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

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.

A view from Gambia

Earlier this month I had the privilege to address a Ministerial Cabinet retreat of The Gambia. Some of you might recall that The Gambia was embroiled in a serious political impass between December 2016 and January 2017, and as you may remember the then president conceded defeat then changed his mind. Such an action if left unchecked could have culminated into a massive civil and political unrest in The Gambia with a potential spill-over into the neighbouring countries of Senegal and Guinea Bissau.

Certainly some level of divine intervention together with a well-coordinated approach by ECOWAS and the United Nations- potential disastrous ramifications of the former president’s actions was totally averted, and now The Gambia has set out an agenda to unify its people and re-ignite the economy and so on.

My address to President Adam Barrow of The Gambia and his cabinet, highlighted the principles of governance amongst others. But more specifically, I underscored the need for the president and his team of cabinet ministers to serve the people of The Gambia by providing and guaranteeing their security, protecting their welfare, meeting their basic needs, increasing their wellbeing and protecting the weak and vulnerable. Governments must do those things that give the people confidence, contentment, happiness and hope. My advice to them was that they must respond to the needs of their people for education and skills development, health, employment and social protection.

A responsible government must create the space to allow people to participate freely in the processes of governance. I emphasised to President Barrow that he and his team must build and maintain strong institutions of democracy and ensure that they strictly observe the separation of powers between the executive, the legislature and the judiciary. Furthermore, I sited the Singapore experience and also noted the significant strides that Rwanda is undertaking with regards to economic transformation and attracting private investments.

I concluded my address to the Gambian Cabinet by encouraging them to have a regional approach to doing things and I asked them to reflect deeply on where does The Gambia want to fit in Africa’s transformative agenda. And how quickly is the political leadership ready to establish a road map to achieving such a vision.

 

Africa poised for greatness — but governments must act fast

I am sharing an excellent article from Carlos Lopes on how Africa is underestimated :

Conventional wisdom tells us that the Chinese are buying up Africa faster than any other investors. It tells us that African banking lags in terms of innovation and reliability and that no African country is at the forefront of global innovation.

But conventional wisdom is often wrong and it is important to recognise that we don’t have the Africa we think we have.

What do I mean? Perhaps we can start by noting that China is actually only Africa’s third-biggest investor. The second? France. India is hot on its heels too. If that surprises you, wait until you learn that more than 50% of the world’s mobile banking happens on the continent, with Kenya taking the lion’s share globally.

MORE THAN 50% OF THE WORLD’S MOBILE BANKING HAPPENS ON THE CONTINENT, WITH KENYA TAKING THE LION’S SHARE

I enjoy these kinds of shock statistics, most recently sharing them with an audience of South African Institute of International Affairs members during an address on “World changes affecting Africa”, a talk I have also given to UN leaders, Chatham House and African Union foreign ministers.

Full article here

African states and climate disruptions

Every region in the world is affected by climate change but Africa is still the most exposed continent. According to the 2015 climate change vulnerability index, seven of the ten countries that are under the highest threat, are located in Africa.

It is an unfair and ironic situation considering that the African continent only plays a minimal role in triggering the climate crisis. But this is the reality: the challenge of climate change is far more intense in Africa than elsewhere, because of the fragility of its food-processing system and economic model.

It is a dreadful observation but populations that are the most remote from globalisation, both in terms of responsibility and simple geography, are its first victims.
Africa suffers from climate warming that is 1,5 time higher than global average, with many worrying consequences. Its ecosystem, which is already weakened, makes the African continent less resilient to potential climate shocks, even though the frequency, intensity and length of external phenomena – droughts, flooding and others – are more intense.

These disruptions are a direct threat to agriculture and livestock farming, key economic sectors and food security. Ultimately, millions of people may lose their means of subsistence.

The urgency of addressing the challenges of climate change imposes a dual approach: reducing the causes and adapting to the consequences.

It is difficult for African countries to reduce their emissions:  those produced by the continent’s rare industries are negligible compared to those of our planet’s high polluters.

The African continent as a whole distributes 4% of global greenhouse gas emissions, against 24% for China and 13% for the United States.
Adapting is an absolute priority but it has a cost. Today, it is estimated between 7 and 15 billion dollars a year and it will increase to 35 billion by 2040. Is the international community ready to increase its financial support to help Africa? There is a risk that the continent will go back to the starting point… having to face the devastating effects, in every sense of the word, of change climate.

Of course, there have been a few philanthropic initiatives from across the world to help the African people but the funding that has been granted turns out to be clearly insufficient.

Africa is therefore left on its own and has no other choice than to adapt. Paradoxically, this could prove to be an opportunity. African countries need to regroup and mutually learn from their experiences in order to adopt new approaches and develop new and more efficient strategies.

The continent needs to review its development model. It needs to plan and implement concrete adaptation measures, strengthen its resilience, review its food system, implement green economies that can resist to climate change, improve climate monitoring and meteorology. It is also an opportunity for African political and economic players to unite and adopt a common position in international negotiations in order to get adequate technical and financial support.

International Day of Reflection on the Genocide in Rwanda 7 April 2017

In making strides towards the goal of transforming our continent into “The Africa We Want” – a peaceful, strong and united Africa, reflection on the 1994 genocide in Rwanda reminds us that we cannot take our peace and security for granted.

Current and past events in African and around the world, as evidenced by the high number of people displaced by war, conflict or persecution, which now stands at almost 60 million, builds a strong case for prevention of conflict to come to the fore in all that we do. Prevention has become an essential aspect of foreign policy due to the nature of today’s conflicts, their growing complexity and the fact that conflicts are more intra-state than inter-state. Moreover, the presence of powerful non-state actors and violent extremisms all make it necessary to strengthen early warning and preventive diplomacy mechanisms.

On the African continent, efforts for peace are on the increase, as demonstrated by an ever growing number of peaceful transitions of power, with recent examples being Nigeria, Ghana, Cape Verde, to mention but a few.  At the beginning of the 1990s, there were approximately thirty ongoing conflicts, but now they have been reduced to about a dozen. In addition, we are also witnessing Africa’s integration through regional and continental efforts, under a direct manifestation of the “ownership principle” that is the cornerstone of an African prevention and development policy embedded in the African Union.

Reflecting on Rwanda today, the words of Wole Soyinka ring true:

“Given the scale of trauma caused by the genocide, Rwanda has indicated that however thin the hope of a community can be, a hero always emerges. Although no one can dare claim that it is now a perfect state, and that no more work is needed, Rwanda has risen from the ashes as a model of truth and reconciliation.”

Together with Africa’s 1.2 billion people, the NEPAD Agency commemorates the International Day of Reflection on the Genocide in Rwanda, in order to eventually see a continent where all guns are silenced, a continent in which its people flourish in a culture of human rights, democracy, gender equality, inclusion and peace.