AFRICA'S CAPITALIST REVOLUTION

September 2, 2009

Africa may well emerge from the current global recession as the only region in the world that remains committed to global capitalism.  While the tired industrialized nations of the West are engaging in various forms of protectionism, Africa remains open for business -- promoting trade, foreign direct investment and domestic entrepreneurship, says Ethan Kapstein, co-author of "The Fate of Young Democracies."

Part of the African success is that it's still a well-kept secret that the continent has been in the midst of a profound economic transformation, says Kapstein:

  • Since 2004, economic growth, measured in gross domestic product (GDP), has boomed at an average level of six percent annually, on par with Latin America.
  • This rate will decline as a result of the global financial crisis, but the International Monetary Fund still projects growth of around 1.5 percent for this year and 4 percent for 2010 throughout Africa -- a relatively healthy figure by today's depressing standards.
  • International trade now accounts for nearly 60 percent of Africa's GDP and foreign direct investment has more than doubled since 1998, to over $15 billion per year.
  • Overall, private-sector investment constitutes more than 20 percent of GDP and since 1990, the number of countries with stock markets in sub-Saharan Africa has tripled and the capitalization of those exchanges has risen from virtually nothing to $245 billion.

But these positive trends may not last, says Kapstein:

  • Bad governments in Africa -- often tribal in their orientation, with Kenya being a notable example -- have long rewarded insiders and engaged in widespread corruption and even the outright theft of national resources.
  • In such regimes, military officials and dictators have generally monopolized economic activity, providing few, if any, incentives for legitimate entrepreneurs to do business.

But these "frontier" markets are giving investors huge returns compared to those found in other emerging economies, says Kapstein.

Source: Ethan B. Kapstein, "Africa's Capitalist Revolution," Foreign Affairs, Vol. 88, No. 4, July/August 2009.

For text:

http://www.foreignaffairs.com/articles/65158/ethan-b-kapstein/africas-capitalist-revolution

 

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