but much, much, better. That means that instead of over 200 babies dying for every 1,000 births, only 55 do now, and that number is falling by around 5% every year.

And its economy has grown roughly 189% since 2000. Coincidence? I think not.

Africa is witnessing rapid improvement across the board. It’s not equal or consistent, but with a broad time horizon, the evidence is very clear. Africa advancing quickly and powerfully.

I was chatting to my dad about Southbank Investment Research products, and ideas he thought people might be interested in, and his top one was investing in Africa. And a friend of mine recently took a week out of work to go and work as a consultant for a startup incubator in Nairobi, Kenya, and came back full of stories about the incredible tech and companies that were solving problems out there.

But sadly, it isn’t just a few people here who have taken an interest.

The mineral-hungry red whale to the East has been very busily threading its tentacles into every home, business, project and political party in Africa.

China’s Belt and Road initiative (BRI) reminds me of the book The Very Hungry Caterpillar. It just can’t get enough.

China is carefully and steadily tying the growth continent into its supply chains with investment, trade deals, grants and political support.

And proudly too – take a look at this image (which I’ve shared before, but it’s just so incredible) from the 70th anniversary exhibition at the China Art Museum in Shanghai last year. It shows how happy everyone in Africa is to be receiving the fruits of the BRI – you can see flying cars, wind farms, high fashion, AI, robotics, and a few little red books thrown in for good measure.

That’s how Huawei came to provide all the communications technology to the African Union HQ in Addis Ababa, from where the day’s data was sent secretly to Shanghai for five years in the middle of the night.

It’s a hard one to gauge. The provision of investment is a great boon to Africa, as investment and debt are the pillars of future growth. If you can borrow now, you can invest it in infrastructure, in supporting technological development.

You can probably imagine that I take a far more cynical view of the whole thing than the one the image wants to portray. I see a Chinese attempt to reshape the global economy in its own image, to create its own Soviet sphere of influence, as the USSR did in East Europe and Asia.

Also, Africa has grown hungry for debt with all this going on, and fears of overstretching have grown lately as the repayment date for an increasing pile of these loans comes nearer.

Most maturity dates are between 2022 and 2031, and those nine years will present a real challenge in repayment terms.

Some countries have already successfully repaid large loans and that will be the norm, but any country that reaches a repayment date when the currency is weak, or in a bad moment economically, will find that repayment is a near impossible task.

This is the cost of growth.

Too little debt would result in insufficient or inadequate growth, while too much results in defaults and recession further down the line.

Few, if any, would be able to say with perfect foresight where on that spectrum Africa lies, or even whether the economic improvements of the last couple of decades might justify a debt-related economic crash further down the line anyway.

That, after all, has been the story of capitalism in developed nations now.

The last century is pockmarked with debt crises, bailouts, restructurings and through it all, incredible growth in every measurable statistic going.

Life expectancy, average incomes, quality of life, people in poverty, healthcare, child mortality, GDP, stockmarket returns, house prices and the rest of it.

So perhaps that is simply the risk you take and the price we all must eventually pay for the benefits that capitalism has given us. It reminds us that our free-market systems are not perfect. They are not even, consistent, eternal or fair.

I suppose I’m really only pointing out the obvious, which is that rapid debt-fuelled growth can’t go on forever, and that I personally wouldn’t want to accept $440 billion dollars of Chinese investment, because there’s no such thing as a free lunch.

African debt has delivered a lot though, and it’s so important not to disregard things because they have some cons, when overall, the pros far outweigh them.

In Africa, growth may not be ubiquitous, consistent, or reliable at this stage. There may be risks of Chinese influence, and looming debt repayments, but given the pace of improvements economically, socially and demographically, it looks like Africa will soon be an incredibly exciting place to invest.

One of its advantages now is that it can skip 150 years of infrastructure, and start with the most up-to-date technologies. Mobile phones is one example – they haven’t bothered with now defunct landline systems in most of Africa. Energy is another one. Why would anyone build a fossil fuel-powered grid now, with its cumbersome physical infrastructure and high input costs?

Instead, Africa is a hotbed for renewable capacity additions. Solar plants located in towns and villages, powering lights in remote areas so children can study at night, hydro power from its incredibly powerful rivers and offshore wind by the stormy capes…

The next one could be 5G. If it’s possible to build products and infrastructure with 5G connectivity, why would you do anything else? 5G can dramatically improve technological performance in a myriad of ways, and could accelerate Africa’s already impressive economic growth. As investors, we should be 100% focused on this, as it could be a match made in heaven.

If you’re not, this is a good place to start.

Just don’t get it from Huawei would be my advice…

So anyway, maybe my dad was right, and maybe before too long there might be an Africa-focused investment advisory service coming out of Southbank Investment Research…

Until then, all the best from me,

Kit Winder

Investment Research Analyst, Southbank Investment Research

Category: Genetics and Biotechnology

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