Looking Beyond the Clouds: How African Economic Growth Can Make a Great Leap Ahead Post-Covid

Looking Beyond the Clouds: How African Economic Growth Can Make a Great Leap Ahead Post-Covid

Commentary
Posted on: 31st July 2020
Jonathan Said
Head of Inclusive Growth and Private-Sector Development Practice, Tony Blair Institute for Global Change

As Covid-19 and the broader economic crisis around it take hold across Africa, there is increasing caution about the prospects for Africa’s economic outlook in the coming decade. When one scans the main drivers of growth – the continued disruptions to global travel and trade, the decline in total private investment and remittances, the fiscal strain and rising debt, the reduction in investment in human capital and infrastructure, and the lack of government focus on key reforms due to ongoing crisis management – there’s certainly no lack of clouds on the horizon. 

Just as many did in the 1970s and 1980s, African countries risk a lost decade with growth at or below population growth. This would have serious implications for the global economy and for global security and migration, while also threatening the gains in development and poverty reduction made in recent years.

Yet there remains a viable scenario for the continent’s economies collectively to return over the next decade to the rapid growth of around 5 per cent per year seen between 2000 and 2014. This great leap forward scenario would need to be based on accelerating the approach that countries like Ethiopia, Kenya and Ghana have taken in recent years: a focus on economic transformation and industrialisation. While much of the continent – led by Nigeria, South Africa and Angola – had seen growth stall since 2014 because of dependence on commodities, over the past five years Ethiopia’s economy grew by 9 per cent, Kenya’s by 5.7 per cent and Ghana’s by 5.3 per cent.

An analysis of the economic transformation approach reveals policy levers that could be used to restore Africa’s rapid economic growth once the immediate Covid crisis is addressed. Yet in analysing these drivers – as we do in our new paper, “Preventing a Lost Decade in Africa” – it becomes clear that no one actor can do it alone. It requires coordinated action by African governments, the international community, philanthropy and the private sector. Each must understand the role it needs to play and then step up and engage in dialogue with the other actors to focus on the most important policy interventions to unlock rapid growth in each country.

While policy levers will need to vary by country, in general, African governments – backed by continent organisations such as the African Union, Afrexim, UNECA and AFDB – should be in the driving seat and focus on setting out a clear and economically sound industrialisation agenda. This should support job-creating sectors like value-adding agriculture, agro-processing, manufacturing, technology services and tourism. They need to double down on Ethiopia’s efforts to build pharmaceutical and textile and garments industries, on Kenya’s efforts to develop agro-processing and ICT, and on Ghana’s efforts to develop automotive and chocolate manufacturing industries. They should scale the focus on human capital development and infrastructure, and these need to be linked much more closely to the focus on job-creating sectors and industrialisation. All this needs to happen while continuing to pursue debt management and sovereign financing programmes – which incidentally also need to be tied much more closely to an industrialisation plan. 

The international community – particularly led by G20 countries – can play its part by changing its relationship with Africa to a model that fully backs its economic transformation and industrialisation. The historic extractive nature of global business interests in Africa, which have mostly been centred around the extraction of natural resources with minimal local value addition, needs to shift to a model that invests in local human capital, entrepreneurship and value addition. In the immediate term, there is a need to proactively work with the continent to prevent a debt crisis, to reconnect the continent fully to the global economy, and to prevent global economic nationalism and protectionism. In the medium term the global community needs a much stronger focus on investment facilitation into, and the enabling environment of, job-creating and transformational sectors.

Finally, global philanthropists and corporations need to play their part too. They are generally more flexible and adaptive, so they can fund and support transformational projects and programmes that G20 governments and multilaterals often do not. For example, they could support countries to develop a priority value chain that has high transformational potential but that may be deemed too risky and hence getting little support. They could also stimulate the development of startups and SMEs that do not qualify for commercial or large-scale development finance. And they can do much more to support the strengthening of the education system and of government systems, the latter through the increased provision of independent and adaptive management support to key government economic ministries and agencies.

Whether African governments, the international community and the global private sector and philanthropy respond to the economic fallout of Covid-19 in Africa with strategic long-term action will ultimately determine whether Africa makes a great leap forward or faces another lost decade. The longer the Covid crisis goes on, the chances of that decade being lost increase. Right now many factors feel out of control, but the response of these key actors is within their control and they need to seize the moment.
 

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