North Africa can lead growth as family size shrinks, debt fears recede

North Africa, which is well supplied with power, is the first region likely to industrialise, led by Morocco and Egypt, Robertson says in London.

Robertson challenges the conventional wisdom that a young workforce is necessarily a good thing. More important, he argues, is how many children those young people are going to have. A family size of five or children, he says, means that all of a family’s income has to be used to meet immediate needs. That makes it impossible for a large savings pool to be created, meaning that banks are unable to cheaply finance either the private sector or government.

Rapid economic growth in Asia in the second half of the twentieth century, Robertson argues, was made possible by small family sizes. With family sizes of less than three, the ratio of bank deposits to GDP takes off. Today, he says, Morocco already has families small enough to foster economic growth. Egypt, Ethiopia, Ghana and Kenya all have fertility rates which may drop below three children within five to 15 years, so cutting the cost of borrowing.

• “By the 2040s, most of the continent will have seen enough of a demographic shift to be consistent with higher per capita GDP growth,”  according to research from Robertson in September.
• “We believe Africa will be a $29trn economy by 2050-60, larger than the 2012 combined GDP of the US and Eurozone.”

Infrastructure gap

The challenge, Robertson argues, is to close Africa’s infrastructure gap and ensure that countries with high family sizes are not left in extreme poverty for decades until the needed demographic changes take place. Businesses need basic infrastructure to be able to operate, and per head incomes of $2,500 to $3,000 are needed before the private sector can help countries towards middle-income status, he says.

He is encouraged by the International Monetary Fund (IMF) decision in August to make about $650bn in Special Drawing Rights (SDRs) available. The SDRs are “a very belated response” to Covid-19, taking about as long as the response to the Great Financial Crisis which started in 2008, Robertson says.

• The IMF used SDRs to stabilise global financial conditions in 2009.
• The value of SDRs is based on a basket of leading currencies, the US dollar, euro, yuan, yen and sterling. Countries can exchange their SDRs for hard currencies with other IMF members.
• About $34bn will be made available to Africa in the first round, with $65bn or more that could follow later.

That money, Robertson says, could help with infrastructure, digitalisation and the shift to renewable energy sources. The SDR decision has “changed the tenor of the debate on African debt” away from concerns over where the next default might occur, and has “ended most concerns about a debt crisis in Africa,” Robertson says. “Sub-Saharan borrowers now look safer on a 12-month view.”

Bottom line

Robertson sees changing demographics as the game changer for African growth prospects.