Africa Could Become the World’s Next Powerhouse

“A winning Africa!” “Thousands of Portuguese workers emigrate to the former colony of Angola in search of work.” Headlines such as these are a perfect illustration of the Afro-optimism that has gripped the media these last few years. In an Africa courted by foreign investors, economic growth is expected to remain high, resulting in poverty reduction and the emergence of a middle class hungry for consumer goods. Is such optimism realistic, or is it a flash in the pan driven by soaring commodity prices?

For the last decade, Africa’s economic growth surpassed the global average. Of the 10 economies that registered the highest growth rates worldwide between 2001 and 2010, six are African, including petroleum exporters such as Angola, Nigeria and Chad. Even if the rise in prices of fossil fuels, gold and minerals alone is not sufficient to explain this growth, it is nonetheless a decisive factor for resource-rich countries like Ghana, Congo-Brazzaville, Sudan or Zambia. Furthermore, the African sub-soil remains relatively under-explored compared to other regions of the world and still harbours significant riches whose potential is just becoming apparent, e.g. oil and gas in East Africa.

The risks inherent to such resource-led development strategies are well known: rentier states, corruption and violent rent-seeking, environmental degradation, lack of economic diversification, vulnerability to commodity price volatility, patronage politics and weak state institutions, widening inequality, etc. Yet, ongoing structural transformations may warrant a dose of Afro-optimism.

At independence in 1960, Africa was only home to 277 million inhabitants, or 9% of the world’s population. Unlike South-East Asia, the African continent was relatively land-abundant and labour-scarce. With such comparative advantages, it is hardly surprising that Africa specialized in extensive agriculture and raw material exports.

While demographic growth has greatly slowed or even reversed in other regions of the world, the African population continues to grow at a steady pace: it exceeded the one billion mark in 2009 and is expected to hit 2 billion by 2050. By then, more than one in five people will be African. In other words, Africa is poised to have a younger and larger workforce than either China or India. The integration of younger generations into labour markets represents a major challenge, which requires rapid economic diversification in labour-intensive sectors – which is not the case of the mining and petroleum industries – and job creation in urban areas. However, Africa can benefit from comparative advantages linked to its demographics and the rapid adoption of new technologies. The continent could thus benefit from the delocalisation of global value chains – especially from China, where production costs are on the increase – and become one of the world’s major powerhouses, albeit beset by daunting social and environmental challenges.

In order to finance the investments required in infrastructure, education and training, African states need to be in a position to mobilise domestic budgetary resources, not forgetting the agricultural sector that requires renewed support. But, as former IMF Managing Director Michel Camdessus rightly highlighted: “many opaque and inequitable fiscal practices are depriving African countries – especially the poorest among them – of the wealth that is rightfully theirs thanks to the riches of their subsoil”.[1] The 2013 report of the Africa Progress Panel presided over by Kofi Annan notes that between 2008 and 2010, tax avoidance (for example through transfer pricing and complex group structures) cost Africa in excess of US$ 38 billion per annum, more than total bilateral development aid directed to the continent. This may change, provided that the struggle against tax evasion led by the Organization for Economic Cooperation and Development (OECD) and a growing number of its member states benefits developing countries as well.

This is a prerequisite if the attempts by the aid community to strengthen the fiscal and budgetary management capacity of resource-rich African states are to succeed. Another challenge is to counter the failings of rentier states by supporting parliaments, the judiciary and civil society organisations to put constraints on ruling elites in favour of greater revenue transparency and a more productive and equitable allocation of the extractive rent. For African partner countries, policy coherence requires urgent arbitration between divergent interests in the short term and the long term, along with concerted action by the key states and other stakeholders involved in the extraction and trading of Africa’s commodities.

This article was first published in Globe, the magazine of The Graduate Institute of International and Development Studies, and is republished with permission. © Graduate Institute.

[1] Michel Camdessus, « La lutte contre l’évasion fiscale : une priorité pour l’Afrique » [The struggle against tax evasion: a priority for Africa], Libération, 9 May 2013.