From Africa’s resource curse to Africa’s wealth

Nobel economist Jan Tinbergen has shown in his work the negative impacts that the exploitation of natural resources can have on the economics of a country, based on the example of the Netherlands with the extraction of natural gas in the 1960s. Since then, the “Dutch disease” theory has evolved to refer to the “resource curse”. Africa, a continent rich in raw materials of all kinds, obviously faces a challenge in terms of managing the rent derived from the exploitation of its resources.

The 2017 version of the Annual Report on Commodity Analytics and Dynamics in Africa (Arcadia)[1] deals with the evolution of the various linkages between Africa and world commodity markets, considering both economic and structural developments. Talking about commodities, just like talking about Africa in general, is a huge challenge in view of the heterogeneity that characterizes these two fields of study.

The report therefore focuses on raw materials “that matter” to African countries. These is the case obviously of iron ore and cobalt, present in the African subsoil, which have soared this year. US and China investment announcements in infrastructure led to an increase in iron ore prices (+ 70% this year) and bauxite (the source of aluminium). A country like Guinea, which accounts for nearly a quarter of the world’s bauxite reserves, is expected to benefit from unprocessed export bans in Indonesia and the Philippines to become the world’s largest exporter.

However, there are many examples of countries illustrating the danger of a national economy and state budget dependent on commodities, whose prices are essentially volatile. The downturn in cocoa prices has led to serious social and economic unrest in Côte d’Ivoire and Ghana, despite the good macroeconomic performances of both countries. Angola, South Africa and Nigeria, the continent’s main economic driving forces, were also hard hit by falling prices for oil, precious stones and metals.

Obviously, the various economic difficulties of these states cannot be explained only by the fall in commodity prices. Each country has an economic, fiscal and budgetary context explaining its level of GDP and growth. However, pan-African challenges persist across the continent: improving the attractiveness of mining activities, promoting electricity generation through renewable energy, strengthening food security by developing an efficient agricultural model and increasing the capacity of states and companies to raise funds.

The challenge of commodities is to make it a source of growth for the African continent. Local demand for commodities in response to growing African demand and capturing a greater share of added value is crucial. And for that, let us not forget a fundamental aspect: the rent derived from raw materials must be managed in the long term with structural policy instruments, without falling into the trap of short-term management exposed to the risk of cyclical reversals. Thus, we will definitely make commodities an asset for African economies.

[1] Arcadia 2017, « Annual Report on Commodity Analytics and Dynamics in Africa », edited Philippe CHALMIN et Yves JEGOUREL, publishing house ECONOMICA et OCP Policy Center 2017

Africa: an emerging destination for investments

One of the major audit firms recently published its index on the attractiveness of Africa for 2017[1]. The report puts into perspective the economic trend of the continent in a rigorous and detailed way, enabling us to avoid the two pitfalls of Afro-optimism or Afro-pessimism.

It should first be noted that 2016 has been the worst year in terms of economic growth for sub-Saharan Africa over the past 20 years. The continent has been hardly hit by the end of the super-cycle of commodities, particularly impacting Nigeria, Angola and South Africa. The geopolitical upheavals of the West such as the Brexit and the election of Donald Trump also contributed to diminishing or at least stagnating investments from these countries which are important investors in Africa. However, while the number of FDI projects fell by 12% in 2016, they increased by 32% in value terms (reaching $ 94.1 billion), making it the second region of FDI growth at world.

Obviously, Africa is not a homogeneous bloc and in fact there are great disparities between countries. The three major countries impacted by the drop in the commodity prices mentioned above should not distract us from the bigger picture that reveals the growing young shoots in French-speaking Africa as in East Africa. While Morocco, South Africa, Kenya, Egypt and Nigeria attract the bulk of FDI projects (57%), other investment hubs appear. Ghana (4th), Côte d’Ivoire (7th) and Senegal (9th) attract investors, as evidenced by their ranking in the Africa Attractiveness Index. On the other side of the continent, growth is also very strong with an average of 6% for Kenya, Ethiopia, Tanzania and Uganda. These last two being boosted by the recent discoveries of oil and gas fields.

As nature abhors the vacuum, Asia-Pacific, especially China, has filled the decline in investment from the United States and Great Britain. China is now the third largest investor in terms of FDI projects in Africa, with the strongest growth in terms of jobs created. Note also the breakthrough Japan has seen its level of investment and jobs created increase by 757% and 106% respectively.

These figures, which show a real enthusiasm of investors for the African continent, remain to be relativized and taken in retrospect. Africa still receives an inadequate share of global FDI (11.4%) in terms of its population and its potential. Long coveted for its natural resources, the diversification of the African economy is underway, driven by the dynamism of sectors such as transport and logistics or the automobile. It is also worrying that the share of investment projects carried by African investors has continued to decline since 2013, falling to 15.5% in 2016. This contributes to the degradation of Africa’s resilience to external shocks ‘economy.

That Africa is attractive to foreign investors is a good thing, but it must also become an opportunity for African investors themselves! That is why we must redouble our efforts to achieve greater regional integration and a policy of reducing barriers to trade between the countries of the continent. History has shown that these choices lead not only to economic development but also to political stability, two essential objectives for ensuring the well-being of the population.

[1] EY’s Attractiveness Program Africa, « Connectivity redefined », May 2017

A message for the youth of South Africa

On June 16, South Africa commemorates Youth Day, a day to honour the role played by South Africa’s young women and men in the pursuit of independence and social economic development. As we reflect on the gains of the past, we also celebrate the successes of South Africa’s young entrepreneurs and innovators – taking on new frontiers and staking their claim in the country’s socio-economic growth.

On the other hand, as we look for hope towards a brighter future, we need to also reflect on the high unemployment levels and education challenges faced by young adults. This is against a backdrop of 27,7% national unemployment rate of which youth unemployment consists 38,6% in the country (SA Stats).

This scenario is not unique to South Africa, as it resonates with the rest of the African continent in which about 200 million of its people are aged between 15 and 24. Africa has countries with the 10 youngest populations in the world and the youth populations continent-wide are set to double by 2050. Furthermore, approximately 66% of young people are unemployed.  They are unable to find jobs within the job market due to a mismatch of skills and demand. Recognising the critical role of youths in shaping the continent’s future, the African Union theme for 2017 is Harnessing the Demographic Dividend through Investments in Youth.

However, without more deliberate and concerted efforts to address the challenges faced by youths today, such as unemployment and lack of meaningful economic opportunities which rank high, Africa faces the real risk of frustration from the youth leading to a spike in instability and civil conflicts. Youth Day should therefore remind us all to take action, and to take that action now, to put in place conditions for our youths to develop into skilled entrepreneurs and innovators, as well as provide meaningful employment and economic opportunities for them.

To this end, NEPAD Agency promotes policy and capacity development interventions such as support towards the development of National Action Plans on youth employment and skills development, enhancing the employability and entrepreneurial activity for young people. The interventions include promoting innovative approaches for employment orientated Technical Vocational Education Training (TVET) and promoting decent rural youth employment and entrepreneurship in agriculture and agribusiness.

On the bright side, Africa’s youthful population is one from which real dividends can be drawn, since they make up the much needed working-age population that is crucial for the continent’s economic growth. According to the World Bank, Africa’s youth demographic dividend can potentially generate 11-15% GDP growth between 2011 and 2030. What is more, if African countries were to take full advantage of this potential dividend and provide adequate education and jobs, up to $500bn a year could be added to its economies for 30 years.

As South Africa celebrates Youth Day, let us not forget that it was the events in 1976 that contributed to changing the socio-political landscape of the whole country. Oppression through inferior education and limited choices for youths was not acceptable then, and it is not acceptable now.  It is up to us then to work together with youths today, in creating a brighter future for generations to come, even as we build ‘The Africa We Want’ in the African Union’s Agenda 2063.  In making this appeal, I would like to echo the words of Nelson Mandela, “To the youth of today, I also have a wish to make: Be the script writers of your destiny and feature yourselves as stars that showed the way towards a brighter future.”

What the preservation of our heritage tells us about our future

Recently, in certain countries of Sahelian Africa such as Burkina Faso and Mali, there has been a renewed interest in the so-called “Nubian vault” architectural technique. Houses built according to this ancestral model, probably coming from the ancient Egyptians, are less costly, because they use the local earth for the bricks, more perennial (about fifty years), better insulated than the iron sheets covered houses, and ecological since they do not use wood. These fresh houses with small and chiselled openings that retain heat on the outside, allow the easy addition of a roof terrace. NGOs have made it the basis for some development projects in response to the lack of decent housing, lack of employment and the challenge of ecological preservation.

This example illustrates a legitimate questioning of some of our States about the accumulation of capital. Should we accumulate physical capital or knowledge? At first sight we naturally answer both. But in this case, what should be prioritized between knowledge that is difficult to measure, which is a bet on the future, and the accumulation of infrastructures and financial capital, more easily quantifiable? I believe that we can lead the two accumulations head on, one helping the other, supporting the other, nourishing it, making it even wealthier.

The example of the Nubian vault shows that it is important to preserve the techniques specific to Africa, to know how to adapt them, but also to defend them as our genuine heritage. The effort must be global: finding funding and partnerships for the development of our continent, but also maintaining control over what we want to do, according to our needs and cultures. The days when we were forced to make laterite tracks rather than paved highways are gone. That is why we must also give ourselves the means to choose and build. And this requires a renewed effort to educate, preserve and transmit the intellectual capital that we have, sometimes without even noticing.

Likewise, without knowledge, how can we maintain the physical capital that we have received as an inheritance, too often fallen into decay? Africa, today more than ever, needs hydraulic engineers, renewable energy specialists, mining engineers and geologists to exploit its immense natural resources. We also need to better protect our inventions. The world observes us – to say that it spies on us would be too strong – and tries in good industrial logic to take over what belongs to us, sometimes legally, sometimes illegally. I think of Ethiopia’s long battle against the American giant Starbucks to recover the appellations of origin of its finest varieties of coffee: Yirgacheffe, Sidamo and Harrar. In this case, David defeated Goliath, and these three names which evoke voluptuous perfumes are now registered Ethiopian trademarks. As a result of this initiative, some 15 million people living in the coffee sector in Ethiopia have seen their incomes increase, while the state has exported more. Ethiopia is today one of the leaders of the continent in the protection of intellectual property.

Like the Nubian vault, coffee is a heritage, both genetic, agricultural and cultural, which we must preserve and develop. We must continue to invest in the production of knowledge. The State, with its public sector, the private sector and citizens, each at their level, must participate in this effort. Let us not doubt that the profits, which seem sometimes impalpable, will eventually bring about a sound and stumbling effect, as shown by these two examples.

Formal sector versus informal sector: towards reconciliation

More often than not, particularly in Africa, we are used to opposing the formal and informal sectors. Shouldn’t we adopt for once a holistic approach of our economies and try to integrate more and more the informal sectors of our economies by the means of smart and fair policies?

Behind this somewhat negative word, the informal sector – understood as all activities that are beyond the control of the state, whether legal, social or fiscal – there are artisans, mechanics, tailors, merchants, taxi drivers, masons. In short, people who scrap a living. But in this logic of day to day survival, these men and women also walk down a precarious path in the medium to long term. What can you do if you get sick when you only have a small job to earn money to pay for the day’s food? What happens when the informal worker, one he is too old, no longer has the strength to work? It is easy to understand that above all, one must escape from the logic of survival in which too many of our fellow citizens are stuck, often against their will.

According to the African Development Bank (AfDB), the informal sector accounts for an average of 55% of cumulative GDP in sub-Saharan Africa. In some of our countries, the workers who produce this wealth sometimes count for the majority of the active population. Statistics are lacking, but in a report on the informal sector published last May, the International Monetary Fund (IMF)[1] indicated that informal employment accounts for between 30 and 90 per cent of non-agricultural employment in sub-Saharan Africa. Let us recall that there is no clear frontier between the formal and informal sectors: legitimate companies may indeed use informal contractors for certain matters, for example on a construction site.Even the IMF, a former vocal critic of the informal sector, in the report we have just mentioned, shows that times have changed and that the informal sector can be a growth opportunity for our economies.

While international experience indicates that the share of the informal economy declines as the level of development increases, most economies in sub-Saharan Africa are likely to have large informal sectors for many years to come, presenting both opportunities and challenges for policymakers”, the report says. This is all the more true as the number of jobseekers increases exponentially and as a “fight” against the informal sector will deprive our states of an important safety valve, especially for youth. Remember that to absorb new workers, Africa must create 122 million jobs in the next ten years. The IMF adds: The challenge for policymakers, therefore, is to create an economic environment in which the formal sector can thrive while creating opportunities for those working in the informal sector to maintain or improve their living standards”.

Bringing these individual or family businesses into common law is not an easy task, but there are ways and means to make it happen, and above all a strong argument in favor of this move: entering the system makes it possible to fight precariousness, especially if sound policies of health insurance and retirement pensions are accompanying this regularisation. Under no circumstances should policies appear to be a tax burden on micro and very small informal enterprises. Policies must promote access to banking services and improve productivity of these small businesses, so that they create more jobs, pay social contributions for employees, and, only in a second phase, provide tax revenues to the state.

 

[1] Regional Economic Outlook, IMF, May 2017.

Africa Nutrition Map

African Heads of State and Government committed to the goals contained in the 2014 Malabo Declaration, which acknowledges that agriculture and food security are key determinants of nutrition that require coordinated and comprehensive responses from other sectors, including health, education, labour, social protection, and coordinated collaboration with multiple stakeholders.

While it is a well-known fact that Africa hosts half the available arable lands in the world, as a continent Africa still disproportionately suffers from hunger and hunger related diseases such as stunting or malnutrition.

On the margins of the 13th Comprehensive Africa Agriculture Development Programme[1] Partnership Platform (CAADP PP) in Kampala, Uganda, the NEPAD Agency publicised the Africa Nutrition Map.  The Africa Nutrition Map is a tool that indicates hot points on the continent with regards to hunger, malnutrition, and food insecurity.  The map also indicates the growing prevalence of less covered “rich country diseases” on the continent such as obesity or diabetes.

The NEPAD Nutrition Map provides a snapshot of Africa’s nutrition context as at the end of 2016. Too many people still suffer from hunger in Africa. Hunger is a by-product of poverty, but the Nutrition Map also provides points to the opportunity for African leaders to take advantage of the continent’s huge agricultural potential in ensuring the provision of nutritious food,” said Kefilwe Moalosi, NEPAD Agency’s Nutrition Programme Officer.

Africa still imports USD$50bn worth of food each year, even though agriculture and its value chains could provide more employment to its youth and food security to its citizens. CAADP was adopted by the continent’s leaders as the framework within which to redress these and other challenges, by putting the necessary reforms in place to trigger the green revolution that Africa needs. 

[1]CAADP, short for the Comprehensive Africa Agriculture Development, is an African-wide agenda designed to support the transformation of the continent’s agriculture for sustained food security and socio-economic growth.

Africa Day, 25 May 2017

Africa Day is a time for reflecting on who we are – an enterprising, innovative and resilient people. Today we not only celebrate who we are and our achievements, but we also focus on our continent’s future.

25 May, Africa Day, is a day for celebrating the occasion when the Organisation of African Unity (OAU), the precursor to the African Union, was formed in 1963. It is a day when we celebrate the progress made by Africans, while reflecting on the common challenges we face in a global environment.

Industrialisation is the one area in which the continent of Africa needs to make rapid progress. It is not an overstatement that industrialisation is a critical engine for economic growth and development. If managed prudently and effectively it can contribute to creating employment opportunities and re-position the continent to becoming competitive in the global trading environment.

This year, the NEPAD Agency commemorates Africa Day by also celebrating the innovations that entrepreneurs on the continent are developing, under the African Union theme for 2017, Harnessing the Demographic Dividend through Investments in Youth.

The growing extent of youth unemployment poses a fundamental challenge for the whole of Africa. About 60 percent of the unemployed are under the age of 25 and young women are especially affected.

On the positive side, Africa has the youngest population in the world, and it is this population that will supply the much needed human capital and innovations in the years to come, even as the continent becomes more and more industrialised.

Even as the continent faces the challenges of integration and industrialisation, many are the innovations that young enterprising Africans are developing to redress development challenges on the continent. Many are the innovations by young Africans that need to be up-scaled that provide solutions in the areas of biosciences (including agriculture), climate change adaptive innovations, ICTs, advanced manufacturing, to name but a few.

On this special day for Africa, we therefore make a call for the need to ensure that investment into industrialisation and innovation is at par with the growing demands for skills development, employment and entrepreneurship from our youthful population. With a footprint in 52 countries on the continent, the NEPAD Agency provides the gateway to boost the expansion of innovations, providing African solutions to Africa’s challenges. Indeed, the more we think regionally, the faster we can grow into ‘The Africa We Want’ by ensuring the skills of our entrepreneurs and innovators are being shaped as they grow, resulting into the overall transformation of all regions on the continent.

 

Commemoration of the Africa Day: showcasing African innovations

Pretoria –  “The best way to believe in the future for Africa, is to believe in our innovations and in our innovators,” Dr Ibrahim Mayaki, CEO of the NEPAD Agency stated in his keynote address at an event held to showcase African innovations.

As part of the commemorations for Africa Day, this year the NEPAD Agency also celebrated the innovations that entrepreneurs on the continent are developing, under the African Union theme for 2017, Harnessing the Demographic Dividend through Investments in Youth.

“There is no better way to celebrate Africa Day than through innovations,” remarked Ms Teresiah Simelane, General Manager for Enterprise Development at The Innovation Hub in Pretoria, South Africa.

Dr Mayaki was speaking today at an event organised by the NEPAD Agency and The Innovation Hub to mark Africa Day, as a time for reflection, celebrating the progress made by Africans, while also reflecting on the common challenges and solutions the continent needs in a global environment.

Africa has the youngest population in the world, and it is this population that will supply the much needed human capital and innovations in the years to come, even as the continent becomes more industrialised. Even as the continent faces the challenges of integration and industrialisation, many are the innovations that young enterprising Africans are developing to redress development challenges.

The exhibition by entrepreneurs at the event in Pretoria, made the case for the myriad of innovations which exist on the continent and need to be up-scaled in providing concrete solutions to some of Africa’s challenges. The young entrepreneurs’ innovations provide solutions in the areas of bioeconomy (including agro-processing and health), climate change adaptive innovations and smart industries (ICTs and advanced manufacturing), to name but a few.

Participants at the event heard from entrepreneurs who showcased innovations from injectable bone graft substitute, to devices that help deaf communities and various other innovations in health, medical, food, beauty, pharmaceutical and manufacturing industries.

“We need innovations to trigger technological developments and other advancements in the framework of Agenda 2063, Africa’s vision for transformation,” Dr Mayaki said.  He added that, “The skills of entrepreneurs need to be shaped in such a way that as they grow, African economies can also grow, with the drive from the continent’s own innovative solutions.”

Dr Mayaki also stated that the commemoration of Africa Day with The Innovation Hub marks the first step towards strengthening collaboration with the NEPAD Agency.