Soutrh Africa Faces Asian Compeition As It Takes Advantage Of African Growth

SA should take advantage of African growth, faces Asian competition

ECONOMY
Published 19 Oct 2010

Article by: Loni Prinsloo0 Comments



The African continent is expected to see collective growth of around $1-trillion in gross domestic product over the next decade, increasingly fuelled by investment from emerging economies.

Investment Solutions chief economist Chris Hart said at a Gordon Institute of Business Science conference on Tuesday that South Africa, as Africa's largest economy, should actively participate in such a growth drive and become increasingly active in these markets.

However, he said that it was clear that South Africa would be facing strong competition, especially coming from countries such as China and India.

China, which is South Africa's largest trading partner, is expected to contribute around $7-trillion to the global economy in the next decade, far outperforming the traditional economic world leader, the US, that is only expected to contribute around $3-trillion.

Hart said that South Africa, as a multisectorial economy, had a diversity of products and services to offer the rest of the continent, but would have to compete against other countries trying to secure resources for the future.

South Africa does have some advantage, seeing that it forms part of the continent and to some extent understands the culture, specifically when it comes to indigenisation.

He added that it was possible for South Africa to grow its economy by between 8% and 9% if it started treating its wealth producing sectors and opportunities less hostilely. "South Africa needs a friendlier and more inviting tax and regulatory environment to accommodate higher growth rates," Hart said.

A number of positive political and economically enabling decisions over the past decade have made the continent more accessible for foreign investment.

Currently, Africa is able to attract abount $72-billion a year, although economists estimate that the continent really needs foreign investment of around $95-billion a year to build up the required infrastructure.

Also speaking at the event, the South African Institute for International Affairs national director Elizabeth Sidiropoulos pointed out that high levels of urbanisation were expected within the next 20 years, with 700 000-million people expected to move into cities by 2030. Without proper infrastructure, 70% of these people will be based in slums.

This in itself creates great economic opportunity and diversification away from traditional resource markets.

Sidiropoulos said that importantly, quality planning and decision making was necessary from African leaders to successfully accommodate growth and negotiate investment strategies to benefit the people of the continent. Key to this, was the provision of an enabling economic, political and regulatory environments, effective educational systems and decent healthcare systems.

Education and the building of skills were critical to the further growth of the continent, seeing that it would be the youngest continent demographically, with nearly half of its population anticipated to be under 24 by 2030. "Without proper education we will see the plague of unemployment further increasing on a continent already suffering with high levels of unemployment, especially South Africa."

Further, Sidiropoulos pointed out that even though Africa was attracting great interests and investment from countries such as China, the continent did not always have the capacity in numbers and skills to constantly negotiate beneficial deals for the people of Africa.

As far as China goes, the Asian giant is mostly backed by large sums of State capital, making it hard for South African companies to compete against this powerhouse. Around 90% to 95% of its investment into Africa is backed by State money.

In comparison, India and Brazil, mostly engage in the African economy through private company activity. The consul general of India in South Africa, Vikram Doraiswami, said that India was not really interested in competing with South Africa on the African market, but to rather form partnerships with South Africa and then move these partnerships into the rest of Africa.

Sidiropoulos said that the next decade would definitely be a hopeful one for the continent, if it was able to move away from predatory States and elites, corruption, unproductive and uncompetitive economies, and embrace empowerment instead of dependency.