FT SPECIAL REPORT The World 2013Wednesday January 23 2013 www.ft.com/reports | twitter.com/ftreportsGlobal issues Inside »simmer as Treading water Polarised politics threatens confidence in the US economyprospects Page 2 India’s factories ‘must think big’brighten How the country can release its economic potential Page 3 Called to account Integrity and payLast year’s sense of panic has gone and the issues are likely tomood has lifted but there is still much for Davos dog banks as thedelegates to chew over, says Gideon Rachman future brightens Page 4I n the years before the financial The gloom clouds have also drifted crisis, boundless optimism was away from the two largest economies Glacial pace of the default setting for Davos man. in the world – the US and China. The The World Economic Forum was a US economy is growing at well over UN climate talks celebration of globalisation and its 2 per cent a year and unemployment With superpowerspossibilities. But the financial crisis is falling. Above all, there is greatput a stop to all that. The last four excitement at the prospect that the deadlocked, someDavos forums have been gloomyaffairs, dominated by a sense that glo- shale-gas boom could lead to energy independence for the US and a big look to alternativesbal capitalism is in crisis. Delegates boost to the competitiveness of Ameri- Page 5worried about everything – the euro, can industry. The heads of big oil andthe banks, inequality, unempIoyment. chemical firms – such as Shell, BP It is possible, however, that – this and Dow – are always well repre- and scandal around the leadership of last year, slowing growth and polit- ers for 20 years – are exciting a bit Unpluggedyear – the sense of crisis will lift. The sented at Davos, and they will be transition added to the sense of uncer- ical paralysis fed a mood of growing more interest, with a new reformistfear that the euro could crash and listened to with particular attention tainty. But Xi Jinping is now safely cynicism about the country’s pros- government, led by Shinzo Abe, tak- The changing wayburn within weeks – which was this year. installed as the new general-secretary pects. But, in recent months, the ing power in Tokyo. we interact withvoiced openly at last year’s forum – The prospects for the Chinese econ- of the Communist party – and the reform process has restarted and it The balance between optimism andhas dissipated, and with it so has the omy will be discussed just as eagerly. latest figures show that the Chinese has become clear that growth this pessimism is also always affected by next-generationbiggest threat hovering over theworld economy. There will still be ear- For much of 2012, gloomy talk pre- vailed – with much discussion of the economy is still growing strongly and that exports are resilient. year will exceed 5 per cent. The gloom was overdone. personal circumstances, as much as rational analysis. So the mood of gadgetsnest, even urgent, calls for reform in impact of rising wages and labour Opinion about India has gone Even the prospects for Japan – a Davos man will be lifted by the fact Page 6Europe. But the panic has gone. unrest in southern China. Mystery through a similar cycle. In the middle nation that has disappointed its boost- Continued on Page 4
2 ★ FINANCIAL TIMES WEDNESDAY JANUARY 23 2013 The World 2013Economy treads Old barrierswater as parties in way of Xi’sclose ranks bid for reformover budget China Jamil Anderlini assesses the scope for lysts are more sanguine is on the prospects for eco- nomic reform. While there is absolutely no consensus in Chinese policy circles on what needs to be done to change in politics overhaul the political sys- and the economy tem there is at least a gen- eral recognition of the basic direction the economy In the US the hiatus needs to go in. between the election of a “China has an unsustain- new President and the inau- able growth pattern and itUS Inability of system to settle policy questions guration ceremony lasts for just under three months will have to pay a cost in the form of slower growth,”threatens confidence, writes Richard McGregor but in China the transition period for an incoming says Yu Yongding, one of the country’s most promi- leader can be more like nent economists and aT three years. former member of the Chi- he way the US political class It is no surprise the US is still feel- In early March, Xi Jin- nese central bank monetary ushered in the new year ing the after-effects of the devastating ping will formally receive policy committee. would scarcely give rise to financial crisis, which started in 2007 his third and least impor- “To make its growth sus- hope that the country’s lead- and sent the economy momentarily tant title as President of the tainable China must shift to ers can come together in into freefall in late 2008 and in the People’s Republic of China, a new growth pattern thatways that can spur growth and invest- first six months of 2009. But beyond having already assumed the relies more on domesticment in the world’s largest economy. the backwash that comes with any roles of Communist party rather than external At 30 minutes to midnight on New financial downturn, the US economy general-secretary and com- demand and consumptionYear’s eve, a tired-looking Harry Reid, now carries a permanently heightened mander in chief of the mili- instead of investment, espe-the Democratic Senate majority level of political risk. tary in mid-November. cially real estate invest-leader, walked with one hand on the The equity and bond markets no Even after that it may ment. The Chinese govern-shoulder of a security guard to guide longer react with alarm to every take him years to place his ment understands this.”him through a throng of journalists moment of brinkmanship on Capitol own people into positions of But even with this con-into the Senate chamber. Hill. There are simply so many that Twilight zone: the sour, distrustful mood, with no good- But the optimists have been let real power, particularly and sensus it is not clear there Mr Reid and Senate Democrats had the regular stand-offs over spending Capitol on New will accruing from the fiscal cliff down before. In every year since the most importantly in the is a very much that Mr Xijust been briefed by Joe Biden, the and taxes have, in some respects, Year’s Eve with agreement. US recovery began in 2009, commenta- military. and his colleagues can dovice-president, on a deal over the fis- become like a shrill radio left on in both House and Even worse, the 11th-hour deal tors have been waiting for a big surge It was Mao Zedong who on economic reforms with-cal cliff struck with the Republican the background of US public life. Senate in session pleased no one. The White House and in the economy, and it was always said that political power out hurting some of theleadership in the Senate. The compro- But the inability of the political sys- Getty the Democrats managed to lift taxes due to arrive the following year. grows out of the barrel of a interest groups they rely onmise passed in the Senate in the early tem to settle big policy questions con- on the wealthy, but without gaining At the ends of 2009, 2010 and 2011 gun and in modern China for political support.hours of January 1, and through the tinues to threaten the confidence of what they considered to be sufficient there were forecasts of 3 or 4 per cent that remains just as true as Where Mr Xi is likely toHouse of Representatives later in the both business and consumers. Both revenues to bring down the deficit. growth in the year ahead. It never when Mao was fighting his be most different from hisday, avoiding or delaying a series of still periodically spark into life – the The Republicans, angry at their happened. Growth has been stuck at guerrilla war in the 1930s. predecessors and have theautomatic tax rises and spending cuts US economy remains more robust lack of negotiating leverage over the about 2 per cent. By many people’s reckon- most leeway to set his ownhanging over the economy. than continental Europe and the UK – fiscal cliff and annoyed at being At the start of 2013, while the threat ing, outgoing President Hu tone is on foreign policy. But far from being an example of but the economy has never regained backed into a corner, are adamant of recession has retreated, economists Jintao never totally man- The new administrationhow the US political system might its full footing in Mr Obama’s first that any new deals contain no new struggle to see where extra demand aged to consolidate his takes over at a time whenfinally be working, the deal was term. tax increases at all. will come from, especially as the gov- power and so his time in Beijing is seen in the regionanother episode displaying its dys- In the opening months of 2013, the The negotiations to lift the debt ceil- ernment stimulus from 2010 to 2012 is charge of the world’s most as increasingly assertive –function. White House, and Democrats, have ing bring with them a particular set of now going into reverse. populous nation ended up particularly on long-sim- Ron Brownstein, of the National three more showdowns over the bud- dangers. A similar confrontation in The fiscal cliff deal raised income as something of a “lost dec- mering territorial disputesJournal, said the 11th-hour agreement get pencilled into the diary: over lift- 2011 over raising America’s statutory taxes on the wealthy and ended a ade”, devoid of any brave that have boiled over into“may have been the best deal the two ing the debt ceiling in late February; borrowing limit hurt the economy and temporary 2 percentage point reduc- reforms.sides could have reached without over automatic spending cuts delayed resulted in a ratings downgrade. tion in payroll taxes, so a solid recov- That may not be entirelyactually tumbling over the fiscal cliff. until March 1 under the fiscal cliff The economy has proved relatively ery in the private sector is needed fair but it is a common “But no one should underestimate deal; and the need for Congress to pass resilient since then. Adding to recent merely to keep the overall economy refrain heard throughout The area where Xihow much of a missed opportunity it a new budget at the end of March. optimism are signs at last of a recov- on track. the Chinese bureaucracy is likely to have therepresents. The deal stands as the The parties to the upcoming series ery in the housing sector, which has For the US, then, the economy looks and especially among thoserare event that could simultaneously of negotiations – the White House, been a drag on the economy for four to be treading water for another year. in China who had hoped for most leeway to setset back the goals of the left, right,and centre,” he wrote. and the Democrats and Republicans in Congress – all enter the talks in a years, and employment in the con- struction sector. As if that were not bad enough, parti- san politics could make it worse. reforms to the country’s secretive authoritarian his own tone is political system. foreign policy Since Mr Xi gave his first speech in mid-November as the new head of the party, outright confrontations inPolitical upheaval widens gaps in two-speed region some liberal intellectuals the last few years. and government advisers In Japan, the portion of have expressed hope he the population that feels may push through substan- goodwill towards China has tive political and economic reached a four-decade low reforms at an early stage in of 18 per cent and in most As the bank HSBC said in order has been defined by weight in the region. It was much better equipped and his first five-year term. other neighbouring coun-Middle East a recent research report, oil an ideological struggle in no small part Egypt’s his Alawite-controlled But others point out that tries the concern about producers are looking at a between Islamist parties active mediation that had officer corps has held firm. even if Mr Xi is somehow a China’s military rise is atPopular hopes for a year of plenty but for the that had been brutally helped secure a ceasefire The Syrian crisis, mean- closet Gorbachev admirer an all-time high.return to normality rest of the Arab world, repressed by dictatorships between Israel and the Pal- while, is already contami- his room for manoeuvre is The general angst among “intensified political risk and liberal groups afraid of estinian Hamas in Novem- nating neighbouring states severely limited by power- regional neighbours abouthave been frustrated, adds to a catalogue of head- the intrusion of religion on ber, bringing an end to a and concerns over a spill ful vested interests that China’s rise and ultimatesays Roula Khalaf winds that have led to weak growth, widening external their societies. Nowhere has this struggle week-long Israeli offensive in the Gaza Strip. over of sectarian tensions into Lebanon and Iraq are have become even more for- midable over the last dec- intentions is reflected among Beijing-based diplo- and fiscal imbalances and played out more intensely – Egypt’s troubles, of likely to grow this year. ade of Mr Hu’s tenure. mats, who have started toA year of feast and famine severe financial pressures”. and with devastating eco- course, pale in comparison In the coming months David Shambaugh, direc- speculate among them-is how one global bank The political turmoil was nomic impact – than in to the tragedy of Syria, western efforts will focus tor of the China policy pro- selves about the possibilitydescribed the fate of the always expected to take a Egypt, the Arab world’s where a popular revolt on trying to bolster the abil- gramme at George Wash- of a regional conflict involv-Middle East and north heavy toll on the economy most populous country and morphed into an insurgency ities of rival rebel groups – ington University, identifies ing China.Africa in 2013, as the oil- of North African states. its traditional trendsetter. that has attracted jihadis an objective, however, that the most imposing vested Most analysts and diplo-rich and largely autocratic But the transitions have The first democratically into a new war. With more is not easily achieved with- interests as the military, mats still believe it is aGulf spends its petrodollars been more turbulent than elected president, Mohamed than 60,000 people dead and out direct military assist- the bureaucracy, the bur- remote possibility but thiswhile emerging democra- many Arabs had predicted. Morsi from the Muslim Bashar al-Assad, the Syrian ance. geoning state security appa- sort of talk has not beencies wrestle with political Popular (though unrealis- Brotherhood, sent encour- leader, refusing to step While the UK and France ratus and the state-owned heard in Beijing since thetransitions and economic tic) expectations of a rapid aging messages of inclusive- down, the prospects for a are leaving their options enterprise sector. mid-1990s, when tensionsdownturn. return to normality and ness and openness to the Mohamed Morsi: tough line political solution appear open, and could push “The sheer scale of eco- were high across the Tai- True, the Middle East has economic have been disap- outside world when he took remote, despite a fresh dip- harder for a lifting of the nomic and social problems wan Straits.always moved at two pointed. over in June. lomatic push by UN envoy European arms embargo on in China requires policy The most persistent whis-speeds, with a dramatic eco- Perhaps the image that But his handling of the Egypt has been trying to Lakhdar Brahimi. Syria, diplomats expect no solutions that necessitate pers talk of a brief engage-nomic divide between oil most starkly illustrates the constitutional crisis at the stem the depletion of its for- The perception in Europe change in the attitude of some significant systemic ment some time in the nextimporters and exporters. frustrations is in Tunisia, end of last year and his eign exchange reserves as is that 2013 will bring the the US Obama administra- political changes,” wrote two years between ChinaBut the gaps are now even the country where Arab insistence on pushing a pressures on the pound end of the minority Alawite tion, which is putting great Prof Shambaugh in a recent and Vietnam, which haswider as a time of historic revolutions started in 2011 draft opposed by non-Islam- have escalated, raising the regime. But even though emphasis on trying to reach essay. But “there is no cer- overlapping territorialpolitical upheaval. after a young and desperate ist segments of society pressure for an agreement Russia, the chief interna- a diplomatic understanding tainty that the incoming claims in the South China Saudi Arabia, hardly street vendor set himself through to a referendum with the International Mon- tional backer of Mr Assad, with Russia on Syria. group under Xi Jinping will Sea and no formal defencetouched by the Arab awak- aflame. exacerbated divisions in etary Fund on a $4.8bn loan is beginning to share the Policy analysts say the be able to (or wants to) treaty with the US.ening, recently unveiled a In recent months, protest- Egyptian society and that has been twice predictions of his demise, it administration’s greater change this leadership cul- As the ambassador ofmassive budget with record ers have been taking to the eroded confidence. delayed. is far from clear that civil focus will be on trying to ture in order to tackle the another regional countryspending, and Qatar’s deal- streets again (though in Mr Morsi’s attitude also The unfolding crisis in war will end even after his resolve the high-stakes wide range of pressing eco- engaged in territorial dis-making is as frantic as ever. smaller numbers than dur- confirmed the fears of the Cairo has been closely departure. nuclear dispute with Iran to nomic, political, social, putes with Beijing told theNorth Africa, by contrast, ing the uprising) demand- liberals who charge that watched by the western And, despite steady gains avert what is likely to be environmental, legal and FT recently: “My main jobremains blighted, even ing jobs that the Islamist Islamists have less than a world, where governments by rebel groups and renewed Israeli threats to foreign policy challenges in the next few years is tomore than in the past, by government has not been genuine commitment to see stability in Egypt as a increased control over large attack the Islamic Repub- confronting China and cry- make sure that if Chinalow growth and a lack of able to provide yet. democracy. priority given the country’s swaths of Syrian territory, lic’s nuclear facilities after ing out for decisive action.” does go to war that itjobs. The new Arab political For the past three weeks diplomatic and political Mr Assad’s forces are still Israel’s election this month. The area where most ana- doesn’t do it with us.”Unemployment and low growth remain bloc’s big challenge it takes” to prevent the mic growth. National lead- further brake on eurozone rate conceals stark country- these reforms are not worth Flanders. “Many countries will come out of recessionEurozone euro from breaking up, and ers will find themselves fire-fighting for the German by-country differences. Job- it and say we’re not seeing are experiencing the most and enter low growth later the agreement among EU attempting to stick to tough chancellor as she cam- lessness is still near two- the benefit,” says Marie severe economic crises in in the year.There is little scope leaders on a bail-out mecha- austerity regimes in order paigns at home, where a cri- decade lows in Germany Diron, economic adviser to living memory,” says But that very low growthfor extra stimulus to nism and closer financial to cut budget deficits and sis-fatigued electorate sees but in Spain and Greece Ernst & Young. Moritz Krämer, sovereign is dependent on the wider integration have soothed to press ahead with struc- itself as footing the bill. one-in-four people are out of These social strains have risk analyst at Standard & global economy and there ishelp the continent financial markets and tural reforms designed And as last year’s con- work, with the rate nearing started to be expressed in a Poor’s. little in the way of extraout of recession, helped lift the sense of imminent threat against the to improve competitiveness. They do this in an environ- cern about a possible Grexit, or Greek exit from 60 per cent among those under 25. rekindling of smouldering separatist and regionalist “The social contract around which a country stimulus waiting in the wings to support it.writes Michael Steen euro. ment where voters and oth- the euro, has diminished, a An upwards trend in tensions, as seen in elec- coalesces may become The ECB, which already “Today, those still pre- ers will question whether new European political unemployment in countries toral advances made by increasingly strained.” has its main refinancing dicting a break-up of the such harsh medicine is kill- debating point has emerged such as France and the independence movements He expects nationalist interest rate at a historicIf last year saw the euro- eurozone are sadly behind ing the patient. in the form of the Brexit, or Netherlands – that were not in Scotland, Catalonia and voices to become more low of 0.75 per cent, startedzone survive an existential the curve,” said Olli Rehn, The big political set speculation about a British directly hit by market jit- alluring but sees a break-up the year with a signalcrisis, 2013 will be the year the EU’s monetary affairs pieces are the Italian elec- exit from the EU. ters over a euro break-up – of a European state as that it was not minded toin which the resolve of commissioner, in a speech tion next month and this But the big challenge is also reflects how groups unlikely. Indeed, Mr cut further for the timeEurope’s leaders is tested to this month, before adding: autumn’s German poll. unemployment and growth. have delayed investment ‘Many countries are Krämer’s forecast for the being.stick with economic “We cannot afford to lower The former has the poten- About 26m people are out of across the bloc. experiencing the year is that this could be a “Other economic policyreforms as millions of their our guard.” tial to stall reforms in one work across the EU and the “That is probably the big- watershed – the beginning areas will need to makevoters endure unemploy- What remains is a conti- of the countries that saw its unemployment rate for the gest risk to the eurozone – most severe of the bloc sustainably over- further contributions toment or falling wages. Last summer’s commit- nent still mired in reces- sion, suffering from record bond yields rise higher last year on speculation of a 17-nation eurozone has hit a record 11.8 per cent. It is the longer the recession goes on and the higher the economic crises in coming the market volatil- ity and fragmentation of ensure a firm stabilisation of financial markets andment by Mario Draghi, unemployment and with lit- euro break-up. The latter, forecast to rise yet further unemployment rate, the living memory’ the last few years. an improvement in theEuropean Central Bank tle prospect this year of likely to return Angela Mer- before any improvement. more there is the risk that The consensus among outlook for growth,” saidpresident, to “do whatever anything but the most anae- kel to power, will act as a Worse, the eurozone-wide electorates express that all economists is that the bloc Mr Draghi.
FINANCIAL TIMES WEDNESDAY JANUARY 23 2013 ★ 3 The World 2013Factory owners in private sector companies with 10 or more workers, although 10m young people are joining the labour force every year. Labour laws are not the only prob-urged to raise lem for businesses. Add in India’s notorious bureaucracy, poor transport and electricity infrastructure (last year the north of the country experi- enced the biggest power cut in historyambitions for when more than 600m where without electricity for the best part of two days), and the occasional imposition of retrospective taxes and you have a recipe for driving away both Indianexport success and foreign prospective investors. Large companies with deep pockets are so awed by the potential future size of the Indian market that they usually persevere. For example, MeadWestvaco, the US packaging group, is taking a bet on the inevitable growth of the consumer goods market in India, buying a localIndia Economists say labour and land reforms packaging company and announcing plans for a total of more than $180m of investment over five years.are key to releasing economic potential and Walmart, the huge US supermarkets group, has invested in the wholesalestimulating investment, writes Victor Mallet trade and is hoping to start in retail following the easing of governmentA restrictions on foreign investment in t first glance, it looks like tiny, overpriced stores that thrive the sector. Indeed, the US company is good news for India: an because successive governments have being investigated over accusations Indian carmaker announced resisted the building of department that it has already secretly invested in this month that it sold more stores and supermarkets, particularly supermarkets in contravention of the vehicles than ever last year, foreign ones. ban previously in force.China overtook the UK as its biggest A search for a basic household Population growth, farming, govern-market and the company is planning smoke alarm – an essential safety ment services, frantic constructionto hire another 800 workers for its device in a land of shoddy electrical Stitch in time: unlike many of its counterparts, this clothing factory on the outskirts of New Delhi is a big exporter AFP/Getty and real estate activity and the mod-factory. installations and frequent fires – is ern outsourcing and IT services Unfortunately for India’s millions of met with blank stares from shopkeep- sectors will ensure robust growthjobseekers, the plant is in the English ers, until finally the object is located failure to accompany trade and prod- clothing, shoes and toys. Instead, undermine progress and addressing for the Indian economy in the comingMidlands. The company is Jaguar and ordered from a distant ware- uct market liberalisation with reform highly restrictive and old-fashioned new challenges (Collins Business, years in all but the direst of politicalLand Rover, the luxury car manufac- house, arriving three days later at of markets in the “factors of produc- labour laws have undermined the 2012). They analyse data showing that crises.turer owned by India’s Tata Motors. three times what it would cost in Lon- tion” – particularly labour and land – advantages of India’s low nominal nearly nine in 10 jobs in the Chinese Allready there are signs that GDP Indian corporations do make cars at don. It is – like many other electronic is the biggest obstacle to investment wage costs and discouraged formal textile industry are provided by medi- growth, which retreated steeply fromhome as well, of course. But India’s and electrical products sold in India – in manufacturing and the accelerated employment, driving employers to um-sized or large firms, giving them more than 8 per cent a year to lessfailure to adopt enough of the large- made in China. job creation and gross domestic hire casual labour and keep their an advantage in export markets. In than 6 per cent in 2012, is starting toscale, labour-intensive manufacturing Some Indian intellectuals were mor- product growth that it would bring. firms as small as possible. India, the proportions are reversed, pick up again.that has propelled the successful tified last year when neither President “Product markets are reasonably “Manufacturing units in India are with almost all workers employed by That is faster than many emergingdevelopment of China and other east Barack Obama nor Mitt Romney men- open, reasonably competitive,” says discouraged from growing beyond the small enterprises. and most developed economies, butAsian countries is now regarded as tioned India in the US presidential Shankar Acharya, former economic very small scale,” says Mr Acharya. “It is ironic that in a country with those who study India’s economicone of the greatest weaknesses of the election debate on foreign affairs, but adviser to the Indian government. “We’re not exploiting our comparative nearly 470m workers, all evidence progress say growth would be fasterIndian economy. they know that India lacks inter- “What’s missing in India in a huge advantage.” indicates extreme and even increasing still if the government’s reforms were This shortcoming is obvious to any- national clout in part because its way is a large factory class.” Over Economists Jagdish Bhagwati and reluctance of Indian entrepreneurs to to extend to the markets for labourone trying to shop for manufactured economic weight is not commensurate the past four decades, he argues, Arvind Panagariya make the same employ unskilled workers,” write and land and so unleash the billionsgoods in one of Delhi’s “markets”, with the size of its population of India, like China before, should have point in their book India’s Tryst Messrs Bhagwati and Panagariya. of dollars of manufacturing invest-which in reality are collections of 1.2bn. Economists reckon that the become a big producer and exporter of with Destiny: Debunking myths that Only about 10m Indians are employed ment that the country needs.Continent’s twin poleson different trajectoriesAfricaIn spite of rivalry,South Africa andNigeria have muchto offer each other,says William WallisSub-Saharan Africa’s voiceon the global stage has beenstrongest in the past decadeand a half when its twomost powerful players haveworked together. When Thabo Mbeki andOlusegun Obasanjo were At odds: Goodluck Jonathan (left) and Jacob Zumaheads of state in SouthAfrica and Nigeria, respec-tively, this was often the of services and agriculture ard & Poor’s, the ratingcase. The two men had a – while South Africa strug- agency, upgraded the coun-shared history dating back gles with rising unemploy- try in November. Theto when Gen Obasanjo was ment, decreasing competi- upgrade still leaves the sov-military head of state in the tiveness and industrial ereign rating three notcheslate 1970s and Nigeria sup- unrest. below investment grade andported Mr Mbeki and other South African businesses, far below South Africa.African National Congress from MTN, the continent’s But as Ngozi Okonjo-exiles from apartheid South leading telecoms company, Iweala, the finance ministerAfrica. to smaller tech companies, and co-ordinator of eco- In different ways the retailers such as Shoprite, nomic policy, notes, it is ingruff, former general, and banks such as Standard the right direction, at aelected as civilian leader in Bank, have all won an time when many countries1999, and the prickly intel- important foothold in the are heading the other way.lectual, who succeeded Nel- continent’s most populous That said, compared toson Mandela as head of nation as they seek – as do South Africa, Nigeria isstate the same year, had other foreign investors – to coming from far behind. Itclout and influence across tap into the faster growth of ranked 178th out of 185the globe. Controversial as frontier markets as the rest economies, for example, forthey both were at home, of the world slows down. access to electricity for newwhen addressing African Nigeria’s economic trajec- businesses in the Worldcrises or mapping out a tory has meanwhile begun Bank’s latest Doing Busi-more collaborative to threaten South Africa’s ness report. More than halfapproach to the continent’s pre-eminent position, of the 160m population haseconomic future, they could although South Africa’s no access to the power grid,be an effective duo. the Bank found. The same cannot be said In South Africa, mean-of President Goodluck Nigeria could begin while, after some of theJonathan in Nigeria and his to gallop faster if most turbulent months incounterpart Jacob Zuma in the country’s post-apartheidSouth Africa, both of whom continuing reforms history, all three mainhave been struggling withdomestic crises in the past address chronic credit rating agencies have recently downgraded theyear – fuel subsidy protests power shortages country.and an Islamist insurgency Mr Zuma, in an interviewin Nigeria, and industrial last week, cast blame forunrest and social tension in physical and financial infra- the country’s economicSouth Africa. structure is still far more woes and social distur- These days, Africa’s developed. bances on the global eco-strongest poles have often Economists and invest- nomic crisis and legacies offound themselves apart in ment banks forecast that, apartheid.continental disputes. They for all its endemic corrup- “There’s a certainty thatare more often rivals than tion, structural shortcom- the ANC is going to be inallies in projecting an Afri- ings and infrastructure defi- government, the ANC hascan viewpoint, in advocat- cits, if Nigeria’s economy policies that are very cer-ing a permanent African continues to grow at 6 per tain and are very clear,” heseat on the United Nations cent or more it is only a told the FT. “As an investorSecurity Council, and have matter of years before its those are the things I wouldtaken positions that have $255bn economy overtakes look at, I would not look atsplit the continent in recent South Africa’s $400bn as the what people say.”conflagrations, such as in continent’s largest. But such talk has not pre-Ivory Coast and Libya. Forecast by the IMF to vented some investors from At one recent African grow at 6.3 per cent again taking fright. As one Lon-Union summit, Nigerian this year, Nigeria could don-based private equityand South African delegates begin to gallop faster if con- manager puts it, if Southstanding outside a trilateral tinuing reforms designed to Africa starts to presentmeeting at which Mr liberalise the power sector emerging market risks forJonathan and Mr Zuma deliver on one chronic developing world returns,were at odds nearly came to impediment to a more its relatively mature econ-blows. dynamic business environ- omy is not an especially Yet the two countries ment – electricity shortages. compelling prospect.have much to offer each Partly as a result of opti- The case for fund manag-other, as Nigeria’s economy mism over power reform – ers to leapfrog into poten-continues to take off on the and the prospect ultimately tially more lucrative Afri-back of soaring world oil of this unleashing Nigeria’s can markets, such asprices – and an expansion industrial potential – Stand- Nigeria, becomes stronger.