How can African countries capitalize on the current geopolitical changes?

This year Africa celebrates fifty years since the founding of the Organization of African Unity (OAU); never before has the continent been so poised to reap the benefit of its enormous resources. Sweeping political and economic changes over half a century have reformed global power structures, reconfigured international relations and led to serious rethinking of development paradigms.

It is only befitting to recognize the significance of the African Union’s role in this transition. The OAU established in 1963, laid the foundation for the unity of the African continent. It aimed to rid the continent of remnants of colonialism and restore Africa’s dignity and pride after centuries under domination; promote the integration of the continent; and defend its interest in a Cold War arena.  As the continent evolved, the OAU, heralded as the most notable result of Pan –Africanism, was replaced by the Africa Union in 2002. The African Union symbolized a new era for the continent aiming at accelerating the process of economic integration, resolving socio-political problems and intensifying continental unity, to enable Africa to play a more meaningful role in the global economy.

In just over a decade, Africa has experienced growth from only 2.1% in the 1990’s to 5% in the past decade. The future outlook remains promising as Africa’s economy is projected to continue growing, despite global financial market turmoil. Investor confidence has also been revived, brought about by drivers such as an increased prevalence of peace, democratic elections and improved governance.

As a result, Africa has attracted more Foreign Direct Investment (FDI). Africa has been experiencing an upward FDI trend, with $47 billion mark in 2011. In 2012, this upward trend has continued, with FDI registered at $50 billion. Outward FDI flows from Africa nearly tripled in 2012, from $5 billion in the previous year to an estimated $14 billion.

How then can Africa capitalize on the current trends?

Africans can take control of their natural resources

Africa’s industrial potential had been stifled by the legacies of Africa’s colonialism which left behind weak institutions and an infrastructure designed to enhance extraction of its resources. Structural adjustment Programmes had particularly negative effects on technological accumulation, human capital development and export performance. However, Africa’s resources wealth, account for approximately three quarters of the world’s platinum supply; half of its diamonds and chromium; one fifth of gold and uranium supplies; just over half of the world’s uncultivated arable land, with the potential to become the breadbasket for the world; and it is home to gas and oil production in over thirty countries. With the abundance of resources and the rising global demand for them, Africa must manage its resources carefully.

Currently, there are far too many economies in Africa that are dependent on the production and export of primary commodities.  These are generating prosperity and development in other regions instead of in Africa, exporting jobs and opportunities. The continent runs the risk of marginalizing its own role in international trade if it does not add value to its commodities.  Commodity-based industrialization therefore offers the scope for value addition as well as forward and backward linkages. Ethiopia’s leather industry and Nigeria’s oil supply industry provide good yet random examples of linkages that are not only developing, but also deepening into high value added activities. Such initiatives must become the norm.

Africa’s economic future will be determined by how it designs and implements effective policies to promote industrialization. There is an urgent need to address infrastructure constraints and bottlenecks; facilitate the development of the commodity sector and linkages, boost availability of unskilled and semiskilled jobs, provide job training in higher artisanal skills and deploy data driven evidence to inform planning. These all present opportunities for Africa and its partners to better collaborate without depriving Africa of the benefits of its resource boom.

Africa’s demographic dividend

Africa’s population is projected to double attaining close to 2.3 billion people over the next forty years. This will represent about half of the globe’s total population growth. Africa is also the only continent with a significantly growing youth population. Projections suggest that in less than three generations, 41% of the world’s youth will be African. By 2050, Africa’s youth will constitute over a quarter of the world’s labor force. By the end of the century, the continent will have the lowest dependency ratio in the world.

In addition, Africa is experiencing an unprecedented rate of urban growth. Projections indicate that between 2010 and 2025, some African cities will account for up to 85% of the population. This will mean a transition from a rural to a predominantly urban society, with the largest cities on the continent, Lagos and Kinshasa, growing to 15 million people by 2025, and others such as Dar es Salaam reaching 7 million.  Cities in Africa generate approximately 55% of the continent’s total GDP relative to developed countries cities that generate approximately 90% of their GDP. Being cognizant of the related challenges, such as the need to ensure essential services to cater for this phenomenon, the opportunities for economic growth, poverty reduction and human development are profound. Approximately 54% of Africa’s youth is currently unemployed and more than three-quarter live on less than 2 dollar (US$) a day. A correlation and lessons to learn can be drawn from Asian emerging markets, where 40% of its rapid economic growth between 1965 and 1990 was attributable to an increase in the working age population.

However, a youth population of such magnitude also indicates that the real challenge of the 21st century is the ability to address this demographic imbalance in a manner that will preserve the interests of future generations. A demographic dividend is needed. Inspired by Jean-Jacques Rousseau’s seminal work on the Social Contract, there is need for a new intergenerational social contract that is driven by the necessity to balance the needs of the current and future generations; between a young Africa and an aging population elsewhere in the world.

African partnerships with new emerging economies

The once dominant influence of the West is diminishing and it will have to metamorphose a new relationship with Africa. India, China and new players, have increased their engagement in Africa in rather dramatic ways transforming Africa’s traditional trade and investment relations. The largest increases in foreign direct investment to Africa in recent years have come from the BRICS, targeting Africa’s natural resources, from oil in Angola, Algeria, Nigeria and Sudan to mining in Niger, Mauritania, Zambia and Liberia. It is however a very partial view of what is going on. There is significant diversification of investments. For example, India is investing in social services, textiles and medium sized enterprises as well as technology and China is investing heavily in Africa’s infrastructure and services. Ways of doing business have been revolutionized accompanied by advances in technology.

This new paradigm of engagement reflects cooperation in which partners see themselves as peers in mutually beneficial relationships. Interest in Africa from a larger pool of partners is favorable to the continent and is creating choice. Africa in turn, is well positioned to be a more assertive player in the global arena and to capitalize from the different development models and comparative advantages offered by the array of partners.  To benefit fully, Africa must strengthen its institutions, take the lead in negotiating, designing and implementing strategies with partners to leverage their comparative advantages as well as broker good deals. Africa must transform from being perceived as a price taker to a price maker.

The Africa –EU future

Europe and Africa have been important to each other with ties stemming from their history and geography and the fact that their relationship connects two continents.  Europe has been more of a trade, development and investment partner while Africa has been a crucial source of hard and soft commodities for Europe, such as strategic metals and minerals and captive market. Having said this, perhaps the most successful area in its long partnership has been in the thematic area of peace and security.

The EU-Africa partnership over the last decade has evolved under framework of the Joint Africa-EU Strategy from one that was criticized for being an unbalanced donor-recipient relationship to one that promised a profound change in its approach to Africa. In 2007, the Joint Africa-EU Strategy was premised on principles of equal participation and representation, as well as to treat Africa as one. However, development and political cooperation between the two continents has not resulted in any fundamental transformation; instead the gap has only become wider. This is attributable to factors such as dwindling development budgets that have been impacted by the Euro zone’s sovereign debt crisis; in turn the financial expectations under the Joint Strategy have not been delivered.  The emergence of new economies, rivals Europe’s historic role and style of development aid cooperation in Africa. Several partnership agreements have also mushroomed since such as the Cotonou Agreement, fragmenting the strategy.

The 4th Africa – EU summit therefore comes at an opportune time for both continents to develop consensus on what they want and how to transform the Africa –EU relationship. In the new landscape of multipolar partnerships, Africa needs a coherent strategy so that its development is not compromised by competition amongst potential partners. In doing so, mutual accountability, mechanisms of enforcement, mechanisms that foster compliance of multinational firms to international norms and standards should be indispensable features for the future partnerships. It is time for Africa to capitalize on the geopolitical changes but by driving and owning the process.

By Carlos Lopes
Executive Secretary of UN Economic Commission for Africa