Strengthening Africa’s growth for sustainable development

In recent times, developing nations, some of who are now the fastest growing economies in the world have become attractive partners to Western nations. While Africa’s economy has been booming following exports such as oil and gas, ALEXANDER CHIEJINA calls for strengthening of the continent’s economy for sustainable development.

Africa is on the brink of a major transformation. In the last decade, the continent is home to six of the world’s 10 fastest growing economies, and the number is expected to rise to seven in the next five years, according to projections by the International Monetary Fund (IMF). These projections are coming on the heels of the outlook for the region, which remains bright at a time when the rest of the world is facing political and economic challenges.

Developing nations, most of who are now the fastest growing economies in the world have become attractive partners for growth-hungry western nations. Powered by exports such as oil and gas to the rest of the world, Africa's economy has been booming.

Even though not free from fallout of the global economic turmoil, the continent’s economy bounced back fast, in comparison with the developed nations that are still grappling for recovery. The World Bank forecasts the growth rate of Gross Domestic Product (GDP) for the sub-Saharan Africa to be 5.3 percent for 2012 and 5.6 percent for 2013, higher than the 4.9 percent for 2011.

The IMF put its estimated growth rate for the region at 5.5 percent for 2012. Furthermore, Africa is believed to have the highest rate of return on Foreign Direct Investment (FDI) of any developing region.

Wendy Sherman, United States under-secretary for Political Affairs in her paper “Seizing opportunities from a transforming Africa revealed that by 2020, the largest sub-Saharan Africa markets–Cape Town, Johannesburg, and Lagos will each hit $25 billion a year in household spending.

She stated that “We are seeing the development of the next big economic frontier, and the United States has much to gain, and much to offer, by recognizing and supporting Africa’s just and sustainable economic growth.”

As leaders from business, government, civil society, academia, media and the arts from over 70 countries converged recently at the 22nd World Economic Forum (WEF) on Africa which held in Addis Ababa, Ethiopia, strengthening Africa’s leadership, accelerating Investment in frontier markets and scaling innovation for shared opportunities was identified as essential in transforming Africa’s growth story into shared opportunities for present and future generations.

While Africa emerges as one of the fastest growing economies in the world, experts believe the continent is in need of transformation in terms of economic growth model as continental agenda and greater regional integration spurring unprecedented opportunities ranging from consumer industries to agri-processing and mining to alternative energy is required.

Speaking during the forum, Elsie Kanza, Director, Head of Africa, WEF, hinted that Africa is experiencing strong growth and despite increasingly volatile global economy, African leaders are pursuing measures that will transform the region into the next global growth pole.

While stating that there appear to be a stagnation of global economy, the outlook for Africa is still very high as the growth surge over the past decade is expected to continue. Kanza stated that selling materials to feed the growth of the rest of the world put Africa in a risky position that makes it vulnerable to commodity price volatilities.

“Changes need to be made to improve the quality of that growth to ensure that it is sustainable and to enhance the ability to include more people in that growth. There is an increased need to diversify economic drivers across the continent to ensure that the growth is sustainable as African nations need to look at barriers in the way to diversify investments in other areas apart from mining, oil and gas.

“Africa has the source of many drivers of economic growth giving its abundant natural resources, large land mass, and a growing youthful population which means an increase in labour force and consumption market,” Kanza disclosed.

She however encouraged expanded investment into sectors such as retail, telecommunication, financial services and agriculture.

In her words “Africa's promising economic prospect makes it as an attractive investment opportunity. Leaders in Africa should take advantage of this opportunity and leverage it to bring about real change so that it is not only the world benefiting from Africa's natural resources and ingredients for success but ensuring that Africa also benefits from this growth opportunity.”

In the meantime, economists project that Africa’s projected growth rate will be driven this year by improved macroeconomic and political stability, an ongoing resource boom and a growing consumer base.

They believe that deepening links to fast-growing emerging economies and an increasing appetite of global and regional champions for long-term investments in Africa’s frontier markets is expected to fuel renewed optimism of the continent’s future.

In addition, attaining Africa’s aspirations in a new global context will require bold and actionable ideas, as well as strong leadership on regional, national and industry levels.

Echoing the sentiment of Kanza, Oluwatoba Oguntuase, a developmental-policy analyst, pointed out that Africa must begin to look inwards so as to fashion out its own peculiar development strategy as it integrates further into the globalised economy.

Oguntuase stated that the continent has great lessons to learn from China; by adopting its own home-grown policies, it has been able to transit from a third world country to the fastest-growing economy in the world.

“Policy makers in Africa should begin to take cue from the submission of Robert Zoellick, the retiring World Bank president, in a 2010 speech thus “In a world where there is no one, overarching, theoretical framework; in a world where scholarship must be linked to practice; in a world where developing economies have as much to share as developed, we need to democratize and demystify development economics, recognizing that we do not have a monopoly on the answers. We need to throw open the doors, recognizing that others can find and create their own solutions.”

At the moment, African countries are reducing their dependence for trade and investment on developed countries. Exports to Brazil, Russia, India and China (BRIC) countries have risen to be equal to its exports to Europe. And this is an opportunity that India is building on. Last year a $5 billion line of credit was announced by Prime Minister Manmohan Singh. This is being executed through the Exim Bank of India.

FDI inflow in the continent

Capital flows into Africa are seen growing significantly in 2012 as investors seeking higher returns out of Europe, look at the continent for better opportunities in infrastructure projects, a World Bank’s senior official said recently.

Marcelo Giugale, Africa’s Poverty Reduction and Economic Management director at the bank, expects economic growth on the world poorest continent to be 5.3 percent this year and 5.6 for 2013, despite increased concerns about the euro zone debt crisis.

Giugale hinted that the appreciation of the region’s currencies against the dollar was an indication of increased foreign direct investment (FDI).

“Most currencies in Africa have appreciated this year, which means investors expect some of those countries to do very well. There is a boom in urban construction mainly from repatriated money. The amount of offer that Africa is getting to build its infrastructure which is long haul investments is clearly increasing,” Giugale told Reuters in an interview.

At the moment, the government in Tanzania said it plans to build a $684 million 300 MW gas-fired power plant in the south of the country in the 2011/12 financial year, which runs until June 30, 2012, to plug energy shortages, after securing a loan from China.

In neighbouring Uganda, British oil company Tullow Oil Plc has a $10 billion plan to start pumping oil from huge reserves discovered on the shores of Lake Albert. Early production is scheduled to start in 2013 before ramping up to a major production phase in 2016.

While frontier African currencies came under pressure in 2011 mainly due to widening balance of payments as crude prices soared on the global markets, pushing consumer prices higher, central banks lagged behind the curve in arresting inflation.

Meanwhile, Ernst & Young second African Attractiveness Survey forecast FDI into to reach $150 billion by 2015 from $84 billion in 2010, driven by strong growth in new projects. The survey pointed out that Kenya, Nigeria and South Africa which are considered regional powerhouses in Africa, are expected to achieve GDP growth of between 4 and 5 percent per annum in the next decade.

The survey stated that the growth in intra-African investment will be led by these African economies ranked among the top 20 investors into the rest of the continent between 2003 and 2011, and since 2007 the growth rate in investment from Kenya, Nigeria and South Africa has been 78 percent, 73 percent and 65 percent respectively.

The report combines an annual analysis of investment into Africa since 2003, with a survey of 505 global executives on their views about how and where investment will take place in the next decade and predicts that Africa is poised to enter the premier league of investment destinations.

Even as there has been strong growth in the number of new FDI projects in the continent in 2011 with project numbers almost up to levels last seen in 2008, in the last decade, there has been an increase in inward investment from 339 new projects to the continent in 2003 to 857 in 2011 (an increase of 153 percent) in the continent.

Mark Otty, Area Managing Partner, Ernst & Young Europe, Middle East, India and Africa pointed out that “With rapid-growth markets not only dominating investor attention and capital flows, but also playing an increasingly strategic role in defining the global economic agenda, the competition for global FDI is intensifying. African countries must position themselves appropriately in this shifting landscape to attract a greater proportion of the investment that will accelerate growth and development.”

Echoing the sentiment of Otty, Giugale said the expected discovery of more natural resources like oil and precious metals, coupled with high commodity prices on the global market would wean the continent off export dependence on European markets.

No doubt, growing optimism and confidence among international and African investors has lead to significant inward investment into Africa over the last decade

Challenges

As African economic, and political leaders converged at Addis Ababa to chart a course for transforming Africa’s economic growth, some school of thought believe the continent is bedevilled with a plethora of problems which needs to be addressed if the continent is to become an economic powerhouse.

Oguntuase, a developmental-policy analyst, hinted that the continent is several miles away in terms of good governance.  According to him “High level corruption among political office holders, weak politico-economic institutions, ethno-religious violence, wide infrastructure gap, widespread poverty and youth unemployment, hunger and drought, especially in the Horn of Africa, low access to quality education, and high maternal mortality are some of the socio-economic ills bedevilling the continent.”

He pointed out that these problems have for long rendered the impressive figures recorded mere econometric data representing economic growth without real development.

Giugale, Africa’s Poverty Reduction and Economic Management director at the World Bank, cited lack of integration and barriers to trade between African countries as a hindrance to growth in the region, which could benefit from free flow in capital and human resource across borders.

“Trade among African countries remains low despite individual countries increasing trade with the outside world, with some African countries sending up to 80 percent of their exports to with non-African countries. If you were to remove these barriers you will be capturing billion of dollars in commerce and millions of Jobs,” Giugale said.

Talking about the biggest challenge facing Africa, Elsie Kanza Director, Head of Africa, WEF, said the agricultural sector needs change. "About 50 years ago Africa was a net exporter of food and now is a net importer of food, and is fast on track to have a large population of people in the world in the next 50 years or so.

"This is a key challenge because agriculture employs majority of Africans directly or indirectly. Productivity is currently low, and value addition is also very limited. So if we want to see real change take place in Africa then this sector needs to change," she said.

Way forward

As economic growth alone is not sufficient to build the continent, economic experts believe that Africans want to take charge of their future and are now in a position to ensure inclusive and sustainable growth

Donald Kaberuka, President, African Development Bank (AfDB), Tunisia, in the Opening Plenary of the economic forum disclosed that the African continent has experienced the best decade of the past 50 years but there are still challenges that need to be tackled.

“We should not confuse economic growth with economic transformation. The structure of African economies has not changed fast enough and countries remain vulnerable to external shocks. Public policy choices should target ways to leverage wealth from natural resources for broad-based, sustainable growth,” Kaberuka stated.

Kaberuka however identified two key drivers for the future: educating children of the poor as a tool to address generational change, and the development of small and medium enterprises to close the wealth gap.

Lending his view, Kofi Annan, Chairman, Alliance for a Green Revolution in Africa (AGRA) and the Africa Progress Panel (APP), Switzerland, said government policies need to create equal access to opportunities to avoid dissatisfaction in the future.

“We cannot talk of growth when millions of people are left behind. A lack of consensus and vision has led to a situation where each new government in Africa has a tendency to start afresh instead of building on the achievements of its predecessor. It is therefore important for more debate to take place to reach consensus on the direction countries need to take,” he stated.

Annan emphasized the need to empower young people and to strengthen health and education to ensure the continent reaps a demographic dividend in the next decade.

For Bekele Geleta, Secretary-General, International Federation of Red Cross and Red Crescent Societies (IFRC), it is important for Africans to feel that they have a stake in their country’s wealth and that there is free and fair opportunity for everyone.

Geleta said the mindset within the continent is changing and Africans increasingly want to shape their own lives and actively engage in their future.

Also, Monhla Hlahla, Chairperson, Industrial Development Corporation of South Africa (IDC), South Africa, disclosed that it is time for Africans themselves to occupy centre stage on the continent and to take ownership of their lives and production.

“African farmers are now in a position not only to produce coffee beans but also to taste the coffee. Strong and decisive leadership is required to keep African development on track. Africa needs leaders that are predictable and consistent, and that are able to move Africa up the value chain,” she concluded.

Turning governance into growth

In 2011, 36 sub-Saharan African countries implemented regulatory reforms to promote growth and increase the ease of doing business. However, Nkosana Moyo, Founder and Executive Chair, Mandela Institute for Development Studies (MINDS), pointed out that conversations of poor governance and misappropriation of resources are typically coloured with severe and judgmental tones.

Moyo hinted that instead such conversations should be approached with a spirit of addressing inherent systemic problems, looking for loopholes that allow inefficiencies in governance.

Panellists at one of the sessions during the WEF identified some systemic inefficiency in governance in Africa. They noted that despite Africa’s immense potential as a growth pole, innovation has yet to be utilized on a wider scale to address its challenges. For example, with 600 million mobile phone subscribers on the continent, mobile technology has yet to be used on a wider scale to allow people to communicate their issues with government.

Juliana Rotich, Co-Founder and Executive Director, Ushahidi, stated that “Africa has yet to learn to do more with less. The ability for the public to communicate with government easily makes governance more responsive and result-oriented.”

Meanwhile, there is need for a paradigm shift from the old method of governing. There still remain great dichotomies that must be addressed immediately. One of such dichotomy in the agricultural sector shows that despite the abundance of arable land in the continent, 40 out of 48 sub-Saharan African countries are net importers of food.

Besides, adopting a new farming concept such as Latin America’s model of “Los Grobo” could help to transform the agricultural sector in Africa. However, governments within the continent were called upon to address systemic barriers to trade in a bid to promote greater commerce between and within nations.

Currently, intra- and inter-governmental trade remains slow, largely unpredictable and inefficient. Harassment to drivers on main roads, for example, creates bottlenecks to trade and an environment conducive to bribing. 

This increases transportation costs, which results in higher prices for consumers. West Africa’s “Borderless Initiative” is one model that has shown that better governance of roads leads to better trade and more growth.

For Mekdes Medhane, Programme Officer, Ethiopian Institution of the Ombudsman, United Nations Development Programme (UNDP), African youth constitute the largest group of the continent’s population but remain the most affected by poverty, unemployment, HIV/AIDS and gender-based violence. Hence, governance in Africa must pay close attention to the role of youth.

Rotich added that to promote better governance, information must be openly and widely shared with the public as honest dialogue in governance can happen only when stakeholders have access to relevant evidence and data.

There is no gain saying that strengthening the capacities of institutions such as the judiciary, law enforcement and civil society will also transform governance and help to fight corruption. Local governments were enjoined to be included in the fight.

No doubt, greater and honest collaboration between government, the private sector and civil society is believed to lead to governance transformation even as the continent’s entrepreneurial class has a big role to play too.

Participants agreed that the international community can help by refusing to accept illicit money from Africa. They also believe that there is need for creative and open systems for citizens, especially young people, to engage with government, for legal measures to address trade inefficiencies, and a regional approach to solve common problems.