Africa’s Economic Future is at Stake

Over the past 10 years the lions of Africa started to rival the Asian tigers. Rapid growth – fueled by commodities, urbanisation and technology – has driven the continent’s rise. Yet the creation of jobs and economic opportunities is not keeping up with Africa’s rapid labour force growth. Nearly 60 per cent of Africans are under 25 years of age and every year some 12 million people join the labour market. On current trends the jobs gap will increase to 50 million by 2040 and the number of people living in extreme poverty looks set to hit 440 million.

On current trends the jobs gap will increase to 50 million by 2040 and the number of people living in extreme poverty looks set to hit 440 million.

The underlying problem is the common approach to economic development in Africa: the generic enabling environment approach, exemplified by efforts to level the playing field, facilitate trade, improve transparency and infrastructure and the Doing Business Reforms. Yet Africa’s current economic structure is not conducive to inclusive growth and this method is not able to change it sufficiently. Without a major change in our approach to economic development, there is little hope to buck the trend and bring the jobs gap under control.

The generic enabling environment needs to be complemented by modern industrial policy at the highest levels of governments and development partners. There needs to be a concerted effort to develop sectors that have strong economic potential to compete in ever-globalised markets, generate high economic spillovers, set out a path for locally produced downstream products and create jobs at scale. Asian tigers followed this approach, as did the most successful countries in Africa in recent years – Botswana, Ethiopia, Mauritius and Morocco.

Many governments in Africa will say that they want to develop job-creating sectors like agriculture, manufacturing, tourism and high-value services, but many are failing to do so on the scale required. Because the generic enabling environment approach is applied without modern industrial policy, most tend to lack a proper strategic and implementable plan – to translate these visions into reality – that is owned by the head of state, or someone with sufficient political clout, and that the government can coalesce around.

The generic enabling environment needs to be complemented by modern industrial policy at the highest levels of governments and development partners.

It needn’t be this way. Through our work embedded in four governments in Africa, we’ve found that are four aspects necessary to successfully develop sectors in a market-led way.

First, get the politics and economics right, simultaneously. Understand the current underlying economic structure, the nature of a country’s political settlement and the incentives these set for politicians. Often the political and financial capital that politicians need to succeed is secured from businesses in sectors like mining, logging and the importation of consumables. The ‘asks’ by such businesses are often for preferential licenses and tax favours, not for the reforms and capacity needed for inclusive growth. Take a long enough time horizon and approach to alter these political economy dynamics, while also meeting short-term political imperatives by helping reformers in government navigate the political realities they face. Attracting the ‘right’ type of investors that can meet both requirements – like Rwanda’s recent attraction of C&H Garments – is one way to do this.

Second, better diagnose the sectors that can deliver inclusive growth and gain political traction, then identify systemic market faults and the right strategy and tactics to solve them, including both government and the private sector. In Liberia efforts are underway by the government and a partner to restructure the rubber sector away from its extractive nature by trying to find suitable financing solutions for businesses investing in local processing.  

Third, help governments develop coordination mechanisms so that the fifteen odd ministries and agencies that collectively shape the business environment set coherent policies. These typically need to be chaired by the head of state – just like Liberia’s Presidential Task Force on Agriculture has helped the government set a clear direction of travel and provided some clarity to the private sector and partners for their own planning processes.

And lastly, invest in the implementation capacity needed to make tangible progress on your plan. Establish a fit-for-purpose delivery team or nerve center at the heart of government that reports to the head of state or the inner circle. This support structure needs to know the binding constraints faced by job-creating sectors, scope workable solutions that politicians can run with, track progress by implementing parties, fix bottlenecks and capture learning – a role played for example by Ethiopia’s Agricultural Transformation Agency.

If the African lions are to truly emerge, setting countries on a path to inclusive growth is essential. The time has come for governments and their partners to undertake modern industry policy: politically-smart market-based sector development. With the right type of support, it is possible to get it right in most countries on the continent. Africa’s economic future is at stake, and with it the livelihoods of young, burgeoning populations with ever higher expectations.