Africa’s economy has grown fourfold since the turn of the millennium, with sub-Saharan Africa outperforming the rest of the world in terms of economic growth and at long last banishing any doubts about the continent’s upward trajectory.
Apart from the 10 African countries that still have an African Union or a UN peacekeeping presence, 85 per cent of Africans live in countries that are at peace and relatively stable, and are generating 95 per cent of the continent’s gross domestic product. Indeed, of the world’s 10 fastest-growing economies, seven are from Africa.
That is not the only positive fact. Average incomes have risen by 30 per cent in the past 10 years, having declined by 20 per cent between 1980 and 2000. Strong commodity prices have been central to the turnaround, but other factors have played a part. Rwanda and Ethiopia, for example, although not blessed with oil or mineral wealth, are among the strong performers. Nonetheless, across the continent significant challenges remain. Poverty is falling but in most places not fast enough. Social indicators have been improving but inequalities remain. And, although foreign direct investment has increased significantly, job creation remains a struggle.
The reasons for those negatives are not difficult to fathom. There has been limited structural change or diversification. Agriculture’s share of GDP has declined. At the same time, manufacturing growth has been hampered by fragmented markets, while poor infrastructure, particularly a shortage of energy and port capacity, remains acute. That said, eliminating poverty in the next two decades remains an achievable goal. If the right policy framework is in place and bottlenecks are eliminated, we can look forward to a new Africa.
It is important to remember that the so-called “New Africa” is made up of 54 countries in five regions. Africa is not a single monolithic whole. The current Ebola crisis has again revealed the tendency of those outside the continent to classify it as one entity. The notion of the 21st-century “scramble for Africa” is every bit as pernicious as was the first “scramble” at the end of the 19th century. The only safe generalisation is that Africa is planning, managing and starting to finance its own destiny.
The continent is being influenced by the four big trends. First, the emergence of a multipolar economic world, bringing new investment sources and export destinations, development experience and knowhow. Second, the demographic potential, the “human capital”, of a young and increasingly urbanised continent of 1bn people, which is expected to double to 2bn by 2050, with two-thirds living in cities. Third, the continuing discoveries of large amounts of natural resource wealth, and the challenges of managing and sharing that wealth. Fourth, the continuing opportunity to leapfrog more developed regions in many sectors through the use of technologies such as the mobile phone.
So how can Africa turn economic growth into true economic transformation? First, the continent needs to achieve real regional economic integration through the building of road, rail and air linkages, opening up borders and eliminating needless “soft” regulatory standards hindering trade.
Second, Africa needs better management of its natural resources to ensure that it takes advantage of the current strong cycle of commodity prices. Commodities should not be sold on the cheap. Instead, they should be processed in value chains and exported on fairer trading terms.
Third, we need to address the challenges faced by those African states that are still experiencing the fragility that is inherent in the development process. This year, I set up a high-level panel under Liberian President Ellen Johnson Sirleaf to address this issue.
At the root of all these challenges is the gap in African infrastructure, which is both the means to trade and the route to economic and social development. The continent’s primary task is to close the $50bn annual infrastructure funding deficit which costs it at least 2 per cent in annual GDP growth. Private capital is a large part of the answer, in the form of foreign private equity, debt and the untapped resources of African pension funds and capital markets. The key is to take the risk out of the equation. Today, the prerequisites are in place: in the policy and regulatory areas, the public-private partnership frameworks, and independent regulators. The tools of risk mitigation – such as credit guarantees – are also in place, giving comfort to investors, especially in “high-risk” and low-income countries. Africa is no longer the place for “business as usual”. Today, it offers a different value proposition, as it moves towards economic transformation.