African economy

Despite being home to 60 per cent of the world’s uncultivated arable land, recent crises have underscored Africa’s slow progress in harnessing its vast land and subsoil resources to achieve food and energy security © US Army Before the outbreak of Covid-19, Africa had enjoyed 25 years of uninterrupted economic expansion, leading analysts to proclaim that the continent’s growth was no longer dependent on its extractive industries. As access to education and health care increased, so did life expectancy, fueling an “Africa rising” narrative. To finance their development needs, African countries turned to international capital markets, many for the first time. A close examination of the data, however, reveals that Africa’s economic growth has not been widely shared. Per capita growth, in particular, has been far less impressive than it first appeared. Poverty remains endemic across the continent, with some 431 million people living in extreme poverty (on less than $1.90 a day). Without decisive action, the United Nations estimates that an additional 60 million Africans will fall into extreme poverty by 2030. Moreover, the inefficient delivery of public services like education and health care has led to widespread discontent. The ambitions of the continent’s increasingly educated young people, in particular, seem to have outpaced actual material progress. Despite significant efforts to increase availability, half of Africa’s population still lacks access to electricity. As a result, millions of Africans have migrated in recent decades in search of better opportunities. The economic shocks of the past few years, particularly the pandemic and Russia’s invasion of Ukraine, have undermined the “Africa rising” narrative by highlighting the continent’s heavy dependence on imported medicines, food, and fuel. Despite being home to 60 per cent of the world’s uncultivated arable land, these crises have underscored Africa’s slow progress in harnessing its vast land and subsoil resources to achieve food and energy security. The situation in Africa today bears a striking resemblance to the 1990s, a decade marked by wars, coups and severe food and debt crises. The convergence of internal instability and external shocks has created a vicious cycle of economic and financial distress, raising questions about the continent’s ability to shape its own destiny. In the face of these challenges, however, African countries have become increasingly proactive in promoting their domestic and regional interests. This shift is reflected in their voting patterns at the UN General Assembly, particularly on issues such as the war in Ukraine. African leaders have also taken a more prominent role in international energy and climate discussions. This newfound assertiveness is partly the result of a changing geopolitical landscape in which African countries are increasingly courted by rival global powers. Political leaders now have a unique opportunity to leverage their growing clout by accelerating the implementation of the African Continental Free Trade Area. The AfCFTA, which came into force in 2019, aims to boost cross-border trade by creating a single market with rules of origin that give preferential treatment to African-made goods. The creation of this trade bloc could boost industrialisation and strengthen Africa’s position in global negotiations. While the AfCFTA represents a significant shift in Africa’s economic paradigm, unlocking its full potential will require a concerted effort. The continent’s population is projected to grow from 1.2 billion today to 2.5 billion by 2050. While some commentators see rapid population growth as a potential trigger for socio-political unrest and a drain on public finances, the economic benefits should not be underestimated. By boosting cross-border trade and streamlining their governance systems, African countries could capitalise on this demographic dividend. For decades, African policymaking has been dominated by an economic paradigm that focused on meeting international market demand, similar to the export-led growth strategy that underpinned East Asia’s “economic miracle” between the 1960s and 1990s. This approach was based on the belief that international competition would force governments to implement domestic reforms and raise productivity. In reality, however, Africa remained heavily dependent on commodity exports. African economies often struggled with high interest rates and overvalued currencies. As a result, the prevailing macroeconomic paradigm encouraged over-dependence on imports, with domestic financial systems serving governments and import oligopolies rather than diversifying the continent’s economic base. The new paradigm that African countries need to adopt is based on domestic demand-led growth, taking advantage of the continent’s fast-growing consumer base. To achieve this, policymakers need to increase local productive capacity by harnessing domestic demand. This is particularly important in sectors such as agribusiness, electricity, telecommunications, and finance, where demand is growing rapidly and the potential for regionalisation is huge. To begin with, African leaders should demonopolise the import sector by promoting greater competition in transport and distribution. They should also pursue competitive exchange rates, while putting in place adequate safety nets to mitigate potential adverse effects. By combining exchange rate adjustments with increased product market competition, policymakers could redirect spending from imports to domestically produced goods and avoid devaluation-induced inflation. A renewed focus on industrialisation has the potential to integrate a large part of the population currently working in the informal sector into the labour market, thereby providing workers with better employment opportunities. While macro-structural adjustments are crucial to attracting domestic and foreign direct investment, African countries must also secure the necessary financing to meet their immense infrastructure needs, especially to eradicate energy poverty. To support their new economic strategy, many indebted countries must first restructure their existing debt, a task that requires the support of international partners. In terms of priorities, African policymakers must focus on boosting energy production, in addition to shifting to renewables. Governance reforms, supported by regional integration, will be crucial to meeting the continent’s growing energy needs. De-risking strategies, such as guarantees offered by development banks, cannot enhance the attractiveness of energy projects by themselves. By implementing bold, comprehensive reforms, particularly in the electricity, financial, and transportation sectors, countries could make their energy industries more investor-friendly. Success is far from guaranteed, in part because political and business interests in Africa are often aligned, fostering corruption and deepening public mistrust. While the continent’s emerging economic paradigm promises greater self-reliance, particularly in key sectors such as food and energy, its potential cannot be fully realised without the rule of law. African leaders must seize this opportunity to reaffirm their commitment to upholding it. Rabah Arezki, director of research at the French National Center for Scientific Research, is a senior fellow at the Foundation for Studies and Research on International Development and the Harvard Kennedy School. Copyright: Project Syndicate, 2024.www.project-syndicate.org

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