By Joe Cosma | 27 January 2015
A decade of economic expansion has left Africa well placed for the future, says Joe Cosma. But challenges remain to create the jobs and growth that will lift ever greater numbers of Africans out of poverty.
Consistent and robust growth — that elusive elixir hunted by policymakers around the world — has been the reality for a huge range of African countries for over a decade. It’s a fact worth repeating. While other countries have been left deeply scarred by the toxic mix of recession and joblessness caused by the global financial crisis, African economies have proved remarkably resilient. The sub-Saharan African (SSA) economy in particular has surged forward, more than quadrupling in the period since 2000. But this is no time for complacency.
Despite the abundant positive economic data, skepticism still remains. Unfortunately, much of this is rooted in negative historical beliefs about Africa as a conflict-ridden, politically unstable and hopelessly corrupt basket case, and there remains enough bad news in Africa to reinforce the negative stereotypes. The reality of such a vast and diverse continent is that as much as we may want to celebrate the many economic success stories — from Botswana to Mozambique, to Zambia, to Rwanda, to Angola, to Nigeria, to Ghana, and so on — there are also several states that remain fragile. Sadly, though, it is too often the failures — increasingly the exception rather than the norm — that dominate the 24/7 media cycle.
The skepticism with which the Africa rising story is still sometimes viewed is often the result of ignorance. It manifests most obviously in our research with the stubborn perception gap between companies already established in Africa and those that do not yet operate in the continent. Those with an established business presence in Africa are more positive than ever about the continent’s prospects, while those with no business presence in Africa view the continent as the world’s least attractive investment destination.
It is important, then, to continue to provide evidence of the continent’s progress, so that decisions are driven by facts rather than often outdated perceptions. However, it is also clear that, despite the progress since the end of the cold war and apartheid, much work still needs to be done to realize Africa’s vast possibilities. Intra-regional trade, for example, is substantially below what can be achieved. There is also the need to break down the barriers of traditional subsistence agriculture and then replace it with large-scale commercial operations capable of meeting the production objectives required by a continent in transition.
Five priorities for inclusive, sustainable growth
It is clear that the potential exists for us to be part of an African future that would have been virtually unimaginable a generation ago. The reality though is that the best case future for Africa is neither inevitable nor will it happen without active participation and commitment from multiple stakeholders. With the fastest growing population in the world, there remains a real challenge to the required number of jobs for Africa’s youth. If we get it right, and as the number of active economic citizens increase, so too will the resilience of Africa’s economies. An emerging consumer class and increasing domestic demand are the key drivers of sustainable growth.
The flip side, of course, is a scenario in which the economic success we have experienced over the past 15 years fails to translate into fundamentally improved lives for most Africans, and inequality levels continue to widen. This scenario is likely to lead to political and social instability, and may well result in a situation in which African economies begin to stagnate or even fall back. There are many challenges and opportunities that we could focus on in terms of keeping our economies on the path toward inclusive, sustainable growth. But rather than persisting with a conversation about grand ambition, the emphasis now should be about focusing on a few areas that will have the biggest impact. In this context, five themes have emerged as priorities for action.
I. Embracing a philosophy of shared value
The concept of shared value — the idea that you can pursue profit with purpose; that you can do business while having a direct positive economic impact on the communities in which you operate — has increasingly struck a chord with many Africans. Our own observation is that the organizations that have been the most successful in Africa are taking a long-term view. They realize that there are no short cuts, and, more importantly, they realize that for their business to grow sustainably over the longer term, the economies and communities in which they operate need to grow sustainably. On one hand, the bigger the skills pool, the more jobs and economic opportunities are created, the larger the spending power of consumers and government. On the other hand, there will be a greater number of opportunities for business growth. A philosophy of shared value is fundamental to this win-win growth equation. For us to accelerate Africa’s progress, it is critical that we all — across the private, public and social sectors — actively embrace this philosophy.
II. Promoting entrepreneurship
A key element of the growth equation will be the promotion of entrepreneurship across Africa. Today, indigenous African firms like the Mara Group, SEPLAT Petroleum Development Company, Kenya Women’s Finance Trust and OUTsurance, create direct and indirect economic opportunities for hundreds of thousands of Africans. It is entrepreneurial enterprises like these that will be the main drivers of the job creation required to realize inclusive, sustainable growth. For organizations genuinely committed to shared value, the promotion of local content and enterprise development should therefore clearly be a key business priority.
III. Accelerating regional integration
The challenges of moving goods and people across borders remain a source of significant frustration for many of us who do business in Africa. Negotiations are underway for the creation of the so-called Tripartite Free Trade Area, which will constitute an integrated market comprising 26 African countries with a combined population of 600m people (only China and India have larger populations), a total GDP of more than $1t, and a long term GDP growth rate in excess of 5%. However, there remains some way to go to realize this ambition, and there needs to be greater urgency to accelerate the process of regional integration more generally.
IV. Bridging the infrastructure gap
Ultimately, the impact of regional integration will depend on the quality of our infrastructure, both to physically connect markets and to generate enough electricity to support the development of manufacturing and other industrial sectors, and enhance the overall competitiveness of the region. While progress is being made in parts of Africa, things are still moving too slowly. The biggest gap appears to be in developing infrastructure projects from concept to a phase of “bankability”. The need for projects is clearly there and the funding for good projects is increasingly available, but what is often missing are the capabilities and capacity to systematically frame and shape projects to the point at which they are bankable.
V. Forging productive partnerships
Partnerships are going to be critical if we are to realize Africa’s possibilities. Although trust between business and governments across many parts of Africa remains low, embracing a win-win philosophy of shared value could provide a platform for dialog and collaborative action. However, in order for us to successfully drive inclusive, sustainable growth, we are also going to have to be a lot more proactive in forging multidimensional partnerships — across business, government, development finance institutions, donor agencies, and so on — particularly to address cross-cutting priorities of entrepreneurial development, regional integration and infrastructure development.
Eyes on the horizon
The shape of Africa’s future will rest on our ability to connect and integrate markets across the continent, and the (related) cooperation between the public and private sector. This collaboration is particularly important in order to encourage and harness inclusive growth, job creation, growing domestic economic opportunities and a higher tax base. These factors will, in turn, enable greater levels of regional integration and more effective government, and underpin and sustain Africa’s success story.
The building blocks of economic, political and social reform, together with resilient growth rates, mean that the continent as a whole is on track to sustain its forward progress. But this is neither clear cut nor guaranteed; active dialog and collaborative action are essential to realize Africa’s possibilities. Let’s get to work.
This feature was first published in the December edition of EY's Dynamics magazine
