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Private Sector Development

Five reasons why Kenya and Africa should take off

Wolfgang Fengler's picture

A week hardly goes-by without one or more international investors announcingmajor investment interests in Nairobi, or other African capital cities.

Nokia, Nestle, and IBM are some of the companies which intend to position themselves more strongly in (East) Africa. True, their investments may still be low by international standards, but they are increasingly becoming noticeable. 

On a macroeconomic level, the new Africa momentum has also been evident. Africa has weathered both the global financial crisis, and the turbulence in the Euro zone. According to World Bank’s latest economic outlook, Sub-Saharan Africa is projected to grow above 5 percent in 2012 and 2013. This would be higher than the average of developing countries (excluding China), and substantially, above growth in high-income countries. This means that at some point in this decade, Africa could grow above the levels of Asia.  A few years ago, it would not have been possible for economic observers to consider such a scenario.  Once Africa becomes the fastest growing continent in the world; this will also be the true turning point for Africa’s global perception.

About Development Economics

Shanta Devarajan's picture

UPDATE (May 15th, 2012) Caroline Freund, World Bank Chief Economist for the Middle East and North Africa has joined the debate. See her remarks.

The Chief Economists of all the regions where the World Bank implements programs got together recently to exchange thoughts about the current state of development economics.

You can read a summary of our views related to Africa, South Asia, and Europe and Central Asia here. 

And we hope you can participate in this debate by sharing your own views via the comments section below.  

International Trade Can Help Africa Grow

Daniel Lederman's picture

Africa tradeOptimism about Africa’s future is no longer scarce. The continent’s growth has been exemplary in recent years. Yet it is just as easy to find signs of distrust in the global economy. 

Multilateral agencies insist that international integration offers opportunities for accelerating economic growth. Official parlance has become tame since the heyday of structural reforms in the early 1990s, but they have found subtle ways to argue that trade is good. The World Bank recently launched “Defragmenting Africa,” providing an exhaustive and exhausting list of policies to increase international trade within the continent. 

Unsurprisingly the prescriptions can be costly. Removing import taxes might improve economic efficiency and enhance consumer welfare, but revenues can fall in countries with limited public resources. Although Africa harbors some of the highest trade taxes in the world (World Development Report 2009), the point is that there are tradeoffs. The same applies to policies that entail investments in infrastructure for “trade facilitation.” 

What would Africa get in return? 

Big shifts and what they mean for Africa and Kenya

Wolfgang Fengler's picture

Can Africa claim the 21st century? When the World Bank’s Africa department published this book in April 2000, most observers were doubtful that African countries would ever be in a position to become emerging markets. That year, The Economist called Africa “The hopeless continent” and global attention was focused mainly on Africa’s problems: HIV/Aids in Southern Africa; the relentless war in Somalia; and, droughts in the Sahel—which gave the pessimists plenty of ammunition. 

But over the last several years, something remarkable has happened: Africa’s fragile and conflict-affected countries remain a major development challenge, but besides these, a Stable Africa has emerged. Most of this Stable Africa has experienced continued high growth for a decade, and major improvements in social indicators. Africa is becoming an investment destination, and there is hardly a week which goes by without a major investor dropping by my office, to discuss the region’s economic fundamentals.

How has Africa changed over the last decades?

Will oil be a blessing or a curse for Kenya? – Lessons from Indonesia and the rest of the world

Wolfgang Fengler's picture

This piece was co-authored with Günther Schulze1.

Kenya may have found oil in Turkana that could change the development trajectory for the country. In 2011, Kenya spent US$ 4.1 billion on oil imports, equivalent to approximately 100,000 barrels per day. For Kenya to become a net oil exporter, the resources in Turkana would need to be substantial and similar to those of Sudan or Chad. 

If indeed Kenya has substantial oil reserves, will they benefit the country in the long-term?

Some observers are predicting similar problems as in Nigeria, Equatorial Guinea and many other resource-rich African countries where corruption has been amplified.

Others argue that this need not be the case. Countries as diverse as Botswana, Chile and Norway have shown that natural resources can be a blessing. If managed well, they can even support the fight against poverty by providing the resources needed to scale up the delivery of public services. In the last ten years, many of the world’s fastest growing economies, including in Africa, have benefitted from exporting natural resources.

So who should we believe?

Zambia: Decisions with unintended consequences?

Asumani Guloba's picture

Since the start of 2012, expectations in Zambia have been running high: stable economy; a newly elected government; recently crowned African football champions.  Everything seems possible.  For the new government, fulfilling election promises will require well thought through development decisions. Are the decisions taken so far having the intended consequences?

The Zambian economy has been remarkably resilient, with growth averaging 6.6% in the past five years, supported by strong macroeconomic policies, high copper production and favorable prices. End-year inflation has been in single digits for four of the last five years, the debt and fiscal positions well within sustainable levels. In addition, since independence, the country has witnessed five peaceful elections leading to four changes in government. These factors auger well for the future economic prospects of the country. Or do they?

When are macroeconomic stability and exceptionally high returns not enough for private investors?

Sandeep Mahajan's picture

South Africa appears to be mired in a cycle of modest growth, high inequality and record unemployment. This, despite an exemplary record on macroeconomic management and deepening integration with the global economy. 

Inflation remains nestled within the target range of 3-6 percent and fiscal and debt management outcomes have been impressive.

Remarkably, there is broad political consensus on the issue of macroeconomic stability, recent calls for a looser stance by the labor unions notwithstanding. 

A sustained pattern of high, broad-based and inclusive growth is yet to emerge, however.  Despite a pick-up in per capita GDP growth from negative rates to an average of 1.6 percent per year during 1994-2011, per capita GDP is currently only 10 percent higher than in 1980: a period over which other developing countries have seen much more meaningful increases in their income levels.

Kenya’s tourism – Still an unpolished diamond

Wolfgang Fengler's picture

When I first came to Kenya, in August 1990, I was a backpacker on a shoestring budget. At midcourse between Cape-town and Cairo, I got accommodation at the New Kenya Lodge in River Road for US$ 2.50. After spending two nights there, I continued to Garissa and Liboi, heading to Somalia.

In 1994, I returned with my wife, and in downtown Nairobi, urban chaos and poverty struck her so much, that she was reluctant to come back 15 years later, when I was offered a job.

Today, I enjoy the full beauty of Kenya with my family, and we all agree—my wife included!—that this is one of the most beautiful countries in the world. If you created an index of "natural beauty per square-kilometer" Kenya would probably come up on top of the list. Starting from Nairobi, within a few hours of driving, you enjoy the most amazing nature: the Masai Mara, Mt Kilimanjaro, Mt Kenya, and Lake Victoria, are all within reach. Nairobi is surprisingly pleasant, with one of the best climates in the world: it is one of the few cities where you neither need air-conditioning nor heating—all year long (well, it will soon get “cold” in July but the fireplace will help).

Tanzania can benefit from natural gas by empowering people

Jacques Morisset's picture

If you are looking for a house in Dar es Salaam, hurry up. With the recent discovery of massive natural gas reserves, affordable houses will soon become a rarity. The cost of living in African countries with abundant natural resources (Angola, Gabon, etc) is among the highest in the world. Today Tanzania sits on about 15 trillion cubic feet of proven natural gas reserves, equivalent to approximately US$150 billion at current prices, or 6 times Tanzania's current GDP.

These proved and potential reserves can be a game changer for Tanzania. Yet, extracting and producing is not a simple affair. Massive up-front investments (larger than the country’s current GDP of US$22 billion) and new technologies are necessary, while benefits will typically spread over 25 to 30 years. Short of cash and expertise, Tanzania will have to partner with global companies. Potential candidates (British Gas, Statoil) are already knocking on the door.

100% pass rate in South Africa’s township schools?

Sandeep Mahajan's picture

Residents of the pukka houses (formerly temporary shacks) in front of the apartment complex where my family lives in New Delhi have decided to send their kids to private, English-medium schools, cutting corners to save enough to be able to afford it.

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