Real economic transformation is needed in Africa

Leaders from fifty African states attended the US-Africa Leadership Summit which was hosted by US President Barack Obama. The summit primarily focused on trade, investment and security of the continent.

 

The focus on business at the US-Africa Leadership Summit that was held from August 4-6, 2014, was a welcome pointer for how to recalibrate policy and bring tangible economic benefits in trade and investment for both Africa and the United States. Participants concluded that that the most essential list for the continent included infrastructure, industrialisation, venture capital for entrepreneurship, and the development of human capital.
 
Beyond a strategic, but narrow focus on Africa’s natural resources, America is a relative late-comer to Africa’s opportunities. For decades, Washington focused its relationship with Africa on aid. But the outcomes of a half-century of development aid for the continent have been disappointing – at least for African countries.
 
The “Africa Rising” industry of enthusiasts talk about the marked decline in wars across the continent, its improved macroeconomic stability, rising GDP growth numbers and increased global economic interest. Nevertheless, Africa remains predominantly poor.
 
According to the 2014 report of the United Nations Development Program’s Human Development Index, while countries such as Rwanda, Ethiopia and Nigeria have made some progress in the rankings, 35 out of 43 countries rated as “low” are in Africa. Across the continent, 585 million people – 72 per cent of the population –live in poverty or at risk of it. Population growth without accompanying levels of job creation is increasing poverty because social security and other safety nets do not exist. No real strategy to deal with this challenge is as yet evident on a wide scale in the continent.
 
Foreign direct investment is essential
High quality foreign direct investment is an essential path to grow US-Africa economic relations. The continent’s economies are not structurally diversified or mature enough to take adequate advantage of initiatives such as the well-intended African Growth and Opportunity Act (AGOA). But African countries offer investment opportunities that can help shift the structures of those economies to become more productive. And, despite an exaggerated picture of the risk of investing in African that hold many businesses back, returns on investment in Africa are about the best in the world.
 
The key to achieving this is for African leaders to be focused on the kinds of investment through which American businesses can enter the African market with mutual benefit. The three areas in which such investments can happen, with strong impact, are electric power infrastructure, venture capital funds, and the all-important need for an educated and skilled workforce to support industrial manufacturing economies in Africa.
 
President Obama’s Power Africa Initiative is an excellent strategic direction. But the vision needs to be far more ambitious – the surface of Africa’s huge energy needs have barely been scratched, and must be met if Africa is to prosper. The market for more ambitious investments clearly exists, in particular in large-population countries such as Nigeria, Ethiopia and Kenya.
Venture capital is largely absent in Africa. It is necessary to grow the continent’s small and medium-sized businesses that face structural obstacles to access to capital, creating a paradox in which Africa has increasingly adopted capitalist free markets that are hobbled by a lack of access to affordable capital.
 
And there is a critical need for investment in educational institutions and skills-building for technical knowledge in areas such as engineering, construction and manufacturing processes.


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