Africa sliding

By David Levin

A reversal of the “Africa Rising” Narative

Sorry, but somebody had to say it already.

“Africa Rising” was a good thing while it lasted. Great slogan. Short and punchy. Five syllables. Great PR value. And the media was using it in nearly every story they wrote about Africa. Actually, they invented it. It was all things Africa. It was inspiring. Unifying. It got people believing again.
Finally, there was hope!

But, like everything else in life, what goes up must come down. Even Africa Rising.

Because the good vibes only last so long especially when the results do not match the hype. And once that happens, people stop believing. You have probably noticed that you don’t hear the phrase Africa Rising too often anymore. That’s because today, unfortunately, Africa is no longer rising. It’s sliding.

Just look at Africa’s leading economies as a bellwether. They are in tatters. Nigeria is gasping for air as its economy continues to be smothered under the weight of weak oil prices while South Africa was reduced to junk status by the rating agencies.

Commodities Crash

Africa’s slide started with the commodities crash in 2015. Countries there rode the global demand for natural resources for years. Things were good. Everyone looked the other way. “Nothing to fix if it’s not broken” as they say. Commodities were hot and were the continent’s key economic drivers. But then, prices hit the skids and coupled with underdeveloped and underfunded private sectors, much of Africa was left twisting in the wind.

Ironically, Africa’s greatest strength was also its biggest weakness. Because if you live by commodities alone, you will die by them too. All you need is one bad economic cycle, just like we are in now, and you are down on the canvas, flat on your back, with the referee standing above you counting to 10.

Africa simply could not absorb a punch like that. It was too fragile to begin with. Now, its main source of revenue was flattened. And let us face it, there has never been much room for error there to begin with. In many ways, Africa is like a person that has no savings. One day, he loses his job. The next day he realizes he has no money in the bank, no marketable skills, and no means to support himself.

Banking and credit in most African countries are also in a tailspin. Nigeria is in yet another full-blown banking crises. Simply stated, banks aren’t lending. The entire economy is frozen in place and nobody is willing to make a move.
Businesses are afraid to spend and hire. There are no dollars to be had and the Naira has been reduced to rubble. Because of this, many debt and equity investors have pulled out of Nigeria all together, at least until oil makes a comeback. But it could take years for oil to return to its previous levels, if it ever does at all.
Recovery of any kind is a slow process.

South Africa, the continent’s most diversified economy, is also up against the wall. Businesses there are in a holding pattern. And the recent downgrades to its credit rating by Standard & Poor’s and Fitch served as a swift kick in the bum to an otherwise proud country. The country has slowed to a crawl as it contends with one political scandal after the other, further eroding confidence in its future. And embattled president, Jacob Zuma, is desperately trying to hold onto power as he tries to fend off the endless corruption charges and a near complete loss of confidence.

Enter China

So, Africa is in a full out tizzy. Enter China. But let us be clear here, China’s aspirations are in China’s self-interest alone. Not Africa’s. They might say otherwise, but make no mistake, it is Colonization 2.0. And given the current state of affairs in Africa, when China calls, Africa picks up the phone.

China pounced on Africa for 2 primary reasons. First, access to commodities. Raw, out of the ground natural resources, Africa has what China needs to power its economy. And second, China eyed Africa because it was vulnerable. With Africa in a weakened state, China saw the chance to embed themselves across the continent. And they’ve done just that by spreading investment and manpower to many African countries in return for the keys to the commodities kingdom.

But this has rarely, if ever, trickled down to the man and woman on the streets of Lagos or Kinshasa. The continent is plagued by the same problems it has always had. Rampant corruption. Payment default. Contract default. Political power plays. Currency manipulations. Scandals. You name it. This scene has repeated itself time and again throughout Africa’s history. And all the private investment capital, global support and financial aid in the world never seems to correct the problem.

So, this is Africa today. I am really hoping it can make a comeback. It would be great to see it “rise” again. And I think it can if it learns some of the harder lessons from the current downturn. If it doesn’t though, history will continue to repeat itself with every new boom and bust cycle, and prevent Africa from developing much beyond where it is today.

David S. Levin is the Managing Partner of Nexus Capital Markets, LLC.