En­sur­ing Africa’s con­tin­ued rise

Financial Mirror (Cyprus) - - FRONT PAGE -

Africa’s rise is in dan­ger of fal­ter­ing. Af­ter years dur­ing which the con­ti­nent’s econ­omy grew at an av­er­age an­nual rate of 5%, global un­cer­tainty, de­pressed com­mod­ity prices, and jit­tery ex­ter­nal con­di­tions are threat­en­ing to un­der­mine decades of much-needed progress. En­sur­ing the wealth and well­be­ing of the con­ti­nent’s res­i­dents will not be easy; but there is much that pol­i­cy­mak­ers can do to put Africa back on an up­ward tra­jec­tory.

First and fore­most, pol­i­cy­mak­ers must secure the fi­nanc­ing needed to pur­sue sus­tain­able devel­op­ment in an un­cer­tain global en­vi­ron­ment. The World Bank es­ti­mates that Africa will re­quire at least $93 bil­lion a year to fund its in­fra­struc­ture needs alone. Cli­mate-friendly, sus­tain­able in­fra­struc­ture will cost even more. And yet, as long as global growth re­mains weak, Africans can­not count on de­vel­oped coun­tries to fully honor their com­mit­ments to help at­tain the Sus­tain­able Devel­op­ment Goals.

Africa must rapidly de­velop its own re­sources, be­gin­ning by nearly dou­bling tax rev­enues. Across Sub-Sa­ha­ran Africa, tax rev­enues ac­count for less than one-fifth of GDP, com­pared to more than one-third in OECD coun­tries. This means there is plenty of room for im­prove­ment. From 1990 to 2004, for ex­am­ple, Ghana re­formed its tax sys­tem and raised rev­enues from 11% to 22% of GDP. Ad­mit­tedly, such progress is dif­fi­cult; in Nigeria, we saw an op­por­tu­nity in rais­ing non-oil tax rev­enues, but strug­gled to seize it.

Another source of do­mes­tic re­sources is the roughly $380 bil­lion in pen­sion as­sets held by just ten African coun­tries. Pol­i­cy­mak­ers should be lever­ag­ing these con­sid­er­able sums.

At the same time, African coun­tries will have to find a way to di­ver­sify their economies. Di­ver­si­fi­ca­tion re­quires in­vest­ment in the fu­ture, in the form of ed­u­ca­tion and wellde­vel­oped in­fra­struc­ture, in­clud­ing telecommunications, power, roads, rail, and wa­ter.

There are plenty of mod­els to fol­low: Dubai, Sin­ga­pore, Thai­land, Malaysia, Mex­ico, In­done­sia, and South Korea are all ad­mired by Africans as economies that man­aged to trans­form them­selves. Dubai, for ex­am­ple, set out more than three decades ago to pre­pare for a fu­ture with­out oil. The gov­ern­ment im­ple­mented a step-by-step trans­for­ma­tion of the coun­try into a ser­vice econ­omy, putting in place the in­fra­struc­ture and in­cen­tives nec­es­sary to build up fi­nan­cial ser­vices, tourism, med­i­cal ser­vices, real es­tate, me­dia, arts, and cul­ture. South Korea and Sin­ga­pore, which had few nat­u­ral re­sources on which to rely, are no less in­spir­ing.

The se­cret be­hind these coun­tries’ suc­cess is re­lent­lessly fo­cused lead­ers, whether en­trenched but be­nign dic­ta­tors or demo­crat­i­cally elected politi­cians with a shared vi­sion of a broad-based econ­omy. Sub-Sa­ha­ran Africa has paths for di­ver­si­fied growth that many of the trail­blaz­ers did not: value-added agri­cul­ture and agro in­dus­try, the pro­cess­ing of min­eral re­sources, petro­chem­i­cal com­plexes, man­u­fac­tur­ing of durable and con­sumer goods, tourism and en­ter­tain­ment, and an emerg­ing in­for­ma­tion-tech­nol­ogy sec­tor.

As the nec­es­sary mea­sures for di­ver­si­fi­ca­tion are im­ple­mented, pol­i­cy­mak­ers must en­sure that the eco­nomic growth they are pur­su­ing cre­ates jobs. Sadly, this has not al­ways been the case. Much of the re­cent growth has ben­e­fited only a few, leav­ing many be­hind – most no­tably young peo­ple and women. From 2006 to 2013, in­equal­ity rose in many of the con­ti­nent’s most im­por­tant economies, in­clud­ing South Africa, Nigeria, Ghana, Tan­za­nia, and Rwanda.

These were chal­lenges that we were start­ing to ad­dress in Nigeria when I was fi­nance min­is­ter. We knew that we needed not just to secure growth, but also to im­prove the qual­ity of that growth.

To that end, pol­i­cy­mak­ers must en­sure that growth is chan­neled into sec­tors that cre­ate jobs, such as agri­cul­ture, man­u­fac­tur­ing, and ser­vices. They may also have to re­dis­tribute in­come and strengthen so­cial safety nets to pro­tect bet­ter those at the bot­tom of the lad­der.

Match­ing skills to job op­por­tu­ni­ties will be cru­cial. Some 70% of Africa’s pop­u­la­tion is un­der 30, and the con­ti­nent is home to half the world’s pri­mary-school-age chil­dren who have been de­prived of the op­por­tu­nity to study. Of­fer­ing Africa’s chil­dren ba­sic read­ing, writ­ing, and tech­nol­ogy skills, as well as vo­ca­tional, tech­ni­cal, and en­tre­pre­neur­ial train­ing, must be a top pri­or­ity.

Weak health-care sys­tems must also be strength­ened in or­der to tackle the en­demic dis­eases that sap pro­duc­tiv­ity, such as malaria, as well as im­prov­ing pre­pared­ness for out­breaks of deadly epi­demics. The stakes are high. The World Bank es­ti­mates the Ebola out­break shrank the economies of Sierra Leone, Guinea, and Liberia by 16%.

As the world econ­omy sput­ters, African coun­tries will have to de­velop trade with one another. In 2013, African goods and ser­vices ac­counted for just 16% of trade within the con­ti­nent, and just over 3% of world trade. One prob­lem is that most African coun­tries pro­duce the same type of com­modi­ties and trade them with very lit­tle value-added. Pol­i­cy­mak­ers must en­cour­age greater spe­cial­i­sa­tion; dif­fer­en­ti­ated goods and ser­vices will add value and vol­ume to trade.

Lo­gis­tics pose another ob­sta­cle to in­tra-African trade. Pol­i­cy­mak­ers must make it eas­ier to move goods across bor­ders, by im­prov­ing con­nec­tiv­ity be­tween coun­tries and re­duc­ing bu­reau­cratic hur­dles and ad­min­is­tra­tive costs. For ex­am­ple, road trans­port tar­iffs across Africa are es­ti­mated at $0.05-$0.13 per ton-kilo­me­ter, com­pared to the av­er­age of $0.01-$0.05 for all de­vel­op­ing coun­tries.

The Rift Val­ley Rail­way project, which will even­tu­ally link Mom­basa on the Kenyan coast to Kampala in Uganda, is a good ex­am­ple of the ben­e­fits that in­vest­ments in transportation could pro­vide. The African Devel­op­ment Bank es­ti­mates that it will dou­ble the vol­ume of trade be­tween the two coun­tries, while re­duc­ing mar­ginal costs by 30%.

As they make these in­vest­ments, pol­i­cy­mak­ers must not for­get that much of Africa’s re­cent growth can be cred­ited to good macroe­co­nomic poli­cies and sound eco­nomic man­age­ment. Ex­tend­ing the con­ti­nent’s rise will re­quire strength­en­ing the con­ti­nent’s eco­nomic fun­da­men­tals.

This means en­sur­ing that prices in the econ­omy are cor­rect, start­ing with the ex­change rate. Some coun­tries may need tem­po­rary con­trols to curb dam­ag­ing cap­i­tal out­flows, but pol­i­cy­mak­ers should aim for a mar­ket-based ex­change rate and a solid plan for gov­ern­ing in­fla­tion, debt, for­eignex­change re­serves, cur­rent ac­counts, and fis­cal bal­ances.

Africa’s po­ten­tial can hardly be over­stated. The con­ti­nent is well placed to build di­ver­si­fied economies based on low­car­bon, sus­tain­able in­fra­struc­ture. But pol­i­cy­mak­ers can­not sim­ply as­sume that Africa’s rise will con­tinue. They must take the right steps to en­sure that it does.

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