Africa is where China was 30 years ago, people often say. But is it?
Timing is crucial. Arguably THE most important factor in a company’s success.
Webvan was too early in 2000, Uber Eats timed the market perfectly in 2015.
Apple Newton (which no one remembers) was too early, iPhone was just right.
Is now the right time to start an agri-processing business in Africa or Kenya? China, Mexico, and Malaysia have taken off. Now it's Africa's turn, right? Right?
Or will any capital accumulation be ripped out of your hands like it has somanytimesbeforeby socialist, African governments?
Will another civil war destroy your machines? Or have we reached the Pax Africana?
There are lots of starry-eyed articles about Africa’s bright future.
But is it?
Let’s dig into the numbers. Let’s try to figure out if now is the right time.
To quantify things we need measures. And not all measures are good. I prioritized:
Quantitative (rather than qualitative)
Relatable, (like days of delay instead of an index, where possible)
Valid across decades and centuries with data points over a long period of time (and into the future)
Should be absolutely clear that it improves development (a counter-example would be tax rate where both a very high and very low tax rate might not be ideal)
I will focus on Kenya as it is the leading development in Africa. I was in a village in rural Uganda recently—there were no tomatoes or onions. None. I can’t imagine a village in Kenya without onions and tomatoes. It got me wondering, how much more developed is Kenya than Uganda?
It turns out that the ratio of GDP per capita in Kenya to Uganda is the same as the US to Poland.
Kenya:Uganda::US: Poland.
I used to think of the countries as relatively similar, but that’s not the case at all. So of the ~46 continental sub-Saharan African countries (excluding SA), Kenya will likely be the first to pop as an economy. (Economist Tyler Cowan wrote last year “Kenya is poised to be the Singapore of Africa”)
“Years behind”
We are going to develop a new metric: years behind. When was country x at the same level as country y? Assuming growth rates stay the same (which they won’t but it’s kinda close) we can predict when country y will reach a new level. The beauty of developing countries is that more advanced economies have created an (imprecise) road map for how to get from A to B.
Note that by behind we are not making a moral judgement good or bad about higher levels of development. Or whether being ahead in GDP per capita means a country is also ahead in cultural richness, happiness, etc. So, don’t take offense to the terminology. Feel free to suggest better terminology.
Buckle in, let’s time-travel back to 1990…
GDP per capita PPP
GDP per capita is the worst way to measure an economy…except for all the other ones.
Let’s start with Kenya.
Kenyan GDP per capita PPP is about 19 years behind Peru. Peru is 15 years behind Mexico. Mexico is 32 years behind the US. We don’t have long enough data to say how far Kenya is behind the US. So let’s do some math, add up the years behind and that puts Kenya 66 years behind the US. That sounds about right: after WWII the US still had 3m donkeys and horses plowing fields, which is about where Kenya is today.
Meanwhile, Kenya is about a decade ahead of Rwanda and has caught up to Nigeria, which has stagnated despite being a resource-rich country (both human and natural resources).
I have included China and Malaysia here as well. If we use those economies, Kenya is only 46 years behind the US. But China and Malaysia had exceptional growth rates which might not be repeatable. Also, Africa is historically more similar to Latin America than Asia (Asia had many large civilizations while Latin America was largely tribal and highly colonized, as evidenced by using European languages while Asia was less colonized and maintained its languages.)
Governance
I don’t trust Indexes much, but for governance I couldn’t find one number that was broad enough to track governance improvements over time. Of note, for a country to be a huge success like China, Malaysia, etc, it doesn’t need ridiculously great governance like Switzerland. (Arguably too much governance in Europe stifles innovation.)
I have grouped countries into groups to make the data easier to look at. Green Revolution countries are those that saw their agriculture yield increase from subsistence levels seen in Africa today to the level of developed countries in just 60 years. See our article on what made these Green Revolution countries special.
Kenya is perhaps 25 years behind Green Revolution countries in governance, according to this index.
Population growth
Population growth integrates a large number of factors into one output indicator that is easy to measure and hard to fake. It’s a lagging indicator of economic growth, though it corroborates the other metrics in this article, such as “Kenya leads Africa.”
Kenya is about 24 years behind Mexico in population growth rate reduction.
Red Tape from startup to export
Government bureaucracy is the root cause of poverty and lack of growth.
According to Senegalese entrepreneur Magatte Wade, “Africa is not poor because of colonialism. Africa is poor because people don’t have money. People don’t have money because they don’t have jobs. They don’t have jobs because there are few successful companies. There are few successful companies because government regulations in Africa stifle companies.”
Talking about government bureaucracy is intangible, so let’s take the example of a fruit exporter to make it more concrete.
See how expensive the “bureaucracy tax” is below for a typical fruit exporter to set up shop and make 10 shipments:
Green Revolution countries didn’t always have better regulations. It took hard work inside governments to undo anti-competitive laws.
Take Malaysia as an example. In 2007, Malaysia set up a task force to improve the ease of doing business, which seems to have worked.
Kenya is at least 15 years behind according to this graph. I say at least because we don’t have enough data to say when Malaysia had the same level of bureaucracy as Kenya.
Internet Speeds
Maybe Kenya and Africa weren’t meant to be manufacturing economies; maybe they will leapfrog from Agriculture to Services and skip Manufacturing (China, Vietnam, etc are already pretty good at manufacturing so why try to play their game?) To have services in the modern world you need literacy and fast internet.
From the data I found, Kenya is >10 years behind Mexican internet speeds.
Literacy
Kenya has just achieved the literacy rate of Peru in the 1970s, 50+ years ago. Note that a lot has happened in Peru since the 1970s, including the Shining Path terrorist group that nearly took over the country and put the country in limbo for a decade.
It’s hard to have a functioning representative democracy without nearly full literacy. For example, the literacy of the voting citizens of the United States at formation in 1789 was around 95%. Creating democracy in African countries in the 1960s may have been premature for the literacy of the voting public. Note: Landowners in the US in 1789 were mostly white males, but some women and non-whites, too. Why was literacy so high in the US? Remember that Americans were often people who fled Europe because they loved the bible so much that they wanted the right to read the bible according to their own beliefs.
Projecting literacy forward, Kenya will have Peru’s level of literacy in 2037, 13 years from now.
Related to literacy is intelligence or IQ. IQ was supposed to measure innate intelligence, but the Flynn Effect suggests otherwise. From 1900 to 2000, IQ in the US went up about 3 points per decade. The average adult in 1900 America had the same IQ as a 9-year-old in 2000. This is HUGE!
We now know that IQ at the population level is mainly affected by education, nutrition (especially iodine), and reduced toxin exposure (especially lead). Iodized salt increased IQ by 12-15 points, and lead-free gasoline increased IQ by 4-5 points. source.
The Flynn effect was seen in Asia, too.
In Africa, IQ data is very scant, but one study showed IQ in Kenya went up 10 points in just one decade in the 1990s. This is ~3x faster than the IQ increase in the US.
I’m bullish.
Population
In your opinion, are there too many, too few or just the right number of people in Africa to be economically effective?
The answer surprised me.
Too few.
African population density at independence was only 1/6th that of Asia.
At such low population density, its hard to justify the construction of roads—there just aren’t enough people to use them. It’s hard to build internationally competitive industries if there isn’t enough agglomeration of talent.
Even when adjusting for agricultural land, the picture is similar:
Kenya is about 60 years behind Malaysia.
To make thing worse for Africa, the people are too young to be economically productive. Adults have many children to take care of and can be less productive themselves.
Again Kenya leads the way, about 35 years behind.
Electricity
Graphed on a log scale, we can compare the growth rates of electricity use visually. Kenyan electricity growth is not nearly as fast as China, India or Malaysia. Kenya is about 40 years behind China in electricity. Therefore, the economic miracle of Chinese manufacturing isn’t likely to be repeated in Kenya for the foreseeable future.
Talking about kWh’s of electricity is hard to visualize, so let’s make it more tangible by using “refrigerators worth of electricity” as the unit of measure. How many refrigerator-equivalents of electricity are used per household?
Note: Todd Moss originally came up with the refrigerator comparison
Debt
African debt levels are…scary. But Green Revolution countries have seen worse and recovered. Will Kenya’s debt problem be resolved like Singapore or turn into a crisis like Philippines and Mexico?
I was surprised to discover in doing this research that Malaysia never had a debt crisis.
There is a big question if Kenya will default on its debt like Zambia, Ghana, and Ethiopia have in the last 3 years.
The Eurobond due July 2024 is trading at 97 cents on the dollar, meaning the market thinks Kenya will repay, but that is yet to be seen. Update: after the refinancing, Kenya’s EuroBond is trading at 99 cents on the dollar.
Credit Rating
Credit rating for Africa is far below India and China and shows no signs of improving, the way other metrics have improved. A better credit rating would enable lower interest rates and enable faster growth.
African countries’ credit ratings are not converging on the credit ratings of Green Revolution countries. Hopefully, if Kenya can repay the Eurobond 2024 its credit rating will improve. Credit ratings are not completely objective; perhaps risk in Kenya is exaggerated and there are risk-adjusted returns possible that other investors aren’t seeing due to mispriced risk by partially subjective ratings.
Roads
If a Kenyan wants to do business in Morocco, they will fly through Europe, discuss in English, and pay in US dollars. For another example, it is cheaper and faster to fly from Kenya to Dubai than from the capital of Kenya to the capital of Tanzania, its neighbor. Interconnection or lack thereof causes extra costs.
Roads are the best quantitative measure of the interconnectedness that I could come up with.
The best way I could find to compare roads between countries is paved roads per km2 of agricultural land (agricultural as that is the area that is being used and excludes deserts where the metric might not be as useful.) Road development in African countries is far below its Green Revolution cousins.
But this is just a snapshot in time. How long would it take for African countries to catch up? I had to hunt through government records which were in bad shape and the government doesn’t report the amount of roads on an apples-to-apples basis each year. I did find road data at Kenyan independence, in 2010 and 2020 as reference points. Recently road construction has increased, however, projected forward, Kenya has many years to go before reaching the level of even Pakistan.
Kenyan road networks are about 120 years behind Pakistan. Yes, most of Kenya is a desert and doesn't need roads, but here we are looking at Agricultural Land only, which mostly controls for that.
Trust
Trust in strangers is a feature of high-functioning societies. It enables us to collaborate in large groups outside kinship and tribal boundaries.
Humans are only better than animals at one thing: it’s not that we are the fastest, can fly the farthest, swim the deepest, strongest or even have the largest brains or most neurons. No, humans are able to coordinate better than any other species.
Most developing countries have lower trust in others than Green revolution countries like China, Vietnam and Malaysia, not to mention developed countries.
The challenge is that Trust in Strangers doesn’t seem to change much. Trust in the US has gone down in the last 70 years, for example.
What could cause trust in strangers to improve in Africa?
Conclusion
Kenya, the country leading development in Sub-saharan Africa (excluding South Africa), is behind Green Revolution countries as follows:
120 years behind in roads
>30 years behind in credit rating
50 years behind in electricity
40 years behind in literacy
35 years behind in population demographics
>10 years behind in internet speed
25 years behind in governance
These are the primitives or building blocks needed for an economy to grow. On average this puts Kenya about 45 years behind Green Revolution countries. And the rest of Sub-Saharan Africa is another 10-50 years behind Kenya.
Meanwhile, Green Revolution countries saw agriculture yields take off ~45 years ago.
On the one hand, this may seem pessimistic. But I am encouraged by these numbers, which give clear indication of where these variables stand: Green Revolution countries took off like a rocketship ~45 years ago. Kenya is ~45 years behind Green Revolution countries.
This will be Kenya’s decade and Africa’s century.
You saw this analysis here first :-)
➡️ Please like, comment and share. That’s the only way others can see how the data for Africa is very encouraging.
Nice. Now you can see why I called my book The Time Travelling Economist :-)
Indeed. And it's very catchy. But maybe next time call it the Future Predicting Economist 🙂
Hmm... But that doesn't roll off the tongue as well. And maybe that invites too many lawsuits 😬