Why Africa is the Next Destination
November 10, 2014
By Eugene Nyambal *
This year, McKinsey published a sounding report on « the Lions on the move” asserting that Africa could be part of the emerging world shaping the 21st century. Indeed, Africa faces its brightest growth prospects in generations. Recent developments give reasons for hope thanks to higher economic growth over the last decade, stronger resilience to the global crisis and some success stories across the continent to be harnessed.
However, Africa is not a single story. On the one hand, there are countries trapped in hardship and conflict due to poor leadership and weak institutions. On the other hand, there are promising countries fuelled by the rule of law, free elections and promising development strategies. Africa’s recovery remains fragile. Economic growth is driven by higher commodity demand without significant changes in the structure of the economy. Productivity remains sluggish to absorb youth unemployment and meet the MDGs. Deficiencies in infrastructure (roads, energy, ports) hamper growth. Human development indicators and access to finance remain disappointing. Food shortages could worsen with climate change and population growth. While Africa has the highest rate of people living in rural areas, the Continent still imports 45% of its rice and 85% of wheat. Going forward, youth unemployment, drug trafficking and organized crime in failed states can become major challenges.
Africa could become an engine of global growth besides other emerging countries due to four major factors.
First and foremost, the rise of competing development models represents an opportunity for a fresh start. The persistence of mass poverty in Africa and the global economic crisis have shaken the foundations of the Washington Consensus. The latter has never been a recipe for advanced economies to move from poverty to prosperity. Unorthodox policies stressing an enabling and strategic role for the state, export development and massive investment of export proceeds in infrastructure and education have delivered higher growth in China and other emerging economies.
Second, heightened competition for access to natural resources increases Africa’s bargaining power. In less than a decade, BRICs and other emerging economies have become major consumers of oil, gas and other minerals. Consequently, commodity prices are on the rise as well as Africa’s strategic role. The continent should find appropriate governance mechanisms to benefit from these opportunities.
Third, demographic changes are a driving force for Africa’s renaissance. According to the UN, the world population in 2050 will reach 8.9 billion, including 5.2 billion in Asia, 1.8 billion in Africa, 768 in Latin America, 448 million in North America and 632 million in Europe. As a result, the engine of the global economy will move south and migrations will intensify to make up for global imbalances. Most African countries will reach a critical mass to build vibrant economies through the rise of urban centers, abundant cheap labor and a larger middle class. Population growth will also come with strings through increased pressures on infrastructure, employment and food.
Fourth, technological and economic changes will open new avenues for Africa. Competition will intensify to manage scarce resources, satisfy the needs of the global middle class and attract the poor into mass consumption. India’s breakthrough in selling computers for less than 30 dollars a piece is a testimony of future battles in areas such as housing and consumer goods. Rising labor cost in Asia will create opportunities for low-cost manufacturing in Africa.
How to accelerate economic development?
Four groups of countries are candidates for economic graduation. The first group which can drive the rest of the continent includes countries with a diversified economic and industrial base (South Africa, Egypt, Mauritius) and those with a large population base (Nigeria, Egypt, Ethiopia, Kenya) which can take advantage of cheap labor and economies of scale to leapfrog the development process. The second group includes oil producers with higher per capita income (Algeria, Angola, Libya, Equatorial-Guinea) whose development depends upon using oil resources to diversify the economy. The third group comprises countries with a good potential to diversify growth and exit from adjustment programs (Ghana, Cameroun, Côte d’Ivoire, Senegal, Mozambique, Rwanda, Tanzania, etc). The last group includes countries involved in conflict or hampered by weak institutional capacity (DRC, Niger, Guinea Bissau, etc). The ability to graduate from one stage to another will be contingent to the quality of governance and development strategies as well as progress in regional integration.
To win the 21st century, Africa needs radical changes in the following areas:
First, improve the quality of leadership and governance to raise living conditions. It is important to stress term limits for presidents, free and transparent elections, stronger institutions and oversight from the parliament, civil society and the media to foster accountability, promote good governance and avoid regime change through civil unrest and violence.
Second, fresh thinking is needed concerning the complementary role of markets and the state to spur economic development and effectively provide basic services to citizens.
Third, implement ambitious development policies with emphasis on catching up with emerging countries in terms of productivity and per capita income. This requires a bold vision and benchmarking grounded on specific strategies to diversify the economy, build infrastructure and mobilize human resources at home and in the Diaspora.
Fourth, modernize agriculture to foster economic growth and reduce poverty. As evidenced in China, GDP growth generated in agriculture has a higher impact in raising incomes for the poor. Against a backdrop of rising population and food prices in international markets, African countries should stop relying on food imports and build viable agriculture sectors for domestic and regional markets.
Fifth, expand the size of domestic markets through regional integration. This requires policies to promote the free movement of people and goods, build regional infrastructure and implement joint policies to improve Africa’s competitiveness, trade and investment.
Sixth, get rid of the moral, intellectual and financial dependence on foreign aid which should become a complement, not a driver of economic development. To this end, Africans should stop competing for access to aid and focus on the contest for producing goods and services.
* Source International Affairs Forum.Eugene Nyambal is an economist and Head of Global Performance Management, Inc. He was Senior Advisor to Executive Director at the IMF, Mission Chief at the Bank and Senior Strategy Officer for IFC after having worked for multinational corporations in Europe. He has written a number of books and articles on development issues.
He can be reached at: email@example.com 0r 1 703 622 06 09
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