To catch up economically, Africa must think big

Hedge funds are paid to anticipate the way the world is heading. So it was notable that a few months ago Nir Bar Dea, the boss of Bridgewater, the world’s largest hedge fund, was in Abidjan, the commercial capital of Ivory Coast, to co-host a summit calling for more money for the World Bank. For Mr Bar Dea, Africa’s population explosion is one of those “long term trends that people don’t pay attention to.

By 2030 half of all new entrants into the global workforce will be from sub-Saharan Africa. By 2050 the region’s working-age population will still be rising when it will be falling everywhere else. At that point Africa will be home to approximately 2.5bn people, or around a quarter of humanity.  And unless Africa finds a way to boost its sagging productivity, it will continue to fall further behind the rest of the world, ensuring an ever greater share of the world’s population is left behind. “People aren’t looking at the problem,” he says.

Heavyweight hedgies visiting Abidjan reveal a couple of things. The first is that capitalists, as well as do-gooders and donors, remain Africa-curious. Jamie Dimon, the boss of JPMorgan Chase, visited Nigeria, Kenya and South Africa in 2024 to build networks that can be “a gift to the next generation” of his bank’s leadership. The International Holding Corporation, the largest firm in the uae, is eyeing African assets. So are Saudi and Qatari investment funds.

Hedgies visiting Abidjan reveal that capitalists are still Africa-curious

The second is that, for all the curiosity, those paid to be unsentimental can see that the current trajectory is worrying. The danger is that, rather than driving global growth, its economies will continue to struggle.

The demographic divergence could be a boon. African emigrants will be needed to do jobs in the rest of the world. They will send home remittances, which are already worth almost double the continent’s total fdi. African economies will inevitably grow as their populations swell, adding to global demand. If sub-Saharan Africa can repeat Asia’s transformation, it “will become the next major engine of global growth”, argues a research note by Bridgewater. Today, it says, the region is home to 15% of global population, accounts for just 3% of global output and provides 5% of growth. If sub-Saharan Africa were to raise its productivity growth from around 1% per year to 4% (close to India’s recent rate), by 2050 its share of world output would be 10%—and it would account for a fifth of global growth.

The risk, however, is that Africa combines high population growth with low or stagnant productivity growth—and that the Africa gap only widens. If current trends continue unchecked, this is what will happen. The Institute for Security Studies (iss), a South African think-tank, has published scenarios for the future of the continent. These “African Futures” incorporate data on a variety of factors including demography, productivity, financial flows, infrastructure and measures of human capital. Its “current path” makes for sober reading. By 2043, the year its forecasts end, median African gdp per person, adjusted for purchasing-power parity (ppp), will be about a quarter of the rest of the world’s, essentially what it is today. And Africa will still have 400m people in extreme poverty, the vast majority of the world’s destitute.

This special report has tried to explain the reasons for this disappointing path. These include the scarce use of technology in agriculture, the rise of unproductive, low-end services and the absence of a manufacturing revolution. Productivity is further hampered by small firms and small markets. Africa has perhaps just half of the investment it needs to close the gap. “Something drastic is needed to change this rather dismal forecast,” write the authors from the iss.

Yet there is a better way forward. The iss also forecasts a “combined scenario”, where it projects what would happen if African countries did most things right. These include making a quicker demographic transition, expanding education, increasing investment in infrastructure, boosting agricultural productivity and manufacturing, encouraging greater financial flows and implementing the African Continental Free Trade Area (afcfta).  Under its most optimistic scenario the iss reckons the Africa gap would begin to close over the next 20 years. By 2043, gdp per person in ppp terms would be about a third of that in the rest of the world. Just 8% of Africans would live in poverty, rather than the 17% projected on the current path.

Viewed from 2025 that continent-wide tide seems unlikely to rise. More probably the gaps already visible between African countries will widen. Last year it had nine of the 20 fastest growing economies in the world, including Ethiopia, Rwanda and Ivory Coast. “Africa is becoming a split story,” argues Charlie Robertson, author of “The Time-Travelling Economist”. The countries that have seen fertility rates fall below three, as happened in Mauritius in 1979 and Morocco in 1999, have enjoyed demographic tailwinds, he argues, as families have been able to save more money, increasing the overall pool of investment and lowering interest rates. Kenya should pass this threshold in 2029, Mr Robertson points out.

Think bigger

“You need to discriminate between the different countries on the continent,” cautions Amit Jain, who spent many years in Africa and is now at the Centre for African Studies at ntu Singapore. He points to how Morocco is developing a commercial-agriculture sector and suggests that east African countries are doing better than their peers in west Africa in educating their children and expanding access to electricity. The likes of Kenya are well located to integrate into Asian firms’ supply chains, he adds. “Countries in the region might not hit $60,000 per capita but $15,000 is possible and would be a heck of an achievement.” Pan-African rapid growth will require co-operation, though. “Africa needs to morph itself into a bigger single market, something like what India is trying to do,” argues Mr Jain. If the afcfta were fully operational, the World Bank reckons it could lift overall gdp by 7% by 2035 and take 40m people out of extreme poverty.

Everyone with a stake in Africa must think big. Countries need development bargains that allow for the emergence of large firms and productive industries. Africa as a whole must make the afcfta a reality, giving it more bargaining power at international forums. Foreign countries need to face up to the reality that their current approach to development financing is nowhere near sufficient for Africa to transform its economies and respond to climate change.

Perhaps most important, Africa needs to recover a sense of ambition. In too many African countries the default approach is what Ken Opalo of Georgetown University calls “low-ambition/muddling-through developmentalism”, a “destination anywhere” approach which follows paths defined from outside without a clear sense of the paramount goal. There is an urgent need for African policymakers and business leaders to set their own far-reaching goals for economic transformation and rally their people behind them.

The stakes are high. Africa’s demographic boom has led to the idea that the 21st is the African century. It could yet be. But a quarter of the way into it, Africa had better hurry up.

Source: The Economist