News in Charts: The importance of Africa

Africa is often referred to in the context of the ‘great power’ rivalry between the US and China. The geopolitical importance of the continent means that it is considered as ‘in play’, but there is a lack of solid empirical analysis on Africa and on other countries’ engagement in the continent. Part of the reason for this is the streetlight effect, or drunkard’s search principle. This is the idea that analysts look where it is easiest — where the light is — ignoring less examined and harder-to-measure dimensions. With eleven languages spoken in South Africa alone, unpicking goings-on the continent is no mean feat. But it is important to do so, especially as Africa and its significance is often downplayed.

Africa is already home to almost 18% of the world’s population and that percentage is rising. It is on the cusp of eclipsing China, whose cheap and plentiful labour force helped it become known as the factory of the world. A growing proportion of Africa’s population is also of working age. This is in stark contrast to China, whose working-age population is expected to fall by 60% before the end of the century, as shown in the second chart below.

Refresh this chart in your browser | Edit the chart in Datastream

Refresh this chart in your browser | Edit the chart in Datastream

Want more charts and analysis? Access a pre-built library of charts built by Fathom Consulting via Datastream Chartbook in Refinitiv Eikon.

Africa is also endowed with 30% of the world’s mineral resources, such as gold, cobalt (used in batteries), coltan (a key ingredient for the electronics industry) and copper (used for wiring in electrical equipment and motors), to name a few. The extraction of those resources has risen sharply over the last 20 years, as shown in the chart below which considers production in the Democratic Republic of Congo.

Refresh this chart in your browser | Edit the chart in Datastream

But despite being resource rich, countries in Africa remain some of the poorest in the world. According to the resource curse theory, this is because demand for commodities bids up their exchange rate and stifles other sectors of their economy.

Refresh this chart in your browser | Edit the chart in Datastream

Abundant natural resources in poorly governed countries can also lead to increased violence, meaning that rather than their economies benefiting from increases in the prices of key commodities, they suffer, with outbreaks of violence harming economic activity and weighing on GDP. This is because as the benefit of owning the resources increases, so too does the incentive to forcibly appropriate them. In underdeveloped economies, with greater inequality, that incentive will be greater still. As shown in the chart below, the vast majority of Sub-Saharan African countries sit toward the lower ranks, with zero corresponding to the worst control and prevention of corruption globally.

Refresh this chart in your browser | Edit the chart in Datastream

Poor governance has other impacts too, such as making other countries less willing to engage. Part and parcel of that is the provision of loans, and the cost attached to those funds. One representation of the cost of borrowing is ten-year government bond yields. These are shown in real terms for the countries in Africa where data were available. Except for Ghana, Egypt and Nigeria (where annual price inflation is in excess of 20%) and Togo, real borrowing costs are eye-wateringly high compared to the US.