The “Africa rising” story of the past decade, fuelled by 5 percent average annual growth, is in danger of faltering, due to the impact of global uncertainty, depressed commodity prices, and weakly performing economies like China.
Don’t be lulled by the IMF’s 2016 forecast: yes 4 percent growth with outperform global expectations, but continued commodity price volatility and global uncertainty are giving rise to a fresh bout of Afro-pessimism. To change the narrative, and – more importantly – the reality it describes, African policymakers must urgently answer these six questions.
How do we ensure steady financing for our significant needs for sustainable development in an increasingly uncertain global environment?
This is perhaps the fundamental question. Slowing growth and low commodity prices will be around for the next few years, causing an inevitable, but hopefully temporary, macroeconomic setback. This increases vulnerability to a retrenchment in external finance.
Several African countries have issued Eurobonds (to the tune of $21 billion during 2013–15) and foreign investors hold a growing share of domestically issued debt. Foreign direct investment, which tends to be concentrated in natural resource sectors, is also likely to pull back. A cutback in external funding will put badly-need infrastructure investment and social programs on hold, dealing a blow to long-run growth. African countries need to work with the donor community to avert such a situation.
Economic diversification, creating jobs and tackling inequality, which are discussed below, are a vital part of the long-run challenge in Africa and also feed into two key global achievements of 2015: the adoption of the Sustainable Development Goals (SDGs) in September and the agreement on climate change at COP21 in Paris in December. But diversification requires well-developed infrastructure, telecommunications, power, roads, rail, water, etc.
The World Bank estimates Africa’s infrastructure financing needs alone at US$93 billion annually. Climate-friendly and sustainable infrastructure will cost even more. But Africa offers the best opportunity for low-carbon, resilient, and sustainable infrastructure development because so much is greenfield and still to be built. Directing the necessary financing from international public and private sectors into African infrastructure development can reap important positive externalities for the whole world.
Africans rightly argue that they are victims, and not perpetrators, of today’s climate-related challenges. So will the international community rise to the occasion? The reality is weak global growth, coupled with domestic challenges on unemployment and immigration, makes it unlikely that developed countries will fully honour promises for additional financing to implement the post-2015 development agenda.
Africans will have to mobilise the majority of their own resources. In fact the New Climate Economy estimates that 50–80 percent of the resources required for the development of sustainable infrastructure will have to come from countries’ own domestic resources.
This means African countries must ensure a quantum leap in domestic resource mobilisation (DRM). The opportunity clearly exists to substantially increase tax and other revenue efforts, including limiting tax evasion and illicit financial flows.
Across sub-Saharan Africa, tax revenues account for less than a fifth of GDP, while they correspond to over a third in OECD countries. African countries will need to almost double their tax revenues to help finance the SDGs. The good news is that tax revenues on the continent are growing rapidly. Through reforms between 1990 and 2004, Ghana raised tax revenues from 11 to 22 percent of its GDP, for example. Admittedly this is difficult. Raising non-oil tax revenues was something we saw as an opportunity in Nigeria and struggled with.
What is needed is a significant improvement in capacity, systems and processes in these countries — a worthwhile investment for governments and a small fraction of aid budgets that donors can support. In addition, DRM should also involve leveraging public resources innovatively to tap private-sector resources. Estimates indicate approximately US$380 billion in total pension assets under management in just 10 African countries, and these resources are growing rapidly.
Between 2008 and 2013, Nigeria’s pension industry grew from US$7 to US$25 billion. In Ghana, the pension industry is expected to grow 400 percent between 2014 and 2018.
How do we truly diversify our economies?
Diversification has become a slogan. Everyone talks about it but the debate on how to truly diversify is shallow. The discourse reflects lazy thinking as if diversification could happen in just a few years.
The vision of what needs to be done is often truncated into the short time frame of politicians, instead of carefully laying out the various stages to achieve a truly diverse economy — notwithstanding the abundance of 10-, 20-, and 30-year-long economic plans that are crafted in almost every country, and then gather dust.
There are plenty of models to follow: Dubai, Singapore, Thailand, Malaysia, Mexico, Indonesia, and South Korea are admired by Africans as economies that have managed to transform themselves.
But the discussion often stops there without recognising that Dubai, for example, started more than three decades ago to ask the question: What should life be like after oil? And it set out to implement a step-by-step vision of a services economy, putting infrastructure and incentives in place to build up financial services, tourism, medical services, real estate, media, arts, and culture. Singapore and South Korean are no less inspiring because they had few or no natural resources to rely on.
What these countries also had was leadership that was relentless decade after decade in pursuing the diversification and transformation of their economies — either through entrenched but benign dictators or democracies in which generations of leaders and citizens agreed on a vision of a broad-based economy.
Please find the rest of this essay on the actions African policymakers must take for sustainable development to become a reality HERE.
The above article was published by Dr. Ngozi Okonjo-Iweala for the Center for Global Development and is republished here for educational purposes.