Africa Reset a New Way Forward

AFRICA RESET A NEW WAY FORWARD

Edited by: Theodore Ahlers Harinder Kohli

Kaisa Alavuotunki Alden LeClair James Bond Claudio Loser Kevin Cleaver Serge Michailof Louise Fox Ritva Reinikka Gregory K. Ingram Hasan Tuluy Hiroshi Kato Ieva Vilkelyte Introduction

Chapter 1 Harinder S. Kohli and Alden LeClair

A massive, highly diverse, and heterogeneous percent of Africans), including two where the average per region capita income is below $1.90 a day (2015 PPP terms). Continental Africa is one of the largest and, arguably, the Overall, the region has the lowest per capita income most heterogeneous region of the world. With its 54 coun- in the world and the highest proportion of absolute poor. tries and a land mass roughly three times that of Europe, it According to the World Bank, in 2015, 40 percent of people has more countries than any other continent and, with 1.2 in Sub-Saharan Africa lived below the absolute poverty line. billion people, the second largest population after Asia with Many of the low-income countries are landlocked, 4.2 billion. Given its size and number of countries, Africa is small, fragile, or conflict-affected. Sixteen countries are also exceptionally diverse. Its history ranges from ancient landlocked. Thirty-six countries have annual economic kingdoms to colonially-determined states that, with a few output of less than US$25 billion making it very difficult exceptions, became independent only in the middle of the for their firms to generate economies of scale. And, one 20th century. Its geography runs the gamut from deserts in three countries were classified as fragile according to to tropical forests. Its natural resource endowments vary the World Bank/African Development Bank (AfDB) Harmo- by country from extensive oil and mineral wealth to little nized List in FY2017. These realities make economic and more than poor soils. Its countries vary greatly in size: six social development of the region very challenging. have populations under one million, while four (Democratic The ongoing global geopolitical, economic, and Republic of the Congo, Egypt, Ethiopia, and Nigeria) have environmental changes also expose Africa to additional populations over 80 million in 2017. challenges, but some of these developments could also At the national level, this diversity is further complicated present potential opportunities. Slower global economic in much of the continent by borders drawn by colonial growth, lower commodity prices, pushback against glo- authorities that frequently divided ethnic, geographic, or balization in many countries, climate change, and tighter historical identities. There is, thus, no “one Africa” but global financial markets make Africa’s development and rather several that share a single land mass, common bor- faster convergence with global best practice tougher to ders, and a history of exchanges between local kingdoms achieve but by no means impossible. centuries ago and foreign control through much of the 19th While the continent confronts these many daunting and early 20th centuries. challenges, it must not let slip away the vast opportunities The economic diversity is as striking as the geographic, before it. Africa can harvest a huge potential demographic historic, or cultural (see Figure 1). The continent has 26 dividend in the coming decades. Indeed, by 2050, it will middle-income countries,1 including upper-middle-in- be the only region with a growing working-age population come countries, such as Algeria, Botswana, South Africa, as the rest of the world faces aging and even declining and Mauritius, that have been solidly middle-income populations; 72 percent of the world’s growth in the work- for decades. Of the 18 African countries that were mid- ing-age population between now and 2050 will be in Africa. dle-income countries 25 years ago, however, only one, Its natural resources will be sought by the resource-defi- Seychelles, is high-income today. Africa also has 27 low-in- cient economies in Asia, Europe, and elsewhere. Its local come countries2 with a total population of 557 million (46 entrepreneurs could provide a spark to unleash domestic

1. Algeria, Angola, Botswana, Cameroon, Cape Verde, Republic of the Congo, Côte d’Ivoire, Djibouti, Egypt, Equatorial Guinea, Gabon, Ghana, moros, Democratic Republic of the Congo, Eritrea, Ethiopia, The Gambia, Kenya, Lesotho, Libya, Mauritania, Mauritius, Morocco, Namibia, Nigeria, Guinea, Guinea-Bissau, Liberia, Madagascar, Malawi, Mali, Mozambique, Sao Tome and Principe, South Africa, Sudan, Swaziland, Tunisia, and Zam- Niger, Rwanda, Senegal, Sierra Leone, Somalia, South Sudan, Tanzania, bia. Togo, Uganda, and Zimbabwe. 2. . Benin, Burkina Faso, Burundi, Central African Republic, Chad, Co-

1 1 HARINDER S. KOHLI AND ALDEN LECLAIR 2 Source: celerating Development ImpactoftheHigh5s(seeitsreport ofMay2017). changes. And,finally, Africahasaverylargescopetocatch tional investors,asAsiadidinthepast50years. private enterprise and harness unfoldingtechnological private enterpriseandharness up withtheglobalproductivity frontier- andattractinterna 3. Thissectionandsomeotherpartsof thebookbuildonworkdone by theauthorsforAfricanDevelopmentBank’s SpecialPanelon Ac- Figure 1:Africaislargelymadeupoflow-andlower-middle incomecountries frontier andattractinternationalinvestors,asAsiadidinthepast50years. largescopetocatchupwiththeglobal productivity Africa hasavery World Bank (2016d) Bank World ataaae e er e pper e h e 3

1970s and1980s.But,inthe aggregate, growth inAfrica a percapitaincomegrowth above3½percent since2010, such weak performanceoftwoits largesteconomies(Nigeria the rate achieved by the successful Asian economies in the has beenslowinginrecent years,partlybecauseofthe Some Africancountriesare already ontracktoachieve convergence. Oneoutofsixcountrieshasaveraged 1 INTRODUCTION 3 - conflict nor nor conflict a trade, and capital flows within the capital flows within the trade, and long lead times and are critical for Africa to meet critical for Africa to meet long lead times and are international team that has no institutional or international team that has no institutional or ideological agenda. ness of African economies; and achieving greater ness of African economies; and achieving greater It results from the efforts of a highly experienced of a highly experienced the efforts from It results It combines analytical work on the lessons from It puts forth a framework that transcends the tradi- It focuses on multi-generational issues that require require It focuses on multi-generational issues that tional ideological debates and gives equal priority the for realizing prerequisites overarching to three the rising aspirations of its people. and social cohesion; enhancing the competitive- vision: putting greater focus on people, inclusion, focus on people, inclusion, vision: putting greater cooperation, of the world. continent and with the rest Latin Asia and Latin particularly from other regions, America, with the best existing work on Africa. • • • • convergence scenario and the central scenario (under convergence scenario The work underlying this book is based on sev on based is book this underlying work The The chapter identifies the key multi-generational and and The chapter identifies the key multi-generational of the book: four other distinguishing features are There poverty levels, poverty levels, in the outcomes in 2060 (GDP per capita, and lift the ambitions of all Africans intent is to inspire action on an urgent basis and suggest issues that require natural or man-made calamity (e.g., nuclear war) affecting natural or man-made calamity (e.g., nuclear war) affecting possible strategies to tackle them so that the longer-term the longer-term possible strategies to tackle them so that that there will be neither a widespread military widespread a neither be will there that tackled starting now in order to realize the vision. The The vision. the realize to order in now starting tackled the which productivity growth is much slower). The differences much slower). The differences is growth which productivity assumed that overall the world will remain peaceful and peaceful and assumed that overall the world will remain middle class, Africa’s share of global GDP) are are of global GDP) share size of the middle class, Africa’s staggering. social costs of inaction, Chapter 2 presents two scenarios: Chapter 2 presents social costs of inaction, and their leaders. Subsequent chapters highlight sectoral and their leaders. Subsequent chapters aspirational vision can indeed be realized. eral assumptions about the global economy. First, it is it is First, eral assumptions about the global economy. crosscutting issues, challenges, and risks that must be issues, challenges, and risks that must be crosscutting Assumptions and organization - It is It is 4 from now. now. from South Africa). For the first time in 20 years, per capita South Africa). For the Region-wide approaches and studies such as this and studies such as this Region-wide approaches The authors of this volume are persuaded that it is pos- The authors of this volume are The point of departure of this book is a vision of where of this book is a vision of where The point of departure book have both value and limitations. They are useful useful They are book have both value and limitations. income in Africa declined in 2016. Overall, during the past the during Overall, 2016. in declined Africa in income in per capita income. Promoting such convergence is the in per capita income. Promoting . New York: Department of Economic and Social Affairs, Popula- Social Affairs, Economic and of Department New York: Revision. tion Division, CD-ROM edition. What is unique about this book? needed for the 200 million young people who are projected projected are needed for the 200 million young people who urgent to address this widening gap. urgent to address underlying motivation of the book. unique circumstances, including its economic and politi and economic its including circumstances, unique resource endowment, and sophistication of institutions of institutions sophistication and endowment, resource realizing the vision. But beyond this, the specific strategies realizing World Population Prospects: The 2015 in United Nations. (2015). World projected to enter the labor market during the next decade. to enter the labor market during the next that decisive actions are taken soon to exploit the available that decisive actions are world and its share of global output fell back to 3 percent, of global output fell back to 3 percent, world and its share twenty years ago. Equally worrisome, African it was where the region as a whole, identifying common opportunities as a whole, identifying common opportunities the region sible to reverse the recent trends, significantly raise Africa’s raise Africa’s significantly trends, the recent sible to reverse and social and economic areas. While clearly ambitious, the the ambitious, clearly While areas. and economic social and governance. as well as the action agenda and its timetable must be as well as the action agenda and its timetable must be and challenges, and agreeing on a general framework for and challenges, and agreeing economies are not creating good jobs on nearly the scale not creating economies are jobs, provided quality jobs, provided more and create economic growth, fast track to con- opportunities. This would put Africa on a growth of the world and achieve robust verge with the rest vision is certainly plausible. To illustrate the economic and economic the illustrate To plausible. certainly is vision cal history, aspirations of its people, stage of development, aspirations of its people, stage of development, cal history, vehicles for developing and debating a broad vision for vision for broad vehicles for developing and debating a decade, the continent’s growth was slower than the rest of was slower than the rest growth decade, the continent’s developed at the level of each economy depending on its 4. This number is based on the increase in the working-age population as population working-age the in increase on the based is number This 4. It is possible to reverse the recent trends, significantly raise Africa’s raise Africa’s significantly trends, the recent to reverse It is possible that decisive jobs, provided and create more quality economic growth, opportunities. soon to exploit the available actions are taken Africa can be 40 years—or two generations— The vision is deliberately based on stretch goals in key key in goals stretch on based deliberately is vision The 1 HARINDER S. KOHLI AND ALDEN LECLAIR 4 And, finally, thatthepace oftechnologicalprogress and America andEurope toemergingmarketswillcontinue Africa 40Years from Now,” paintstwodramaticallydifferent financial andtradingsystemswill remain stableandcon- developing thescenarios,Ahlerslooksatactualperfor climate change,governance). can economies over the next 40years. Other criteria for gests thatforAfricatoconverge rapidlywiththerest ofthe a wideswathofhumanity. Second,thattheongoinghis- as awhole,includingAfrica,couldwellbeoutsidethesce- availability ofdataforallorthevastmajoritycountries. action agendasare notdevelopedhere. selecting thetopicsincluded:intergenerationalnature of scenarios forthecontinentdependingonwhatactionsits that changesintheEarth’s climatewillremain withinthe tinue todrivefurtherglobalization,thoughwiththeusual toric shiftinthebalanceofglobaleconomy from North tions fail to hold, then the outcomes for the world economy tions failtohold,thentheoutcomesforworldeconomy that overthepastcentury. Ifoneormore oftheseassump- topics covered inrecent workelsewhere orinourearlier the issues,horizontalinterplaybetweenand the book’s authors,willhaveadecisiveimpactonAfri- for AfricaandAsiatodrawlessonsthefuture, andsug - In addition,thebookdoesnotcovercertainimportant range currently anticipated by the scientific community. peacefully, as over the past 70 years. Third, that the global mance duringthepastdecade, compares keyindicators ups anddownsassociatedwithbusinesscycles.Fourth, narios portrayedinthebook. nized inthebook,butdetailedanalysisandrelated Realizing theContinent’s FullPotential.NewDelhi:Oxford UniversityPress. improvements intheproductivity frontier willbesimilarto it covers a limitednumberoftopicsthat,in the viewof introduction, Chapter 2 by Theodore Ahlers, “Imagining book, 5. Ahlers,T. Kato,H.,Kohli,Madavo,C., &Sood.A.(eds.).Africa2050: leaders takeinsevenkeypolicyareas beginningtoday. In The bookisintentionallynotcomprehensive. Instead, This volumecomprisestwelvechapters.Afterthis live (i.e.,mostlyintheruralareas). for them is most urgent, and the jobsneed to be created where theyoung Today, some 18 million youth enter the job market each year. Creating jobs Africa 2050,publishedin2014(e.g.,demographics, 5 Thesesubjectsare recog- - Today, some18millionyouthenterthejobmarketeach Jobs,” pointsoutthatdespiteadecadeandhalfofgrowth, Chapter 4byKaisaAlavuotunkiandRitvaReinikka,“Build- ductive Agriculture Sector”byKevinCleaver, isabridge cial as is creating and growing labor-intensive, non-SMEs. gence scenarioarticulatedbyAhlersandtriestoformulate countries. Cleaverdemonstratesthetremendous scopefor year. of thepopulation still lives inastate of extreme deprivation. of 3½percent. Chapter3byLouiseFox,“Africa’s Inclu- a visionforeducationinAfricaconsistentwiththeconver and thenextsixchaptersonindividualsectors.Giventhat a road mapforhowtoget there. Inassessingthesituation activities, particularlyinlow-andlower-middle-income urgent actionsonthis front, the continent will not Without and thereality thatstudents arebasicsskills. notlearning aggressive climatechangeadaptationand mitigation. and some 60percent ofallAfricansliveinruralareas, mostof see itsfirmsbecomecompetitiveinaglobalizedeconomy. sive Growth Challenge:ReducingDeprivationandCreating world itneedstoaimatannualpercapitaincomegrowth the the poorare ruralandtheimmediatescopeforcreating today, theypresent thegoodnewsthatcontinenthas they raise serious concerns aboutthequalityofeducation they raiseseriousconcerns made goodprogress onpublicspendingtargetsandrais- poverty andinequalityinAfricaremain highandalmosthalf need tobecreated where theyounglive(i.e.,mostlyin ing HumanCapital:Improving EducationQuality,” develops ing primary school enrollment rates in most countries. But investment andmanagement, improved ruralinstitutions improving 6. UnitedNations(2015) between Chapters3and6onpeople andsocial issues be able to realize the so-called demographic dividend or large numberofjobspossiblyliesinagriculture-related Chapter 5,“Transforming RuralAfrica:Growing aPro- rural areas). Improving productivity inagriculture iscru - 6 infrastructure, betterdonorcoordination, andmore Creating jobsforthemismosturgent,andthe agricultural productivity through greater private - 1 INTRODUCTION 5 - conflict phe- - governance, strength population growth. The The population growth. urban institutions, and financing sources. Ingram Ingram sources. financing and institutions, urban poverty, reform the education systems, create new new the education systems, create reform poverty, Asia. This chapter is followed by the last substantive last the by followed is chapter This Asia. Chapter 10, “Regional Economic Integration in Africa” Africa” in Integration Economic “Regional 10, Chapter urbanization expected between now and 2060, it is is it 2060, and now between expected urbanization fragility in many parts of Africa, particularly in the Sahel. by Hasan Tuluy, highlights an issue important to the region region highlights an issue important to the by Hasan Tuluy, and land-locked because of its many small economies because that is where the majority of Africans will live and the majority because that is where location for most modern the because they provide eco- by Serge Michailof, discusses the key factors that have led have that factors key the discusses Michailof, Serge by book concludes with a brief epilogue by Harinder Kohli Kohli Harinder by epilogue brief a with concludes book jobs, and bring down the rate of rate down the bring jobs, and East He then suggests a possible program of action to be sup- He then suggests a possible program ness needs along the lines of the integration achieved by urgent that countries pay much more attention to better better to attention more much pay countries that urgent urban urban planning, improved industry and high-value services). Ingram nomic activities (industry and high-value more pragmatic, bottom-up approach that will serve busi- pragmatic, bottom-up approach more and well-being the safety threaten that currently nomena infrastructure infrastructure of Africa’s points out that a large proportion ported by the international community that will rebuild the ported by the international that will rebuild community rural tance of deeper economic integration to the region as a a as region the to integration economic deeper of tance whole and its adoption as a political objective at the high- whole and its adoption as a political objective to cities. Given the rapid pace cities. Given the rapid pace will be built in and around convergence scenarios) the aspirational vision (convergence scenarios) to realize actual progress has been meager. Tuluy calls for a new, new, a for calls Tuluy meager. been has progress actual land on the other. land on the other. and loss of agriculture concerned,countries the in apparatus state reduce help urban also highlights the link between climate change and African Union Summits—the est levels—including at the African Union Summits—the worrisome very the discusses which chapter, of of ened impor the despite that out points chapter The countries. messages on how Kato highlighting the book’s and Hiroshi advocated by the authors. of people in countries with almost one fourth of all Africans. development on the one hand and between urbanization development on the one hand and between Chapter 11, “New Threats to Africa’s Stability and Growth” Growth” Stability and to Africa’s “New Threats Chapter 11, - - - terms of trade in commodity-exporting econ infrastructure, faster progress on creating regional regional on creating faster progress infrastructure, Chapter 6, “The Impact of Commodity Terms of Trade of Trade of Commodity Terms Chapter 6, “The Impact Latin America and suggest commodity exports than Latin America and suggest longer-term objective of reducing Africa’s heavy depen heavy Africa’s reducing of objective longer-term high priority for economic diversification to succeed. The infrastructure constraint to by James Bond, highlights the infrastructure better infrastructure. Chapter 9, “Urbanization and Demograph- infrastructure. K. Ingram, is by Gregory ics: Planning Cities That Work” joining global value chains), promotion of industrial clusters, joining global value chains), promotion manufacturing and services. He suggests that that jobs in manufacturing and services. He suggests in Africa: Curse, Blessing or Manageable Reality?” by Clau- in Africa: Curse, Blessing infrastructure delivery need for developing new models of infrastructure next three chapters address some of these issues. Chap- chapters address next three nomic (business) environment and work closely with the and work closely with the nomic (business) environment Openness to the global markets (including nomic growth. management of assets with more cost-reflective tariffs and tariffs cost-reflective management of assets with more markets, and improvement of the local skills base are all all are base skills local the of improvement and markets, policy makers need to focus on creating the right eco- policy makers need to focus on creating of eco- new sources promote private sector to proactively policy measures to reduce the continent’s vulnerabilities vulnerabilities continent’s the reduce to measures policy form well on the quality of services delivered to users; they form well on the quality of services delivered that move away from state-owned enterprises, improving state-owned enterprises, improving that move away from infrastructure. It also does not per the world in terms of infrastructure. ter 8, “Africa’s Infrastructure Deficit: Closing the Gap,” also Gap,” the Closing Deficit: Infrastructure “Africa’s 8, ter commodity cycles in interna commodity between interplay - the strong economies.tional markets and the fortunes of many African Next, in Chapter 7, “Economic Diversifi- shocks. to future work are critical for the long-term future of Africa both of Africa both critical for the long-term future work are are costly and undependable. The chapter outlines the costly and undependable. The chapter outlines the are government private financing of payment, and increasing two chapters. Cities that to the previous closely related countries’ dependent more omies. They show that Africa remains on cation of African Economies,” James Bond discusses the cation of African Economies,” James Bond demonstrates that Africa is the least-endowed region in in demonstrates that Africa is the least-endowed region commodity exports while creating well-paying well-paying dence on commodity exports while creating dio and Ieva Vilkelyte, discusses the important issue of dio and Ieva Vilkelyte, of discusses the important issue Africa’s economic and social development. This chapter economic and social development. This chapter Africa’s The authors quantify the impact of commodity prices and Openness to the global markets (including joining global value chains), chains), value global joining (including markets global the to Openness progress on faster better infrastructure, clusters, of industrial promotion are all of the local skills base markets, and improvement creating regional to succeed. economic diversification high priority for As the readers of this volume well know, the global economic environment has become signiﬁcantly more challenging in the years since the precursor to this book, Africa 2050: Realizing the Continent’s Full Potential, was published in 2013. Given this tougher world the continent faces, now is the time to reﬂect on how Africa can “reset” its economic development with these challenges in mind. That is exactly what Theodore Ahlers, Harinder S. Kohli, and the authors of this book have done. This book has the clarity and urgency necessary to cut through much of the noise on development issues in Africa and present a straightforward and analytically rigorous framework for medium-term policy changes that can put the continent on the right track.

—Michel Camdessus, Former Managing Director of the International Monetary Fund Africa faces both big opportunities and worrisome threats. The Africa that emerges over the next 40 years—a dynamic continent with a growing inﬂuence in the world or an economic backwater that exports its people and capital—depends on what countries do now. Africa is growing and many socioeconomic indicators are improving but it is no longer catching up with the rest of the world—converging. Africa Reset looks at performance over the last decade, highlights the difference in performance across countries, and identiﬁes the biggest policy issues to be addressed if Africa is to con- verge with the rest of the world and meet the aspirations of its people.

Despite a tougher world—slower global economic growth, lower commodity prices, and tighter ﬁnancial markets—one out of four African countries have averaged per capita income growth above three percent for the last decade. The progress of these high performers shows that it is what countries do—the policies of their governments, the responsiveness of their entrepreneurs, the integrity of their institutions, and the political will of their leaders—that makes the difference, not their resource endowments. The challenge is to extend this African best practice to more countries of the continent.

This book shows that the consequences of such a “reset” can transform the continent but also that the human cost of not doing so would be staggering.

In March 2017, I had the pleasure of hosting the Fifth Africa Emerging Markets Forum in Abidjan, where the preliminary research for this volume was presented and discussed. I am thrilled to see the culmination of that research published here and I applaud the editors and authors for developing this thoughtful roadmap for our continent. “Reset- ting” Africa’s development trajectory is exactly the attitude that we, as Africans, must take going forward, recognizing not only the challenges we face and the need to break from past complacency but also the opportunities on hand as we chart “a new way forward.” I am inspired everyday by the vibrancy and drive of Africans and, with the policy action plan put forth in this volume, I am conﬁdent in our ability to transform our continent in the coming decades.

—Alasanne Ouattara, President of the Republic of Côte d’Ivoire