EDITOR: | March 11th, 2013

Why Africa, why now? North African Risks Assessed at US Armed Forces Seminar in Italy

| March 11, 2013 | No Comments

ProEdgeWire-Invest-in-Africa-but-Be-Aware-of-the-Risks1-300x208I will be addressing a number of high ranking US military officers and government officials at a special seminar on North African risks to be held at an – as yet undisclosed to me – location near Vicenza, Italy under the auspices of AFRICOM, the US African Military Command. As many readers may know the US Armed Forces maintain one of their most important European bases in Vicenza. The four day event, which begins in earnest on March 12, shall address the present situation in such countries as Algeria, Libya, Mali, Niger, Mauritania, Morocco, Chad and others affected by the events stemming from the ‘Arab Spring’ and developing now with the war in Mali. It’s not all ‘bad news’; the seminar – and certainly in the case of my presentations – will also touch on Africa’s great opportunities and its fast changing socio-economic scenario. As many readers will know, I am rather ‘bullish’ on Africa. My optimism was further confirmed when I heard Robert Friedland address the Mining Africa event at PDAC this past week. He was convincing in sharing his optimism while appearing sincerely ‘convinced’, himself. I will be focusing on Libya and the aftermath of the collapse of Qadhafi.

I lived in Libya and worked as a UN officer there in the mid-1990’s and I also pursued advanced graduate studies on the subject of North Africa, often appearing on TV to help explain or interpret events in Africa and the Middle East. The fact that the seminar is being held now shows that the US is increasingly interested in Africa both because of issues related to international security and its huge economic potential in the next decades. We have paid considerable attention to African issues, offering a similar range of aspects in my analysis. I am clearly very honored to have been invited; I just wish I knew where I was going, as I have not been told…everything; it seems, as I look and fill out at my supplied  ‘Anti-Terrorism Plan’ form  some aspects are CLASSIFIED. I’ve always liked 007 James Bond, 007 movies and for the first time since I was called a spy by several of my Libyan UN colleagues, I am hearing the famous John Barrie composed tune in my head.

Why Africa, why now?

Africa is the continent and the market with the world’s youngest population (average age is 24). In 2050 its population is expected to reach about two billion (compared to 1.6 and 1.4 million for India and China). Africa can also expect to experience the most intense change in the population’s consumption habits and demographic distribution, such that 63% of the population will be urban – the majority is still rural now. Some half a billion Africans in the next 30 years should experience income increases that will open up a burgeoning middle class, demanding new products. The fast spreading use of Mobile telephony over the past decade offers a valuable example of this trend. Since 1990, when mobile phone usage was negligible at best in Africa, today, over 45% of the population relies on one. There is more access to internet, leading to an increasingly more informed and educated African society. There is more Foreign Direct Investment (FDI) in both the telecommunications market and other sectors. And then of course there is mining, which is one of principal factors accounting for FDI. Africa has an abundance of oil (mainly in the western-Saharan Africa), key minerals and materials necessary to support new technologies and food production (potash & phosphate). Nevertheless, for all of Africa’s opportunities there are many risks, both economic and socio-political.

There is high inflation; there is a want of infrastructure in both transportation and telecommunications; there is a high degree of corruption in the vast majority of countries and there is an excessive bureaucracy that is required in many cases to establish a business. Then there is the issue of democracy; in this area there are some pleasant surprises, even if Africa is home to about half of the world’s authoritarian regimes. This can sometimes offer stability but it also creates risk of unrest and revolt such as the events of the so-called ‘Arab Spring’.  This instability risk is one of the main reasons why, especially in uncertain economic times, many investors choose to bet on economies whose organizational structures provide more stability and transparency. Undoubtedly, a change in the socio-political situation would enable Africa to better develop its potential, and take advantage of their status as a future emerging continent.

The economic outlook for the continent hinges on many factors beyond expectations. A worsening of the crisis in the Eurozone would cause a global slowdown and a more pessimistic scenario due to less FDI and less aid. A worsening of the crisis in Europe have a direct impact on countries dependent on the European market – including North Africa and West Africa, but also South Africa and some countries in Africa East such as Kenya. Tourism would also be affected in these regions and in countries such as Cape Verde, Mauritius and Seychelles. Declining commodity prices reduce income African countries exporting oil and minerals. A worsening of the crisis in Europe also hit other advanced and emerging economies, giving a second setback to African exports to these destinations. A crisis, whatever it is, would prompt a rise in the price of gold, which would help African producers to offset some of their losses. These are risks to consider, even if some of the world’s fastest growing economies are increasingly shifting to Africa. The resource-rich countries have been the main beneficiaries of investments in Africa and if a new global crisis would result in a collapse of the current flows are again likely to be affected. But in the medium and long term, the growing demand for oil and other commodities should continue to attract funds to these countries. In addition, the improvement of the economic and political stability should make African countries more attractive.


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