En­sur­ing Africa's growth

The Pak Banker - - OPINION - Ngozi Okonjo-Lweala

THE rise of Africa is in dan­ger of fal­ter­ing. Af­ter years dur­ing which the con­ti­nent's econ­omy grew at an av­er­age an­nual rate of 5 per­cent, 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. Cli­mate­friendly, 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.

An­other source of do­mes­tic re­sources is the roughly $380 bil­lion in pen­sion as­sets held by just 10 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.

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 with a shared vi­sion of a broad-based econ­omy. Sub­Sa­ha­ran Africa has paths for di­ver­si­fied growth that many of the trail­blaz­ers did not: Value-added agri­cul­ture and agro in­dus­try, the pro­cess­ing of min­eral re­sources, petro­chemi- cal com­plexes, man­u­fac­tur­ing of durable and con­sumer goods, tourism and en­ter­tain­ment and an emerg­ing IT 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, in­clud- ing 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. 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 per­cent.

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 per­cent of trade within the con­ti­nent, and just over 3 per­cent 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 spe­cial­iza­tion; dif­fer­en­ti­ated goods and ser­vices will add value and vol­ume to trade.

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