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Africa in 2012 – Beta Steps Forward (Part 2)360°ANALYSIS

It is that time of the year. Africa’s scorecard for 2012 is out. The results are a mixed bag of goodies — optimism, opportunity, optionality, and optics, and badies — oppression, opprobriousness, oppugns, and opposition.

To read Part 1, click here.

The Private Sector

The private sector was on everyone’s lips at the conference. Not least because it is the engine of the continent’s development, but also because the current economic turmoil in Europe and America has magnified interest in Africa as an investment destination. Since the IMF and World Bank’s push in the 80s for privatization and implementation of free market policies in Africa, and the painful teething problems occasioned thereby as manifested in then-high inflation, the private sector has risen to date to be the employer of between 80 – 90% of the continent’s labor force. Research shows that the African private sector is the originator of over 60% of total investment and credit, and about 80% of total consumption.

Africa, being home to the youngest population in the world, has the lowest aggregate level of human development. Youth unemployment and the need for their empowerment is therefore a priority of the poverty eradication agenda. The private sector has been the driving force behind this initiative. Access to credit, both at the small-medium enterprise and larger corporate levels, has boosted the business climate and created a culture of burgeoning entrepreneurship.

For the most part, African nations have resorted to private sector focused policies, as well as legal and regulatory reform that foster a business-enabling environment, promote widespread participation and inclusion, and incentivize local enterprises.

Innovation on the continent has been spurred on by the availability of capital for start up companies and a considerable interest in technological social problem-solving. At the conference, Tony Elumelu, Founder, The Tony Elumelu Foundation and Chairman, Heirs Holdings Limited, spoke of his notion of Africapitalism. It refers to business enterprise built on the conscious philosophy of, and geared towards the alleviation of the socio-economic challenges of its in situ community. Bhaskhar interrogated the concept by pointing out how similar it was to corporate social responsibility. However, it appears that at the heart of the notion is a oneness of business entrepreneurial intent and the social agenda, as opposed to a scenario where the one precedes the other.

Despite the marked impact of Africa’s private sector, much more needs to be done. The continent’s unemployment rate remains high. South Africa, which has stronger legacy ties to the economic crisis in Europe and the US, has an unemployment rate of about 25%. This is quite high for the continent’s leading economy.

For Africa to keep growing its private sector, it must look both inward and outward. Inward: it must continue to create an enabling environment for private sector investment by enhancing deregulation efforts, hastening infrastructural development, enhancing security, and promoting and providing easy access to capital. Outward: the continent must pivot its private sector agenda to promote foreign direct investment, which as reiterated at the conference by Laila Macharia, Founder, Scion Real, has now outstripped classical foreign aid. This it can do by improving its performance on key international economic metrics and indicators that foreign investors read the continent’s pulse by, such as the World Bank’s ease of doing business index. In his keynote address, Deogratias pointed out how Burundi had made significant strides in improving its ranking in the ease of doing business charts.

International competitiveness is a key ingredient to the growth of Africa’s private sector. Africa must set its sights on maintaining a comparative edge over foreign markets. This can only effectively be done by a unified negotiation front propped under umbrella organizations such as the AU and other Regional Economic Communities (RECs).

An interesting perspective brought to light at the conference by Michael Fairbanks, co-Founder Seven Fund, citing examples from Rwanda’s Gacaca courts and Girinka program (one cow per poor family), was the notion of Africa finding ways to export its as yet non-replicated cultural practices — in which it clearly has an edge — that serve to complement its developmental agenda.

For the encouraging strides in the private sector, I give the continent an encouraging “‘A’ for ‘Action, and more needed.’”

Infrastructure

Africa’s infrastructure is almost single-handedly responsible for its long-drawn-out economic slow progress. According to the African Development Bank (AfDB), infrastructural services on the continent are almost double the cost elsewhere, with nearly 30% of the continent’s infrastructure in need of rehabilitation. The Bank notes that the continent already spends about $45 billion on infrastructure per year, mainly financed domestically, investing about 4% of GDP in the sector compared to 14% by China. This creates a prioritization dilemma for most African countries, especially considering there’s a yawning need for increased spending on infrastructure. At the conference, Mouhamadou Niang, AfDB Manager, Industrial and Services Division, Private Sector Department, noted that the continent already has an infrastructural funding gap of $31 billion, and requires $93 billion per year to build infrastructure that can sustain growth and meet development goals.

It is clear Africa needs to reduce waste in infrastructural development, it being estimated that there’s nearly $17 billion lost in the inefficient construction process. The continent also needs to get more external funding for infrastructural development to alleviate budget pressures. Mouhamadou bemoaned the excess capital laying in African Central Banks that could be deployed in infrastructure, and emphasized the need to resort to infrastructural bonds to raise capital for development in the sector.

But it is not all doom and gloom. The AfDB points out that about 80% of Africa’s existing main road network, is in good or fair condition. China has been a reliable partner to the continent in the infrastructural development space. Michael Fairbanks pointed out at the conference how China by its "hear-no-evil, see-no-evil" approach has given Africa an outlet and an option outside of the West’s erstwhile condescending "big brother" approach. Suffice it to impute, China has been speedier in actualizing projects, leaving a more content customer, happy to deal in the future.

Thus, despite being considerably behind the rest of the world, Africa has witnessed major improvement in infrastructural growth over the last decade.

The continent therefore gets a grade of an urgent “‘C’ for ‘there Cannot be any more to say other than ‘Infrastructure’… ‘Infrastructure’… and more ‘Infrastructure.'”

The Energy Sector

At the conference, Patrick Bitature, Founder and Chairman of the Simba Group of companies summed up the state of Africa’s energy sector when he said, “the entire sub-Saharan Africa region generates about the same amount of power as Spain!” This is affirmed by the World Bank. Sub-Saharan Africa’s power and electricity sector is a drag on the continent’s efforts of becoming a middle-income economy in the next two decades. The AfDB posits that only 20% of the African continent has access to electricity. It further notes that power consumption in the rest of the continent outside of South Africa is less than 1% of that of high income countries, with about 60% of the continent’s countries facing regular power outages. The Bank states that a capacity of 7000MW is needed on the continent, but only 1000MW is installed every year. The sector’s prospectus enumerates an acute energy deficit, which has a profound impact on investment and productivity on the continent. To this end, the World Bank points out that 25 countries in Africa face an energy crisis.

For the longest time, Africa has relied upon hydropower generation. Over the last couple of decades, there has been a movement towards embracing coal, oil and gas-related, as well as alternative forms of energy, primarily renewable energy: wind, solar, geothermal and biomass. At the conference, Anamitra Deb, Senior Manager, Monitor Inclusive Markets, Monitor Group, alluded to the fact that there has been an encouraging increase in investment and interest in the energy sector on the continent. However, greater investment needs to be made on the continent in both large-scale state and privately run energy production initiatives so as to bridge the energy deficit gap and reach its economic potential.

The untapped energy potential of Africa is immense. Its energy market is grossly underserved. The continent gets a grade of “‘C” for ‘Can be more energetic.’”

Mineral Resources Sector

This year has seen a rise in world commodity prices. Realizing the potential benefit to their economies, resource-rich Africa has taken notice. Some mineral resource-rich states have taken steps to renegotiate mining contracts with multinational companies. Zimbabwe passed an indigenization policy that requires a majority stake by locals in mining companies.

Africa’s oil sector is growing in its promise. Fossil fuel discoveries in the Eastern African region have served to counterbalance the resource potential in hydrocarbons across the continent. The discovery of oil in the Eastern Africa region, portents for a positive outlook. This, especially considering the volatility in parts of the Middle East and North Africa, has created a renewed focus on sub-Saharan African oil and gas production by Western markets. It is estimated that African oil production will almost double in two decades.

Despite increased exploitation of non-renewable resources such as gold, diamond, iron ore, and uranium, Africa’s extractive industry faces myriad challenges such as corruption, the Dutch disease and low expertise.

As Kofi Annan pointed out in a consultation meeting in Geneva late last month, corruption and feeble governance are the key challenges hampering Africa’s mining sector. The Petroleum Revenue Special Task Force in Nigeria recently reported that the country lost about $29 billion in the last decade due to mismanagement and corrupt practices in the oil and gas sector.

The potential in the continent’s extractive industry, make it perhaps the most resource-rich region in the world. However, the continent is far from making large economic leaps on the foundation of this potential.

Due to the impressive fossil fuel discoveries in numerous African countries recently, I am inclined to accord the continent a grade of “‘B’ for ‘Barely scratching the surface.’”

The Agricultural Sector

As goes transitory weather changes, so goes Africa’s food security. Africa has remained a perennial food crisis region — its green revolution, yet to gain traction. This is ironic, given the continent’s bountiful arable land and labor workforce. That agriculture is the backbone of Africa’s economy, stands beyond peradventure. The AfDB points out that nonetheless, the continent’s agricultural productivity is the lowest in the world. The Bank further observes that the small percentage of the continent’s land under irrigation, accounts for 20% of the continent’s food production.

This year has seen a cereal deficit in Southern Africa of about 6 million tonnes. For the first time in five years, the region has recorded a maize deficit, with projections of about 5 million people facing food insecurity. The outlook in other parts of the continent is no more rosy.

Armed conflict on the continent in places such as Somali, Mali, DRC and CAR serve to exacerbate the problem manifold.

On the bright side, the last decade has seen a marginal improvement in food production over the previous decades since independence. However, few countries on the continent such as Uganda are food self-sufficient. Uganda is known to be the “food basket of the great lakes region.” Yet even Uganda, despite food availability and accessibility, and with over half a million households under the poverty line, faces food insecurity and malnutrition.

Whereas there have been meaningful steps in agribusiness, on the whole, the continent has been food insecure for far to long. Few countries have taken any meaningful steps to reduce food insecurity. Substantial investment in infrastructure, new agricultural technological innovations, small and large-scale irrigation, provision of credit at all levels of agribusiness, and encouraging private sector involvement, is of primary necessity. The AfDB notes that Africa’s irrigation sector could be viably doubled. Africa’s small-scale farming sector is its main granary, responsible for 80% of sub-Saharan Africa’s food production. There is need for higher investment in this sector to boost farming and rural food security. Particular investment emphasis should be placed on moving from traditional forms of agriculture to new technologies.

Africa’s food exports cannot compete favorably due to Western subsidization of their produce. The AU and other RECs need to negotiate for a level playing field with their foreign peers, especially within the WTO framework.

Given there has not been much by way of food deficit reduction, I accord the continent a grade of “‘B’ for ‘Bountiful harvest can be attained.’”

Overall Grade

At the conference, Anne-Marie Gulde-Wolf, the IMF Deputy Director, African Department, urged for the exercise of abundance of caution against overenthusiastic attempts at lumping the fortunes of Africa’s 54 states into one indivisible basket, lest certain regional or country specific issues and trends hampering development be gleaned, swept under the carpet and continue to ail the bigger picture. Kingsley Moghalu, Deputy Governor, Central Bank of Nigeria, eloquently advocated for cross-sector economic and developmental synergies on the continent and a pivot towards structural sustainable growth, so as to truly harness Africa’s developmental potential.

On being asked whether, in line with the theme of the conference, it was “Africa’s turn,” Wendy Abt, Deputy Assistant Administrator, Bureau for Economic Growth, USAID, and Joseph Kitamirike, CEO, Ugandan Securities Exchange, noted that “It has been Africa’s turn for quite a while.” Their assessment being on the basis of change that has been occurring over the last few decades and the expectations of the rest of the world and of the continent, in Africa's own ingrained potential. Mimi Alemayehou, Executive Vice President, Overseas Private Investment Corporation, and Anna Locke, Head of Programme, Agricultural Development and Policy, Overseas Development Institute, noted the unprecedented level of tangible investor interest in the continent and its potential — the same unlike any time in its post-colonial history, as a sign that it is Africa’s turn. Ian Solomon, United States Executive Director, World Bank Group instilled a dose of cold reality by reiterating that, “It could be [Africa’s turn]. No one is going to give Africa a turn. Africa has to take its turn.”

Africa must thus firmly place its destiny in its own hands. To this end, there is good news. The good news this year, is not that there is good news. After all, the continent has had this in spurts before. Rather, the good news is that the continent’s developmental efforts have spurred sustained good news.

The continent’s fortunes are getting better. Middle-income status for the continent is distant but in sight. Thus, my aggregate grade for Africa this year, taking into account the economic challenges facing most of the rest of the world, is a strong “‘B’ for ‘Better be on track in light of the signs.’”  

The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.