Africa came up at last night’s Port and Stilton party. It has been two months since our last blood donation party at Children’s Hospital and a few of us were planning a return. One woman who expressed interest is married to a South African Jewish emigre. I reminded her that she would be disqualified because they now ask “Have you ever had sex with an African or a person of African descent?” Her husband observed “Well, at some level we are all of African descent.”
Another guest had been working in public health in Tanzania for nearly three years. Tanzania has about a 10 percent HIV infection rate, which is enough that they are setting up special clinics to give drugs to those who test positive. Despite mortality due to AIDS and emigration of the talented and educated to Europe (people leave Tanzania at about the same rate that they arrive in the U.S.) the country’s population is still growing at a vigorous 1.83 percent according to the CIA Factbook and its 36 million people will soon have plenty more company. What are the economic growth prospects for these new Tanzanians, we asked? Tourism is doing nicely on Zanzibar, which was once owned by the Sultan of Oman and has interesting architecture from its 19th century position as the world’s most active slave-trading port. The Italians are investing massively in building beach resorts. Otherwise, she noted, things were tough and she thought it was immoral for the U.S. to continue to operate its space program when the $billions could be sent to save lives in countries such as Tanzania.
It would seem like a great time to be a poor country. Commodity prices are high. Asian countries such as China, Taiwan, Thailand, and Singapore have demonstrated a foolproof method for economic development (stable government, learning English, getting educated, working hard). And capital is cheaper than it ever has been. The after-inflation return on a low-risk investment such as a U.S. T-bill is about two percent. If capital is cheap and there is a surplus of labor Africa should be booming (and maybe it actually is; the CIA Factbook shows that the economic growth rate in Tanzania is larger than the population growth rate and much larger than the U.S. economic growth rate).
In the 1990s an investor could get a fabulous return by rounding up some nerds, buying ping pong tables, and renting an office in Santa Clara. Now that same investor is desperate to find any outlet for capital that will earn more than a few percent above inflation. Could it be that over the next generation this wellspring of cheap capital will bring labor-rich Africa out of poverty even if the foreign aid industry withdrew from the continent?
The August issue of Business 2.0 magazine is on globalization, and includes an articule on Village Enterprise Fund, which makes $100 microloans in Africa — $50 for startup, $50 after six months if they meet their goals. 75 percent of the startups last at least four years. One example is a five-partner startup that sells bike parts from a small shop off the side of the road.
Thomas Friedman had a similar microloan example in his book “the World is Flat,” about a startup that leases a digital camera, printer and mobile solar power station and goes around selling picture services to villagers.
The focus in Africa seems to be on microloans, probably because the education isn’t there nor is the infrastructure of courts, reliable power, credit records, and telecom. Of course I’d bet the continent harbors at least one Costa Rica, the exception to the rule. This same Business 2.0 notes that, unlike the rest of South America Costa Rica abolished its military decades ago, is diplomatically neutral, has a social security system and accompany personal credit bureaus and decent education system, including mandatory English. Intel and Procter & Gamble are among the companies with operations there and the country has 24,500 call center jobs. Astoundingly, even Nicaragua now is attracting call centers.
Africa has a good chance, but investors need to remember Zimbabwe as a cautionary tale. Even 5 years ago there were favorable articles about doing busines s there; now of course it will be a miracle if Mugabe can be removed without a civil war.
The fact that Tanzania’s population is growing despite an allegedly massive AIDS epidemic makes me (and many before me) suspect that statistics are being deliberately exaggerated in order to obtain grants. Back in 2003 The Spectator (UK) had an interesting article on this:
“A year or so back, modellers produced estimates that portrayed South African universities as crucibles of rampant HIV infection, with one in four undergraduates doomed to die within ten years. Prevalence shifted according to racial composition and region, with Kwazulu-Natal institutions worst affected and Rand Afrikaans University (still 70 per cent white) coming in at 9.5 per cent. Real-life tests on a random sample of 1,188 RAU students rendered a startlingly different conclusion: on-campus prevalence was 1.1 per cent, barely a ninth of the modelled figure. ‘Doubt is cast on present estimates,’ said the RAU report, ‘and further research is strongly advocated.’
A similar anomaly emerged when South Africa’s major banks ran HIV tests on 29,000 staff earlier this year. A modelling exercise put HIV prevalence as high as 12 per cent; real-life tests produced a figure closer to 3 per cent. Elsewhere, actuaries are scratching their heads over a puzzling lack of interest in programs set up by medical-insurance companies to handle an anticipated flood of middle-class HIV cases. Old Mutual, the insurance giant, estimates that as many as 570,000 people are eligible, but only 22,500 have thus far signed up. “
These people need clean water and electricity but instead they get “microloans” so that they can sell digital photos to each other. This scheme is so silly that it must have been invented in a humanities department of an Ivy League university.
Without political stability, some minimal standard of property rights and commercial law enforcement, social cohesion and decent infrastructure as a catalyst, I wouldn’t expect much economic activity beyond natural resource extraction.
Ivory Coast was the economic star of West Africa in the 80s, but today is a civil-war-torn mess.