Wednesday, December 3, 2008

Expectations about higher growth in Africa

Adrian Wood asks, “Could Africa be like America?” He believes yes.

One was that a high-income Africa would be more similar in its sectoral and spatial structure to land-abundant developed countries such as the United States than to land-scarce ones such as Japan.

The other, more important sense was simply that Africa could be a high-income region.

Interesting perspective! He believes that improved expectations about potential business opportunities in Africa could lead to optimistic expectations by local entrepreneurs and hence could lead to more local (and foreign) and sustained investment.

So, and without forgetting about expanding Africa’s exports to the rest of the world, we should remember that the main market for a rich Africa will be in Africa. African countries are small, so they will export more of their output than average, but most of these exports will go to other African countries. Most African growth will consist of African businesses producing more goods and services for African customers.

If businessmen think a country will be rich, they will rationally invest and make it rich, as is happening in China. If they think a country will stay poor, they will rationally not invest and leave it poor, as has happened in Africa.

He floats the idea of Afro-EU union to improve positive expectations about investment in Africa. Interesting stuff but quite implausible! However, the idea of viewing opportunities in African through an optimistic lens is quite good because expectations about investment growth are “self-fulfilling”.