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Sculpting Africa's Future

By Scott B. MacDonald

At the end of May 2013, the African Development Bank (AfDB) is holding its annual meeting in Marrakech, Morocco.  The central theme of the meeting, the AfDB’s 48th since its founding, is “Structural Transformation in Africa.” This comes against a backdrop of recent media coverage praising Africa’s “economic boom,” much of which strongly suggests a break with its past of misconceived and poorly executed macro-experiments and consequent socio-political upheaval.  Over the last 10 years, Africa has witnessed a curtailment of political violence and wars, economic growth has proliferated throughout the region, and the continent is now more integrated into global trade and investment networks than ever. A number of African countries have also been able to obtain credit ratings and issue bonds in international capital markets, including Ghana, Rwanda, and Senegal. What is significant about the upcoming AfDB meeting is that the region is actually on the right track and there is a broad consensus of what needs to be done to keep it that way. 

Africa’s future will be shaped by how the current and next generation of policy makers and their colleagues at the AfDB tackle a number of problems, one of the most challenging being how to deal with massive infrastructure needs. According to the AfDB, those infrastructure needs are around $390 billion in the medium term and trillions in the longer term. As Uganda’s Daily Monitor observed on May 3 of the centrality of infrastructure in the African context: “Transport infrastructure is critical to move inputs to farms and products to market; irrigation is essential for increasing yields and crop quality; energy is a vital input, particularly for value-added food processing; and telecoms are critical for farming, market, and weather information.”

Considering past disasters with excessive foreign lending and the shallow nature of local capital markets, the AfDB is focused on the better use of natural resources and the promotion of agriculture. As to the former, natural resources play an important role in boosting exports and attracting investment to help upgrade infrastructure. This applies to oil and gas, but Africa has a considerable range of other natural resources that it exports, including copper, cobalt and diamonds. 

As for agriculture, the AfDB correctly observes that this sector should be promoted as it “employs the vast majority of Africa’s population, and provides direct inputs to the agro-processing value chain, supplies food to urban areas, and is a source of household savings for investment.” This potentially allows Africa, a region with considerable arable land (especially in the sub-Saharan parts) and water resources to play a role in dealing with the looming global food security issue. Indeed, a recent World Bank study observes that Africa has the potential to create a $1 trillion food market by 2030. 

Other priorities acknowledged by the AfDB that require attention are the promotion of the private sector, technological innovation, and governance. It is the last-mentioned that probably counts the most in creating a better investment environment. Africa faces many challenges—ethnic/religious cleavages, weak political institutions, official corruption, and accelerating urbanization. Africa’s cities, accounting for 40 percent of the population in 2010, are projected to hold 50 percent of the population in a generation and 65 percent by 2060. While urbanization can be a driver of consumer demand and economic growth, out-of-control urbanization can breed lawlessness, frustration, and poverty. 

The idea of a more urban Africa is central to any “new” Africa, encompassing such trends as the continent’s demographic youth bulge (most young people are not going to stay on the farm), the need to have a more productive agricultural sector to feed the urban sector, and the shift away from agriculture as the main economic driver to the development of services and manufacturing. Down the road, urbanization will be increasingly linked to the slowdown in birth rates (already evident in some countries) and the need to create retirement programs.

If governments are corrupt and unable to deliver such social goods as personal safety, education, and sanitation to the public, then the path to an African “economic miracle” is not in the cards. This also applies to better accountability on the part of African governments, especially when it comes to transparency and disclosure in the state’s spending, budgetary process, and statistics.

One other issue that the AfDB must face is that economic progress in Africa is uneven. According to World Bank data and taking only sub-Saharan Africa into account, 21 African countries are considered “middle income” and 10 more are projected to get there by 2025. At the same time, Africa makes up the biggest numbers of low-income economies ($1,025 per year or less), accounting for 27 out of 36 countries designated as such. Most of the AfDB’s North African members are considered middle income. Moreover, World Bank data does not necessarily take into consideration regional socio-economic disparities within countries, something that comes into play in countries such as Mali and Nigeria.

The AfDB has been around for close to five decades.  It has seen Africa’s fortunes rise and fall several times, a fact the multilateral development bank’s leadership is keenly aware of. In the run-up to the annual meeting, Donald Kaberuka, President of the African Development Bank, stated: “In a decade of seismic shifts in the global economy, Africa has defied the pessimists and experienced significant growth. That economic growth must now translate into real economic transformation, which will bring jobs and opportunities to its citizens.” So as the members of the African Development Bank arrive at the end of May in Marrakech to celebrate 48 years of being in business, they have a lot to be proud of with Africa’s development in recent years. In the face of daunting challenges, gradual improvements have been made in health, education and per capita income. Now comes the hard part: locking those gains in place and making new changes that will take the continent to the next level in a broader and more equitable fashion.

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Scott B. MacDonald is a Senior Managing Director of MC Asset Management Holdings, LLC and his most recent book is When Small Countries Crash (co-authored with Andrew Novo). 

[Photo courtesy of Shutterstock]

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