There are periods in the dynamics of global power when the shift in trends is of such a scale that it is almost impossible to perceive the full impact of the moment. This was certainly the case with the phenomenal rise of China as a major global economic power.

And it is happening again with the rise of Africa as a priority investment destination, as it moves into a similar position in which China was three decades ago, when that country began opening its economy to global forces.

The key elements in China’s economic miracle have been an integrated market, special economic zones with incentives for foreign investors, and widespread reform of the agricultural system, which has freed up more labour for economic development.

Africa is moving in the right direction on these key elements, but there are fundamental differences with China, and the evolution of Africa’s economic miracle will be different.

China’s lifting of 400 million people out of poverty in the space of three decades, maintaining 10% gross domestic product growth for three decades, the helter-skelter rate of urbanisation at almost 20 million per year, and now the unprecedented growth of the middle-class – mainly took the West by surprise.

Africa: the reality-perception gap

Africa’s greatest disadvantage is probably in the area of perceptions. The huge deficit between the reality of Africa and the Western media’s obsession with negative stereotypes of conflict, famine and failed states undermine the continent’s potential.

The mainstream media has dominated the grand narrative for the past four decades, and through selective – rather than inaccurate – reporting has buttressed Africa’s negative trends at the expense of its potential.

But the reasons Africa’s growing potential as an investment destination should be conventional wisdom are multiple:

In the past few decades, Africa has taken significant strides toward more democratic governance, more transparent economic systems and eliminating some of the more crippling bureaucratic barriers to trade and investment.

Although the continent still falls far short of constituting an integrated market, the trend toward integration and more transparency is undeniable.

The invitation of South Africa to become the fifth member of the BRIC countries – Brazil, Russia, India and China – and the South African seat on the United Nations Security Council will ensure Africa has a voice in all key global fora and will accelerate reform of the UN and global financial, developmental and trade architecture.

The credit crunch and global economic recession have created a fundamental crisis of confidence in the international financial system, which has both removed any moral high ground that the Washington-consensus institutions had, and opened the way for an ongoing review of the current architecture.

The potential of Africa as an investment destination has been long recognised and supported both in terms of investment and soft loans by China – now the world’s second-largest economy – and with strategic investments from South Africa and rising economies such as India and Turkey.

There is ample evidence of Africa’s potential to leap-frog constraints, such as fixed-line telephones, with the revolution of mobile technology in Africa.

The next breakthrough will need to come in the field of energy and electricity provision. Africa’s hydroelectric potential could play a key role here.

In a world where there is growing consensus that future wars will be fought over food and water resources – rather than territory or ideology – Africa is well placed to play a key role with its huge water reserves and vast tracts of arable land.

With a population approaching one billion, Africa represents the world’s third-largest market after China (1.3 billion) and India (1.1 billion) and is rich in unexploited mineral and natural resources.

South Africa played a key role in rescuing the 2009 Climate Change Summit (COP15) in Copenhagen. There was enough progress at Cancún in Mexico at the end of 2010 to ensure the next critical session, COP17, in Durban in November 2011 could broker the breakthrough the world so badly requires.

Emerging market blocs

China, South Africa, India and Turkey are now leading the way in the development of Africa, while traditional trading partners and investors – such as Britain, the United States, France and Germany – battle to maintain their share of market.

The new grouping of promising emerging markets, known as the CIVETS – Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa – already includes two countries from the African continent. The rest will follow in time, starting with Mauritius, Namibia, Botswana, Ghana, Kenya, Nigeria, Zambia and Senegal, among others.

Africa is fast approaching the tipping point, but it has not quite registered in the industrialised club of nations.

South Africa’s position as voice and advocate of the African cause in the shifting sands of global economic power and institutional reform now becomes even more critical as it takes its place, both in the BRICS and the UN Security Council.

South Africa’s trade shifts east and south

As the shift in global economic power gains momentum, South Africa’s trade is moving eastward and southward in what has become a clear pattern that both reflects the global trend and is helping to drive it.

It is no coincidence that, since the beginning of 2010, South African President Jacob Zuma has paid his first state visits to India, Russia and China.

In July 2010, Brazilian President Luiz Inácio Lula da Silva paid his first state visit to South Africa following a working visit by President Zuma earlier in the year.

There is no doubt in the minds of either China or African nations that President Zuma is speaking not only on behalf of South Africa but the entire African continent on these trips abroad.

Even the notion that the much smaller South African economy could join four mega-economies in BRIC would have been unthinkable a decade ago.

While attending a UN conference on trade and investment in Beijing in mid-September 2010, South African Trade and Industry Minister Rob Davies said South Africa would prioritise China and India as export destinations of choice, as these countries were now its biggest export markets.

Two-way trade between China and South Africa reached R119.7 billion in 2009, surpassing the US as the country’s largest trading partner, according to South Africa’s Department of Trade and Industry (dti).

South Africa’s exports to India reached R5bn in 2010, while imports totalled R2bn, in favour of South Africa, the dti’s trade statistics show.

South Africa and China

The fundamental shift in South Africa’s trading patterns was clear from statements made by President Zuma during and after his state visit to China in August last year.

South Africa, he said, would look to China for investment in meeting its infrastructure projects, including transport systems, freight transport, renewable energy projects and mining. The agricultural sector and car manufacturing were potential recipients of Chinese investment.

In the past three years, while the pace of Chinese investment has been slow, it has been strategic and clearly paving the way for accelerated investment in the future.

In 2007, the Industrial and Commercial Bank of China bought a 20% stake in South Africa’s Standard Bank for R36bn, making it China’s largest foreign investment to date. In 2009, China announced that the African headquarters of the China–Africa Development Fund would be in Johannesburg.

China has more recently invested in a South African platinum mine and a cement factory, and one of the most concrete agreements emerging from the state visit to China in August was the intention to build a high-speed rail link between Durban and Johannesburg.

But the most consistent message that President Zuma conveyed during his state visits to China and Russia was that South Africa wanted to learn from both countries on how to ensure high levels of beneficiation of South African mineral wealth, to ensure the country was able to speed up development, create more jobs and roll back poverty.

He stressed that South Africa needs to balance its trade with China to reduce the heavy deficit in China’s favour.

President Zuma foresaw co-operation between the two countries in reforming the global architecture and multilateral institutions.

The growing relationship with China is seen both as a means of boosting South Africa’s global trade and of accelerating the development of the Africa continent.

With its world-class financial sector, deep experience in African markets and an extensive corporate footprint on the African continent, South Africa is well placed to lead an African miracle similar to China’s achievement over the past 30 years.

John Battersby & Yingni Lu

 

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