Unlocking Africa’s economic potential is a challenge without seeming end. Since the 1950s, when the continent began to achieve independence from colonial shackles, many countries have struggled to attain robust economic growth. Poor infrastructure, corrupt politicians and an environment that encouraged them, and a lack of manufacturing have been the most common factors keeping growth uneven at best and abysmal at the very worst. Finding a solution to the growth question will be a central theme of a conference next month in Dubai organized by the African Legal Network. (Indeed, in the Gulf may be a solution to Africa’s woes, but more on that later.)
With the recent rise of “impact investment,” which seeks profits through socially responsible projects, Africa has been the target of a new form of economic development. The premise is straightforward: The majority of Africans have been ignored as customers in the global economy due to their inability to engage with the international marketplace, but smartphones and the global digital economy have given many the tools they need to become customers in their own right and to transform their societies into vibrant marketplaces.
Through mobile-money accounts and healthcare startups, for example, millions of Africans have become valuable customers. The hope is that this dynamic new marketplace will lift all boats. From China to Silicon Valley, the rush to offer goods and services to these new markets has been frenzied. But who actually benefits according to this gospel of impact investing? Africa’s economic woes are in large part due to its struggle to help itself while outsiders pillage the continent for resources. Since most startups are based outside the continent, does this new digital economy merely mimic the patterns it claims to be dismantling? In fact, one must be skeptical of anything that calls itself “new” or offers a moral imperative to commerce. Five thousand years of recorded history in economics isn’t about to be upended by smooth talkers carrying iPads.
Even with the rise of mobile-money accounts and healthcare startups, Africa’s economic fundamentals have changed little in the last decade. Impact investing brings foreign investors into African markets with profits ultimately leaving the continent. To be sure, Africans will enjoy better services, but fundamentally the continent will not be helping itself.
The remedy for Africa’s fundamental economic woes is remarkably clear but ridiculously challenging to overcome. African countries need to invest in continental economic links focused on creating a robust African manufacturing base. This can be achieved through continent-wide trade agreements and select partnerships with foreign investors keen to see their investments grow, instead of establishing political, military or cultural influence.
With the launch of the African Continental Free Trade Area (AfCFTA) in March this year, the foundation was laid for a single African goods and services market. If correctly implemented, the continent will be one significant step closer to fully unlocking its manufacturing potential, which will, in turn, drive growth, industrialization and jobs. If the AfCFTA comes into full effect, it will make Africa the largest trading bloc in the world with a membership of 55 countries representing more than 1 billion people and a combined GDP of $3.4 trillion.
Importantly, the agreement will encourage African countries to trade with each other, which will facilitate myriad infrastructure projects. Intra-African infrastructure has traditionally been created to serve the needs of foreign powers and their aims at resource extraction. The Chinese are developing several large-scale projects across the continent but they don’t necessarily put the needs of Africans first. In most cases, the projects help facilitate links to China’s Belt and Road initiative, a global economic project designed to pivot international trade flows toward China. In other cases, infrastructure projects have become significant sources of debt for countries, most notably those in landlocked East Africa.
Facilitating intra-African trade to build up the African manufacturing and industrialization base will require outside help. Given the history of nefarious outside intervention in Africa, securing the right type of assistance is critical. With natural links to the continent, Arabian Gulf countries are natural allies. Not only do these countries already invest heavily in North African countries such as Egypt, but they also are not looking to establish neo-colonial footprints across the continent. Instead, Gulf countries are looking for a return on investment. A robust African manufacturing sector, strong infrastructure links between countries and growing economies would spur such returns while furthering Africa’s long-term growth prospects.
There is little doubt that Africa is years away from a genuine free-trade agreement. Current negotiations over the AfCFTA are stalled as countries such as Nigeria continue to drag their heels on the exact terms of a deal. But difficult negotiations shouldn’t overshadow the fact that such an agreement would dramatically increase Africa’s ability to move toward equitable growth.
At a time when foreign powers continue to carve out influence in Africa and impact investors pour money into schemes that ultimately extract revenue from the continent, the need to reinforce local industry is critical. By looking to new partners such as Arabian Gulf countries, Africa can begin the process of controlling its destiny rather than being a pawn on the world stage.
Joseph Dana, based between South Africa and the Middle East, is editor-in-chief of emerge85, a lab that explores change in emerging markets and its global impact.
Photo by STR/AFP