The rise of the African Crocodiles

African economies are becoming more resilient

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Previously on Our Long Walk:

• In search of South Africa’s Javier Milei: I highlight how mismanagement, corruption, and the ‘ratchet effect’ in government spending have led to stagnation and debt crises in both Argentina and South Africa, and discuss the potential of new leadership, like Argentina’s Javier Milei, to implement radical reforms

• I recently wrote two posts for paid subscribers about ‘Ten questions that 2024 might answer’: Part 1 and Part 2.

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2023 was not a great year for Africa. Political instability escalated in many parts; West Africa, for example, has experienced seven coups in the last three years, two of which were in 2023 – Niger in July and Gabon in August. In Sudan, a conflict erupted in April between the Sudanese Armed Forces and the paramilitary Rapid Support Forces, primarily in Khartoum and Darfur, leading to significant casualties and displacement. And even in places without severe conflict, like Zimbabwe, elections were fraught with administrative chaos, pre-election irregularities, and tactics by the ruling party that may have influenced the election outcome, leading to critical assessments from observer organisations about election fairness.

Part of the reason for such instability is the seemingly disappointing economic performance. Africa’s largest economies – Nigeria, South Africa, Egypt – all recorded lower economic growth rates than in previous years. Inflation rose rapidly in many countries; Egypt measured an inflation rate above 30% in November, for example. Such high inflation and, as a consequence, weakening currencies have turned preexisting high debt burdens into a debt crisis. Ghana entered a $3 billion IMF debt relief programme in 2023, while Zambia continues to struggle with debt restructuring. As The Economist reports, the situation also reflects the increased involvement of China and private creditors in African debt, marking a new era of austerity with public debt-to-GDP ratios soaring. This can only lead to further political turmoil, with many worried about a wave of social unrest across the continent, and a protracted economic crisis.

But take a longer look, and the story is far more optimistic.

It helps to start with a story about tigers and crocodiles, and a biology lesson.

Hong Kong, Singapore, South Korea, and Taiwan experienced rapid industrialisation and high growth rates between the 1960s and 1990s, transforming them from developing to advanced economies. Their economic success is attributed to factors like export-driven growth strategies, investment in education, and efficient government policies. This remarkable growth earned them the nickname ‘Asian Tigers’, symbolising their speed and power in achieving economic development.

Ever since the 2000s, when economic growth returned to Africa, commentators have been searching for ‘African Lions’, economies that echo the Asian Tigers’ economic prowess. But the choice was a poor one because another animal fits African economic performance better: the Nile crocodile.

As one of the largest crocodile species, the Nile crocodile thrives in a range of habitats, from rivers and marshes to brackish waters. What makes this possible is that they are well-adapted to endure environmental extremes, with tough skin for protection and the ability to withstand both drought and flooding. Their opportunistic and varied diet, which includes fish, birds, and mammals, allows them to adapt, and their ability to go long periods without food helps them survive in harsh conditions.

One notable adaptation of the Nile crocodile is aestivation, a state of dormancy used during extreme heat or drought to conserve energy. This physiological adaptation, along with their reproductive strategy of laying many eggs to ensure offspring survival, makes the Nile crocodile a symbol of adaptability and endurance in the African wilderness.

And that is why the Nile crocodile is a far better choice as Africa’s economic symbol: the continent weathered the global storms of 2023 surprisingly well. Ken Opalo, an Associate Professor in the School of Foreign Service at Georgetown University, agrees in a recent Substack post:

The bright spot amid the gloom was the overall resilience of the region’s major economies despite global shocks — from Covid, to Russia’s war on Ukraine, to China’s economic slowdown, to high interest rates in many creditor countries. This is reason to believe that this time will be different from the disastrous long decade (1980-1994) of economic stagnation in the region. African states are older and relatively stronger. Africans are better educated. African economies are relatively more diversified both internally and in terms of global economic partners.

A new paper published in the Journal of African Economies helps us understand this transformation better. In the paper, Sebastian Krantz, a researcher at the Kiel Institute for the World Economy, shows that, between 1990 and 2020, African countries have experienced remarkable improvements in macroeconomic conditions, characterised by higher and more stable real per capita growth rates and lower and more stable inflation. Although there was a global shift towards greater macroeconomic stability, African countries, particularly many of Africa’s low-income countries, improved approximately two times more rapidly than the rest of the world.

He then goes on to ask why this happened. Says Krantz:

[I]t was not, at large, a byproduct of classical structural change, not caused by reduced volatility in the industrial sector (e.g. via improved inventory management), or by monetary policy shifting to inflation targeting, and also not heavily influenced by other changes in economic structure, diversification, conflict incidence, or institutions. On the positive side, the results provide evidence for a role of changes in the external environment faced by African economies, greater resilience of the financial sector, and macroeconomic policy, particularly exchange rate and fiscal management. The analysis also suggests that improvements in human capital and the business environment played a role.

For a variety of reasons, then, Africa today is in a very different place than before the disastrous long decade of the 1980s and early 90s, when global headwinds triggered a debt crisis. In 2023, despite all the negative global shocks and turbulence, African economies remained remarkably resilient – experiencing, if you will, economic aestivation, a period where economic activity slowed down due to external factors, but where the underlying fundamentals remained strong, setting the stage for a robust recovery as conditions improve.

And glimpses of that recovery might be on the horizon. To cite just two statistics: Nine of the top 15 fastest-growing economies in 2024 will be African – Niger (11%), Senegal (9%), Libya (8%), Rwanda (7%), Côte d'Ivoire (7%), Burkina Faso (6%), Benin (6%), The Gambia (6%), Ethiopia (6%), Tanzania (6%). In 2024, more than 300 million Africans will live in countries where economic growth exceeds 6%; compare that with a world average of 2.9%.

Yes, African countries face many challenges, but like the Nile crocodile thriving in rough, turbulent waters, the continent is becoming more adept at turning these challenges into opportunities. The smart investor should take note.

An edited version of this article was published on News24. Support more such writing by signing up for a paid subscription. The image was created with Midjourney v6. Prompt: A colourful, playful Congolese cartoon advertisement of a friendly Nile crocodile with a banner saying ‘INVEST HERE’.