Analysis & Opinions - The Guardian
Africa's Quest for Prosperity
As African economies look for growth in the future, the two key internal strategies emerging are regional integration and harnessing diasporas for funds and technical expertise
In an implicitly apologetic headline, the Economist recently declared Africa a "hopeful continent". A decade ago its headline for a story on Sierra Leone dismissed Africa as hopeless. This message comes during a period of uncertainty for Africa's major trading partners.
The European debt crisis threatens to plunge the world into an economic downturn, the impact of which could take up to a decade to undo. China's continued demand for Africa's raw materials could also be affected by the slowing down of its exports to Europe and the US.
The prospects for continued prosperity in Africa will certainly be affected by external factors. However, internal growth dynamics are likely to shape the future of the continent in profound ways. There are two important trends to watch: expanded regional markets, and improved strategies to harness the continent's diasporas as sources of technical expertise and business networks.
The process of regional integration is probably Africa's most important innovation in governance. Africa's Regional Economic Communities (Recs) appear on the surface as convenient tools to govern an otherwise expansive continent (three times the size of the US). The Democratic Republic of the Congo (DRC) alone is the size of western Europe.
The African Development Bank has projected a 5.8% economic growth rate for 2012. This figure may be revised downwards, but countries such as Angola, Ethiopia, the DRC and Zambia will continue to record high growth rates.
The performance will be reinforced by efforts to expand internal regional trade. Three regional bodies — the Common Market for Eastern and Southern Africa, the East African Community, and the Southern African Development Community — have agreed to launch negotiations to create a Cape-to-Cairo grand free trade area.
The 27-nation trade pact will include a population of more than 700 million with a combined GDP of $1tr. The most critical aspect of the grand area will be investment in infrastructure (especially energy, transport, water and telecommunications).
It is projected that Africa will need to invest nearly $50bn annually over the next decade to meet its development goals. The investments, even if only partially made, will foster internal trade, generate employment and attract foreign direct investment.
The investment in fibre-optic cables illustrates the potential. In 2008, there was only one fibre-optic cable along the western coast of Africa. It operated at 5% capacity utilisation and had negligible economic impact.
Today, nearly $3.5bn has been invested in cables around the continent. These cables are dramatically lowering the cost of doing business by increasing communication speeds and slashing data transmission prices (by up to 80%). That $650m Seacom cable along the eastern coast of Africa has leveraged more than $6bn for terrestrial cables extending into the interior of the continent.
The next phase in this growth is going to be expanding mobile broadband. The GSM Association estimates that greater allocation of mobile broadband will "create up to 27m new jobs, increase GDP per capita by 5.2%, which will directly lift 40 million people out of poverty by 2025". The association estimates that spectrum expansion would also "increase gross domestic product and government tax revenues by $82bn billion and $18bn per year respectively by 2025".
The economic impact will be evident in the short-run. It is projected that Africa will have up to 240m mobile broadband connections by 2015. However, the economic gains will only be efficiently realised through regionally harmonised spectrum allocation. Such regional growth dynamics will also be realised in other areas of infrastructure investment such as energy, transport and irrigation.
Probably the most critical challenge facing Africa's quest for regional integration is the limited availability of technical and entrepreneurial capabilities. More specifically, Africa's educational systems have so far paid little attention to training in the engineering fields and related business knowledge.
This shortfall is likely to be filled by finding new ways of tapping into Africa's diasporas. It is estimated that more than 30 million Africans live in the diaspora, and they remitted nearly $40bn in 2010. The figure could exceed $60bn when informal fund transfers are included. In the past decade, African countries have been exploring ways to maximise remittances to supplement export earnings.
But attention is now shifting to diasporas as sources of expert knowledge and international business networks. This shift is reflected in foreign policy reforms designed to specifically include economic diplomacy as a key pillar in international relations. Countries that have introduced such changes in their foreign relations include Kenya and Ethiopia.
Next year will bring a number of uncertainties and challenges for fledgling African economies. However, many of the initiatives launched by the continent to deepen regional integration and tap into its diasporas will help it to weather external economic storms.
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