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The Actuary The magazine of the Institute & Faculty of Actuaries

Working overseas: New dawn for Africa?

For most of Africa, the symbiotic relationship that the continent is developing with Asia — and especially with China and India — could not have come at a better time. Just as a new generation of postpost- colonial leaders is reinvigorating the continent’s political ranks and the governance of many African nations, so too is a new foreign trade relationship — this time a far more evenly balanced one with Asia — reinvigorating the economic relevance of the African continent.

If these two trends can work hand in hand, Africa’s future will be a lot brighter. For the first time in over 500 years, since Vasco da Gama rounded the Cape of Good Hope gathering up the African continent into the European sphere of influence, the West may well be only marginally involved in defining that brighter future. Africa’s road to political independence began when Nkrumah declared Ghana ‘free forever’ in 1957. However, economic independence was not so easily won with much of the continent remaining trapped in a quasi-colonial framework, one based first on trade with the former colonial powers and then more recently on aid received from them, usually via the multi-lateral agencies closely associated with the West: the IMF and the World Bank.

New value In recent years, this structure has started to break down as an industrialising, urbanising, resource-hungry Asia has recognised new value in a region that had become an economic backwater in the Western mind, best renowned for famine, war and photo opportunities for Western celebrities to be seen to be ‘doing good’. Africa never liked this reputation — who would? — but for a time, there were few alternatives open to Africa but to milk the aid cow for whatever it would yield.

Things are now changing fast, so much so that the cow and its herdsmen are feeling somewhat neglected. Asia wants to trade with Africa, pure and simple. And if trading with Africa also requires rebuilding the continent’s infrastructure so as to facilitate the extraction of resources, so be it; Asia is often prepared to finance the construction of more integrated supply chains in Africa too.

Many in the West — perhaps miffed at Africa’s ‘fickleness’ and its willingness to ‘flirt with new friends’ — have been quick to suggest that Africa is replacing one colonial master with another. The relationship between Africa and especially China was not an even one at the outset. But, as Zambia and Angola can testify, rebalancing this relationship to one that is more mutually advantageous is easily done. To their credit, the Brazilians, Russians, Indians and Chinese (BRIC) have accommodated these revisions on the basis that they appear to be building longer-term relationships based on sounder footings as a result.

Other African countries have built their African partnerships on these second and third generation model revisions. Given the competition that China is now experiencing, especially from other BRIC nations and a reawakened West now aware that its privileged place in Africa’s trade network is being rapidly disintermediated, Africa’s oil and mineral-rich nations have gone from being shunned wallflowers to sought-after Cinderellas at the global economic ball.

Of course, the break with the old and engagement with the new has not been a smooth one — old habits die hard as do old relationships. Western oil companies in particular often have friends in high places and changing this guard is easier said than done. However, one of the less-remarkedupon redoubts of the West in Africa has been its hold on African policy-making, especially with regards to macro-economic management.

Best practice in Africa is still taken as being that which is done in the West, notwithstanding the fiscal, monetary and financial mess, in which the likes of the US and UK have found themselves during the past decade or so.

Still the tenets of the so-called Washington Consensus — hypocritically often preached by but barely practised within the West — are often deeply rooted within the treasuries and central banks of Africa. Alternative ideas, whether they come from Chile or China, are given short shrift regardless of their merits and possible appropriateness to the African macroeconomic challenge.

Africa has, in recent years, finally loosened the silken cords of trade dependence on the West having broken the political chains in the 1950s, 1960s and 1970s. The next challenge must be to let go of the woolly economic thinking still imported from the West — thinking that was rarely appropriate for Africa in the first place and, after all, may not really have worked for the West either.


Michael Power is a strategist for Investec Asset Management