Author: Jonathan Webb - Categories: Risk
The recent political turmoil in the Ivory Coast is illustrative of African countries' inability to escape poverty. It will be many years before Africa is a significant sourcing destination.
A colleague of mine has previously argued that Africa may offer the next potential support base for global supply chains. He argues that recent reports of high growth rates may herald a period where African countries will be able to rival their Asian counterparts as sourcing destinations.
Although on the surface it may appear that the economic data emerging from many key countries across the continent looks positive, digging deeper reveals almost insurmountable problems. Widespread poverty and economic underperformance are the result of historical economic and political instability. Even an apparently stable regime can fall prey to an outbreak of violence.
The eruption of the Ivory Coast into violent conflict caught many unawares. Indeed, further north of the continent, peoples' revolutions have brought down a number of previously solid regimes.
The history of the Ivory Coast has swung from economic prosperity to destructive conflict. Following independence in the 1960s, the country boomed with real GDP growth rates of over 11% in the 1960s and over 7% in the 1970s. The IMF stated that the country "looked set to emerge as the first developed country in sub-Saharan Africa".
However, the collapse of international commodity prices in the 1980s hit the country badly, leading to civil war and a coup. The country never recovered and the current political instability is a manifestation of its economic collapse.
There is a sense that many African countries are caught in a vicious circle. Their dependence on primary commodities makes them inherently unstable and therefore unlikely to attract the type of investment that leads to economic diversification. This has led many to argue that the presence of particular natural resources in a country is a 'curse'. Natural endowments create an elite that is dependent on an income source and a minimum level of investment to exploit.
Indeed, African countries have long lagged behind other economies. Taking a historical dataset of the estimated real values of countries (under US$ PPP per capita), we can see that since 1950 Africa has shown little potential for growth.
It is interesting to note that China actually enjoyed less per-capita wealth than the African average prior to the 1970s. Yet, since this period, the two dramatically diverged. Indeed, even during Latin America's coups and wars throughout the 1980s, the continent was substantially better off than Africa.
The reason for this divergence lay in the longevity of China's single political entity and the relative variety of its economic output. It was on these solid foundations that the 'Chinese miracle' was founded. Africa simply lacked the steady accumulation of human capital that political security encourages.
None of these factors have changed over the last few decades. Indeed, areas of Africa have become more unstable, with the continental map vulnerable to shifts. South Sudan likely to emerge as the world's newest country later this year.
The question for businesses, therefore, is this: is this region of uncertainty and insecurity ripe for significant investment? Unless sustained periods of political stability are imminent, it seems unlikely that Africa will become a major sourcing destination for years to come.