Leapfrogging has been Africa’s prominent strategy towards dominating the global territory. Africa’s burgeoning global image as a top destination for investment is fostering a massive inflow of Foreign Direct Investment into the continent. Countries’ progressive strides in implementing growth strategies — such as Rwanda in executing its 2020 vision — have proven that focus and positive determination by government and business leaders can achieve tremendous growth within Africa. Tanzania’s economy is estimated to grow by 7.2 percent in 2016, compared to 7 percent from last year. With the success of sectors such as financial technology, Africa proves that it could join developed economies in creating endogenous growth.
Africa’s prospect for growth is very positive despite current economic trends. A recently released Mckinsey Global Institute Report (Lions on the move II: Realizing the Potentials of African Economies) reveals that Africa’s real GDP growth dropped to 3.3 percent a year between 2010 and 2015, compared to 5.4 percent between 2000 and 2010. Looking critically at the cause of the decline, the political turmoil in Northern Africa and drop in oil prices led to the growth decline in the continent.
Oil-exporting economies in Africa contribute 40 percent of Africa’s GDP. These oil exporting countries in Africa had a decline in GDP growth from 7.3 percent yearly between 2000 and 2010 to 4.0 percent between 2010 and 2015. Arab Spring countries such as Egypt, Libya, and Tunisia accounting for 18 percent had no growth between 2010 and 2015, compared to 4.8 percent GDP growth between 2000 and 2010. Despite this decline, research reveals that the prospects for growth within African economies are still high. By 2025, Africa is expected to double its manufacturing output; $2.1 trillion would be spent on household consumption and $3.5 trillion on Business to Business (B2B) in Africa.
Taking a cue in the development of Africa, it’s important to critically analyse the factors that led to the current level of the continent’s economic growth. It’s also significant to determine whether these catalysts can adequately lead Africa to achieve its projected potentials.
Realizing Africa’s Potential
Research has shown that Africa’s move towards industrialization and infrastructural development has led to mass migration from rural areas to urban centres. Citizens and their search for better education, higher incomes, healthcare facilities, good roads, and water have led millions to leave villages and small towns for cities. Foreign migration into these cities has also being a reason for rapid urbanization growth. Cities like Cairo, Lagos, Nairobi, Dar es Salaam, Johannesburg have experienced a rapid increase in the population over the years. Lagos, whose population was about 1.4 million in 1970, is currently estimated at 21 million in 2016. The city’s population is expected to double by 2050.
Africa is the world’s fastest urbanizing region. Over the next decade, the meteoric rise in economic growth is estimated to increase the number of citizens in African cities by 187 million. It is also estimated that between 2015 and 2045, an average of 24 million additional people is projected to live in cities each year, compared with 11 million in India and nine million in China.
In several parts of the world, urbanization has been accompanied by industrialization and economic development, as increases in productivity in manufacturing and services benefited from proximity and concentration of activities and inputs.
Is Africa’s urbanization target achievable?
Africa has the potential to achieve its forecasts of rapid growth and industrialization. However, the continent’s industrialization projections are questionable because there are several limitations to the achievement of these goals. The African dream could be achieved if some of these issues could be improved upon:
Revenue base of African countries
African countries still have low mediums of generating revenue. Statistics reveal that tax collection is relatively low in Africa as compared to other regions. In Nigeria, analysts reveal that 70 percent of the country’s GDP does not generate revenue. This is also evident in other African economies; Angola, Kenya, and Ghana’s tax revenues are lower than 12 percent of their GDPs.
Life insurance and pension funds remain underutilized in Africa. In 2013, life insurance premiums amounted to two percent of GDP, compared with an average of 4.3 percent in OECD countries. Out of this two percent, South Africa accounts for 90 percent of the continent’s life insurance business by volume.
Pension funds amounted to 28 percent of GDP in 2014. In Ghana, Kenya and Nigeria, the percentage of GDP was less than 15 percent. Increasing the utilization of these investment vehicles could boost domestic investment by approximately $55 billion yearly by 2025, which is 65 percent higher than 2014 levels.
African countries need to diversify. The slump in commodity prices globally proved the instability of top exporting countries within the continent. Diversification aids the increase in revenue channels for the government to boost growth and development.
Africa’s infrastructural state
Outside South Africa and North Africa, Africa spends only 1.3 percent of GDP on infrastructure. The saddening figure reveals that minimal efforts are being made to facilitate the improvement of infrastructure on the continent. Infrastructural deficits are a major cause of the high costs of production in most areas within Africa. Africa needs to double its infrastructural investments from $80 billion in 2015 to $150 billion in 2025 to reduce this deficit and to meet our industrialisation growth target.
Roads in Africa are still poorly connected. Africa has the worst road network of all regions globally. High transport costs add to the high fragmentation of the continent. Transportation costs from West Africa to the United States are twice those of other regions. It takes more than 40 days for goods to pass the border in Africa; less than half that time in Latin America. For landlocked countries, the constraints are even bigger.
Africa’s housing deficit is a big cause for concern. Africa’s most populous country, Nigeria, currently faces a housing deficit of over 19 million houses. The estimated number is set to increase due to the inflow of new urbanites within the next decade. Housing facilities would be needed for an estimated 190 million expected to migrate to urban cities by 2025.
Regulatory standards and legal frameworks in Africa
The bureaucratic nature of most African economies has slowed the pace of development within these economies. Governments need to improve the process of approving projects to boost the pace at which projects are executed.
John G. Rice, Global Vice Chairman of General Electric (GE), in a panel of the World Economic Forum on Africa held in May 2016 said, “We are working on an Emergency Power Project in Ghana that is taking us 16 months to get to the purchase price agreement approval by parliament. That’s an “emergency power project”. I don’t know how long it will take if it wasn’t an emergency project.”
In Nigeria, the Treasury Single Account (TSA) was introduced in 2012 by the Federal Government. The financial policy was however not implemented till 2015 by President Muhammadu Buhari’s administration. Even after implementation, SystemSpecs, the company that created and manages the TSA through their payment platform – Remita – are still in a feud with the federal government over their payment agreement. John Tani-Obaro, the Managing Director of SystemSpecs, complained about the situation. He said in August 2016 that “it has been 17 months of working without getting paid.”
Political interests and short-term expediencies have stalled the development of projects within the continent. This reflects in the low Public Private Partnerships in Africa which is estimated at 4.5 percent in the region.
Regulatory standards also have to be improved upon to ensure the quality of processes and products are in line with the authorized criteria. Last Thursday, the BBC reported that “dirty fuel” is been sold by Swiss commodity companies to African countries. These unethical practices are seen around Africa and they stifle the efforts of indigenous companies in competition with global companies.
The textile industry in Nigeria was a victim of poor regulations. Cheap and poor quality materials brought into the country affected the indigenous companies whose prices could not compete with those foreign products. Regulatory standards require more thoroughness to help grow companies within the continent.
African economies need to improve on bureaucratic processes in order to eliminate inefficiencies and speed up the rate of development within the region.
A blessing or a curse?
Africa’s rapid growth in development raises the argument whether Africa is adequately prepared or not. The non-preparation for this growth poses a big threat to the sustainability and livelihoods of Africans living within these communities.
Africa’s leap towards urbanization growth would pose great challenges. In an interview with Ventures Africa, Chidiogo Akunyili, Senior Manager, Global Shapers Community, Africa & Global Leadership Fellow at the World Economic Forum said that “attention should be on concrete measures to mitigate against the potential challenges of rapid urbanisation and support the many benefits, and not least of all, its contribution to growth”. These potential challenges need to be addressed as growth increases, some which are highlighted below:
Traffic and internal congestion
The traffic problem in African cities is a big problem for the continent. Traffic congestion affects the health of citizens. Traffic congestion reduces the productivity of citizens within cities and this leads to a loss of potential revenue that cities could generate. In Kenya, World Health Organisation estimates that 13, 000 Kenyan citizens lose their lives to road traffic accidents yearly. It is estimated that Kenya loses about 50 million shillings daily due to unproductivity caused by traffic congestions.
On Mondays in Ikeja, Lagos, the traffic is usually at a standstill for hours. Transports cost are usually doubled, and sometimes, scores of Lagosians are forced to trek to their destinations. Some African cities have seen reduced traffic congestions. However, these cities are still slow in creating and maintaining transport systems to cater for their fast growth.
Climate change, flooding and drought
Flooding has been a major crisis that Africa has battled with over the years. The continent has experienced excessive flooding throughout 2016; being estimated as the highest rate in 50 years.
South Sudan has experienced 98 deaths and over 200,000 people have been affected by flooding in only 2016. On Tuesday it was reported that in Jigawa state, Nigeria, 18 people have died and 6,637 houses have been destroyed as a result of flooding during this rainy season. Poor drainage systems, poor sewage disposal habits, and poor structural plans (illegal structures) have led to the increase in flooding in cities.
In July, it was reported that a flooding incident that occurred in Cape Town and Durban led to a death toll of 9 people. Between 10,000 and 15,000 people were affected by the flood.
A major cause of this extreme flooding situation is climate change. Climate change has been a major discussion among policy circles. Forums such as the United Nations Climate Change Conference have increased the commitments of African leaders towards reducing the effect of climate change on the continent. However, more efforts need to be placed by political leaders and organisations towards climate change in Africa. Drought, desertification, flooding and other extreme weather changes are areas that need proper planning.
Beijing’s climate dilemma is a situation for Africa to learn from. The blanketing effect of smog within the city has affected the affect the productivity and health of the citizens. China’s slow action towards solving the issue should be a warning on effective planning towards the threats of climate change in Africa.
Technology has greatly helped in boosting the economic growth in Africa. The success of mobile money, smartphones, and Internet penetration has pushed the growth of the African economy and also boosted social inclusion. Technology has also improved production processes by providing more efficient operations systems resulting in increased profitability and reduction in unemployment.
Arguments have been made in favour and against the effect of technology on enhancing sustainable development globally. The emergence of technological breakthroughs in the areas of artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing have changed the mode of living globally. Fears have arisen that the rapid pace of technological innovations could reduce the availability of employment opportunities.
In Africa, the worries are greater because of the high illiteracy rate and slow pace of educational growth. Analysts predict that the future would be taken over by fully automated processes reducing the number of jobs within the continent.
The advent of Artificial Intelligence (AI) globally reflects the rising pace of technology improvements in production processes and development. Focusing on economies with large populations such as China, massive retrenchments have been undertaken based on the growth of AI. Foxconn, Apple’s production partner in China in 2016, reduced their workforce from 1.1 million to 500,000 staff by replacing them with robots. In India, Wipro threatened it could sack 3000 engineers due to the company’s business automation process. Companies looking towards improving profitability are replacing human labour machines to boost productivity efficiency.
The need for companies to improve productivity efficiency and profitability is beneficial to business growth. However, when this growth favours only a few within the economy and discourages financial inclusiveness, then there this is cause for concern. Africa is faced with the dilemma of embracing the fourth industrial revolution and providing employment opportunities to its over 1.2 billion population.
The sporadic rate of technological innovations calls for the determination of whether Africa would embrace absolute adoption of technological waves or governments will focus on how technology can be adopted sustainably within the continent to enable the disruptive blessing of urbanisation to not be a curse.
The need for urgency
Africa’s rapid growth stresses the urgent need for broad strategic sustainability plans by all stakeholders to accommodate the fast development of the continent. As Chidiogo said, “As long as infrastructural development and access to basic housing, water, electricity, roads, schools, hospitals, government services, markets and so on do not keep up with population growth, the cities in question will literally crumble under their overflowing load to a shell of their full potential.”