Sunday, 12 January 2020

Predictions For 2020 - Prediction 6 – The African Free Trade Area Sees Rapid Growth

Ethiopian GDP Growth Since The Start of The New
Long Wave Upturn in 1999 Has Been Around 10% p.a.
Its Just One of a group of Lion Economies That Have Led
World GDP Growth Tables
More than ten years ago, I predicted that a group of African “Lion” economies would emerge as the equivalents of the Asian Tigers that developed in the 1980's. A group of African economies, led by Ethiopia have seen more or less double digit GDP growth, now, for almost twenty years. Even during the global slow down that followed the 2008 financial crisis, many of these economies continued to grow at that kind of pace. In the last ten years, six of the top ten fastest growing economies have been in Africa. 

These rapidly growing African economies have now followed the same path as the EU, of ASEAN, Mercosur and others in forming a large economic and trading bloc. These blocs are part and parcel of the development of regional and continental superstates with single markets, single currencies and so on. The African Continental Free Trade Area is a bloc which now encompasses 1.5 billion people. It creates the conditions in which this group of African economies led by the Lion economies, can grow even more rapidly, as it begins to break down existing barriers and frictions to trade. China has also played a considerable role in the development of these African economies, and, as these economies grow rapidly, so that too will feed back into Chinese economic growth, in the period ahead. In the 19th century, it was British technology that was spread out into the global economy, both as a result of British colonialism's role in India and the rest of its Empire, but also as a result of British exports of capital into Europe and North America. In the 20th century, particularly its last half, it was the US that performed that role. In the 21st century, China looks set to take on that mantle, as it becomes not just the workshop of the world, but also increasingly becomes the pioneer of new technologies. 

The ACFTA is mostly based in East Africa, and is beginning to fulfil the goal first set out in the 19th century of creating a developmental path from South Africa up through into North Africa and the Middle East. That goal, carried out in India, Canada, Australia, and the US by the development of continental railways, was frustrated in Africa by the nature of the terrain. Now modern technologies are making it achievable, opening up the continent by road, air, and telecommunications, so as to bring it together and dismantle existing borders and barriers. That makes a rapid expansion of trade and economic activity much easier. It reduces costs, and speeds up the turnover of capital, making higher rates of profit and more rapid capital accumulation possible. 

That is, of course, not to say that these rapidly growing economies are going to occupy positions in the front rank overnight. It has taken forty years for China to become the second largest economy, and, even now, that ranking disguises the fact that, tens of millions of its people still live in relative poverty. The same is true with India, as well as other economies such as Mexico, which is now the 12th richest economy in the world, but ranks fourth amongst those richest countries in terms of the number of people living in poverty. That, of course, is not to say that this means that the success and development of the economy itself is somehow not real. When Britain undertook its industrial revolution, and became by far the richest economy, millions of its people also lived in poverty, a poverty that, initially, grew even worse than it had been prior to that industrial development. The impoverishment of millions of independent producers, and their conversion into wage labourers, employed by a tiny group of capitalists is the price that has to be paid, historically, for such industrial development, and the consequent rapid increases in living standards that flow from it. 

Economies developing now in Africa will enjoy many advantages that previous countries going through this process did not have. The more developed stage of technology means that African economies can straight away go to these newer more effective, and cheaper technologies, as part of their development path. That means they do not waste resources on less effective technologies. Things like mobile telecommunications can, in many places, remove the need to have to expend large amounts of resources installing fixed line telephones and so on. Where Britain is today looking at having to replace its old railway lines with a new High Speed network, at great cost, Africa can, like China, go straight to a high speed network, or potentially even to the introduction of a hyperloop system. In many parts of Africa and Asia, there has been a rapid adoption of mobile payments systems, using smart phones, and so on. 

Economic development never occurs in a straight line, and just as the Asian Tigers suffered the currency crisis of 1997, no doubt rapidly developing African economies will suffer such setbacks in the period ahead. They will always be subject to developments in the much larger global economy, and the effects of developments in the EU, US, and China, though as 2008 showed, their own development might give them some protection against such occurrences. But, developing African economies are likely to take a lead in economic growth in the period ahead, and developments like the ACFTA will be a spur to it, drawing in other African economies along the way.

No comments: