Insights on Africa

Over the last few weeks I was fortunate to have spoken at two conferences in Africa: the first was the Sankalp Africa Summit in Kenya; the second was the 7th AfrEA Conference in Cameroon. I thank the organisers of both conferences for extending me an invitation to speak, and engage in very stimulating conversations about the future of the continent.

At both conferences I was presenting findings from Insight on Africa, a Legatum Institute report published at the end of last year.

Below is a summary of some of the points I presented.

Firstly, the way in which we think about national success and development needs to include more than just economic growth. Growth is an important part of a nation’s prosperity, but so too is the freedom of its citizens, the quality of its education system, the availability of healthcare, the presence of democratic institutions, and the strength of society.

It is important to not only realise this, but also to measure it. Data, when used correctly, can change behaviour. And as the Nobel Prize-winning economist Joseph Stiglitz said: “What you measure effects what you do. If you have the wrong metrics, you strive for the wrong things.”

A detailed look at two topics covered in the report—demographics and corruption—shows how these issues have the potential to profoundly affect the continent’s future.

Demographics

  • The total population of Africa has broken the 1 billion mark and is set to double by 2050. AfricaAverageAge
  • 40% of the population is under the age of 15, making Africa the “world’s youngest continent”.
  • By 2030, Africa will have the lowest dependency ratio of any region (meaning the largest ratio of working age adults to the rest of the population).
  • Higher life expectancy combined with lower infant mortality are major contributing factors for this trend, usually referred to as the ‘youth bulge’.

This scenario presents an opportunity, a challenge, and a threat for African countries.

The opportunity is the prospect of back to back generations of working age adults. The potential for economic growth and development for the continent is staggering.

The challenge is this will mean more people to educate, more competition for jobs, and more demand for healthcare. This will be a major test for even the most effective African governments.

The threat can be summed up in one word: employment. This point was made very well by the Nigerian finance minister who has estimated the Nigerian economy will need to grow at 8-10% annually to meet the growing need for employment. Without jobs for this generation we may see growing instability, violence, and even conflict. The 2011 World Development Report stated the predominant reason given by young people for joining rebel groups and gangs was the lack of other opportunities. The devil makes work for idle hands.

Over the coming years, the likely result of this is the emergence of “two Africas”: one which is able to cope with the influx of young workers into its economy, and one which is not.

Corruption

  • The African continent is thriving with business opportunities and investment potential. AfricaCorruption
  • Africans are optimistic about this: three-quarters of the African population perceive that their environment is a good place for entrepreneurs.
  • And yet, data show there has been no marked change in perceived levels of corruption over the past five years.
  • This is despite improvements in governance and democracy-related indicators.
  • Take Kenya, South Africa and Namibia as examples. All three countries are democratic and score among the highest in Africa on governance indicators including rule of law. And yet, these countries all perform among the lowest on measures of perceived corruption (see graphic).

Corruption matters not only because of its corrosive effect on a country’s political system and its impact on everyday life, but also because of the extent to which it complicates the business process. It adds an additional deterrent to external investment in a region that is already at the bottom of the World Bank Ease of Doing Business Index.

That said, there have been improvements. Sub-Saharan Africa was one of only two regions in the world that attracted increased FDI flows in 2012, a year when total global FDI flows fell by 18%.

Since the drivers of corruption across Africa are very different, anti-corruption measures must be tailored to each specific situation if they are to be successful, comprising measures beyond simply passing new legislation or appointing anti-corruption bodies. Also, it is important to bear in mind how any anti-corruption measures may affect the business climate.

In Ghana, for example, the government is creating two ring-fenced funds that will only be used to smooth the impact of future variations in the price of oil. This will have the benefit of providing a level of control over the strength of the country’s currency, and is intended to help Ghana avoid the so-called ‘Dutch disease’. A similar approach was adopted by Norway in the 1970s.