Infrastructure spending to transform growth
We attended on Wednesday the annual debate organized by the Business Council for Africa in London. This year’s theme was Africa: The Next Chapter, and we want to share the core points of the macro discussion. The World Bank’s chief economist for Africa, Albert Zeufack, noted that estimated growth of 1.6% last year in sub-Saharan Africa (SSA) was the lowest for two decades. However, he held out hopes for a modest recovery in 2017 of between 2.5% and 3.0%.
· For the three largest economies in SSA, prospects are poor this year: the Bank sees growth of 1.4% in South Africa and 1.0% in Nigeria, and further contraction in Angola. The rest of the region should grow by 5.0%.
· Lawrence Kiambi, chief financial officer of Kenya Commercial Bank, singled out the challenge of poor savings rates, at least in his own country, which he blamed on cultural factors. A test of his theory will be the world’s first mobile-only government bond (M-akiba), which was launched on Thursday. The minimum subscription has been pitched as low as US$30 equivalent.
· Babatunde Soyoye, managing partner of Helios Investment Partners, argued that SSA economies can only attain consistent double-digit growth with huge expenditure on infrastructure, which boosts employment and growth, reduces inflationary pressures, and raises investment inflows.
· The contract to build a standard gauge railway from Mombasa on the Kenyan coast to Kampala in Uganda was awarded to a Chinese consortium. Soyoye noted that the winning bid was one third of that of the competition. He brushed aside concerns that the completed railway will be lossmaking and justified the project on the basis of its broader economic benefit.
· The Trump presidency in the US is expected to bring a decline in donor assistance. One speaker noted that the US provides 16% of official development assistance of OECD economies. We would add that the presidency’s focus on the “war on terror” points to increased support for a few countries, and suggest Nigeria as a likely beneficiary.
· Professor Thandika Mkandawire of the London School of Economics observed that the fastest growing economies in SSA over a 40-year period are both democracies (Botswana and Mauritius). This counters the view in some development circles that the fastest growers of the past decade are democracies only in name (Ethiopia and Rwanda).
· In a forthcoming daily note, we will provide the highlights from a lively and encouraging panel discussion on the tech revolution and start-ups.