Whither Africa’s “Frontier Markets”?

NEW YORK – Zimbabwe’s election appears, once again, to confirm a truism: Africa only seems to make international headlines when disasters strike – a drought, a coup, a war, a genocide, or, as in the case of Robert Mugabe, grossly incompetent government. But, over the past several years, a number of sub-Saharan countries have attracted unprecedented inflows of foreign capital. Recent global financial turmoil has only added to Africa’s allure, because its frontier markets are less vulnerable to international volatility than are most of the world’s more familiar emerging economies.

There are three main reasons why many sub-Saharan countries are performing well. First, high commodity prices yield windfall profits for the region’s leading producers of raw materials. Growing demand for energy, metals, and minerals – particularly in China – has driven unprecedented levels of foreign investment. Even large pension funds are beginning to take notice. Moreover, a large number of Africa’s poorest countries have benefited from exponential growth in (primarily United States-based) philanthropy.

But, while both of these positive trends are likely to continue, a third positive factor may not prove as durable. Every year, Africans living outside the continent send roughly $30 billion to family and friends back home. These remittances are vitally important for economic stability in several African countries. An economic slowdown in the US and Europe could substantially slow this infusion of cash, because immigrants are often the first to lose their jobs when recession fears take hold.

At the same time, though Africa’s frontier economies are less vulnerable than other emerging markets to global financial turbulence, they are highly vulnerable to political turmoil closer to home. The three countries that served as pillars of regional stability for the past several years – Nigeria, Kenya, and South Africa – are now too pre-occupied with political troubles of their own to provide the peacekeepers, reconstruction funds, and political pressure that often limit the damage from conflicts elsewhere in the region.