Growing pains— and potential by Refilwe Moloto, Investec Official Institutions

Economic growth has been a constant feature of the African landscape in recent years. African markets have been identified, time and again, as the world’s new growth vector – multi-national corporations openly plan to set up shop to earn revenue off pent-up African demand, while entire nations secure decades of newly-discovered resources to fuel their own growth. This is positive, for a time.

Two questions, however, lurk behind Africa’s cyclical euphoria:
1. How do national authorities balance their investment contract of profitability with the private sector, while remaining committed to the social contract of growth and stability with their citizens?
2. How resilient will African economies be, to the impending tightening of developed market taps of liquidity, and inward shift of Chinese growth?

On the first question, André Roux, Co-Head of Emerging Market Fixed Income applied his expertise to extract the Public Investment Imperatives Required to Spur Growth. He focused on the practical infrastructural improvements that governments can put in place to attract patient, institutional capital and a firm rapport with the private sector for long-term development.

Echoing this sentiment in an address to the delegation, MrHendrik du Toit, Investec Chief Executive Officer, gave a rousing call for policymakers to ensure that Africans be the ultimate controllers of these levers. Quite apart from the nationalistic or economic benefits of broad domestic ownership, he illustrated how a sense of ownership is central to price and social stability in Africa’s fast-growing nations; making the need to broaden and deepen markets within a sound institutional framework an unconditional imperative to allow domestic participation in national growth.

The second question bears a myriad of answers about overall economic resilience which takes years of policy establishment and implementation to bring to bear. The continent has gone a long way towards this, however, as a structural shift to China’s export-led growth policy and the tapering of unprecedented global liquidity loom on the horizon, the window within which resilience needs to be built is small, and closing. It is written in history that global economic policies can, and must, change to shifting circumstance. What we seek to write out of African history is the sharp impact this has on progress, particularly in small, open, simple and pro-cyclical economies.

Reserves provide short-term resilience to external shocks, but also lay the bedrock to counter-cyclical policy intervention, as well as the establishment of intergenerational savings institutions like sovereign wealth funds. Combined, these can crowd-in private investment to competitive industry, and ultimately free the fiscus for domestic social imperatives in less competitive areas. The global financial repression undertaken by developed market central banks has, however, not only threatened the preservation of existing reserves by delivering negative real rates of return from traditionally “safe” assets, but makes the long-term accumulation of this simple policy tool near-impossible in the face of sustained high commodities prices.

Onward and upward

Africans have much to be thankful for. Ours is a continent on the up in so many ways. But challenges will always remain — and that’s why forums such as the event in Washington DC are so crucial. In our interconnected African and global economies, policy-makers in Africa —and around the world — need to exchange on problems and solutions, learn from things that have not worked and ideally “leap-frog” to leading practice by tailoring solutions to local circumstances. MEFMI is honored to be helping them do so across Eastern and Southern Africa.