Unlocking Africa’s economic potential

Inclusive Economy23 Jul 2013Donald Kaberuka

Africa is gaining increasing global economic importance, but it has to address logistical and policy impediments to fully benefit from it.

The African Development Bank has given considerable thought to how to support Africa’s structural transformation and the policies required to achieve it. It has identified three pillars for the structural transformation agenda: political leadership, quality and inclusiveness of growth, and the interconnectedness of national, regional and global economies.

In the past few decades, Africa has opened up to the world as never before, with the private sector taking the lead. Every year, Africa’s diaspora sends home resources that exceed total ODA for some countries on a per capita basis. The mobile phone and associated ICT innovations have enhanced the interconnection of many individuals and businesses, and led to a new industry comprising e-services. Modern travel has also greatly expanded all over Africa. However, logistical and policy impediments to economic integration at the national and sub-regional levels, and by implication into the global economy, persist. Without addressing these challenges, Africa will not benefit fully from its increasing global economic importance.

Including the population in the socioeconomic mainstream has always been the goal of most African governments. But implementation has been inadequate. The Arab Spring and similar uprisings indicate that deep economic disaffection can exist side by side with apparent affluence for a while, but serious social tensions will eventually break out. Socioeconomic equality is therefore a public good that is crucial for the preservation of social peace and harmony, which are in turn important for growth and wealth generation.

Young people comprise the bulk of Africa’s population of one billion. To convert this ‘youth bulge’ into a ‘demographic dividend’ will require the creation of job opportunities on a large and unprecedented scale. Innovation and experimentation will be required in the search for viable solutions. Experience dictates that the private sector will be a key source of employment, but also that governments need to be imaginative and willing to learn from others, especially in the area of skills development.

Promoting Africa’s agriculture and extending services to the rural sector continue to be the most effective way of driving inclusive growth and the poverty-reduction agenda in Africa. The interventions required, including better extension services, irrigation systems, and feeder roads to industrial hubs, are well known. What is often missing is adequate implementation. Furthermore, technological innovation will be needed in the decades ahead, especially to tackle the effects of climate change.

To break cycles of intergenerational poverty and gender bias and to increase social mobility, African governments will need to raise their outlays on education, while protecting the rights of women, children and other vulnerable groups. Impediments to women’s access to education and productive assets, notably land and credit, can only be removed by socially conscious policies and programs.

Africa’s economic infrastructure remains a key constraint to interconnectedness and hinders countries from linking and benefitting from the domestic, regional and global opportunities. Railways, a common and cheap form of transportation elsewhere in the developing world, have been slow to develop in Africa. The railway infrastructure is old and little investment has been attempted in the last decades. The road infrastructure, though bigger, is unevenly distributed and concentrated in urban areas, while rural areas are poorly served. Infrastructure development will be important in connecting Africa to itself and the rest of the world, and to help it benefit from the economies of agglomeration.

The ICT industry is bringing real benefits to Africa in terms of information flow, domestic and international trade, public service provision, human capacity development and innovation and skill enhancement. The transformational impact of ICT is evident. Today, the mobile phone industry represents some 4% of Africa’s GDP and employs directly or indirectly over 5 million people. Broadband penetration is projected to cover over 50% of the African population in the next 20 years (from 7% in 2010). This is bound to revolutionize commerce on the continent. Investments in ICT have greatly improved public access to information, spurring a knowledge economy and innovative approaches from microfinance to the mobilization of rural producers.

Urbanization implies important spatial interactions at the national level that can provide transformative growth opportunities for Africa, but also serious challenges. Urban concentrations of population allow for popular mobilization and for technological innovation and specialization across a range of areas including transportation, education and health. Industry clusters can enhance domestic productivity and raise export competences as happened in China. But urban areas also provide serious challenges to governments, especially in supply of housing, infrastructure — notably power, water and sanitation, and services, including controlling pollution and crime. Importantly, policies could have an urban bias, as urban dwellers begin to exercise their economic and political power. Strategies will be needed to ensure that benefits of urbanization are maximized while the negative effects are mitigated.

Strategies to unlock Africa’s potential, including better nutrition and improved access to basic services (including education), then matching the skills of the youthful population to dynamic, self-reinforcing, value-adding industrialization, are neither radical nor new. Peace is indispensable. Africa’s leaders will need to harness the continent’s human and natural resources sustainably, yet strategies and policies must be crafted and driven by citizens. Policy ownership will be crucial. Africa must devote adequate financial and human resources to building capacities and mobilizing its rural and urban populations for development. Africa must remove gender barriers and allow for the full participation of its women in politics and economics, eliminating constraints to ownership of property, including land.

For growth to be transformative will require higher productivity, support to innovation, including in the use of domestic resources, and economic diversification. Africa will need to harness all available opportunities to attain more dynamic growth process. The continent must ensure that it takes full advantage of the natural resources boom to create sustainable welfare improvement for the population. Even countries without such endowments will benefit greatly from positive neighbourhood effects. It is estimated that Africa’s extractive industries will contribute over USD30 billion per annum in government revenues in the next 20 years alone. Governments will thus have resources, but will need to maximize the value-added of their social investments, while limiting negative environmental and macroeconomic impacts.

Government policies in Africa are now largely supportive of the private sector, but there are still obstacles, including high rates of taxation and the infrastructure gaps mentioned above. Foreign investment is an important component of many countries’ strategies, although outside natural resources, the broader impact on employment and the links to the rest of the economy, notably agriculture, are still limited.