Global capital and young workers can power transition in Africa
We’ll send you a myFT Daily Digest email rounding up the latest African economy news every morning.
Africa has a huge and rapidly expanding young workforce. And those young workers need productive jobs.
We know what is needed to generate these jobs: enterprise. Not informal microenterprises, such as smallholder farms. It is organisations with enough formal structure to raise finance for investment, and sufficient managerial competence to reap the productivity gains from scale and specialisation.
Yet Africa is desperately short of such organisations. They exist in Europe, North America and China, where workforces are ageing and shrinking. Meanwhile, the young workers with the energy and appetite for adapting to new technologies are in Africa.
For decades, African leaders kept their countries trapped in the slow lane, building networks around patronage. Many businesses that entered Africa in these conditions bribed their way into local monopolies and contrived to take the resulting high profits out of the continent. Once expectations become anchored around patronage and privilege, they become self-fulfilling.
Breaking free of these expectations is challenging. But, recently, a few governments have done so. There are influential models of successful transitions, such as the transformation of Singapore under its long-serving first prime minister Lee Kuan Yew, who jailed corrupt colleagues to make change credible.
But Africa today is different to Singapore of the 1960s.
The government of landlocked Rwanda, for example, crafted an ingenious pathway around tourism: high-quality short holidays piggybacked on attending conferences. Rwanda is now the third-most popular destination in Africa for conferences — and tourism is job-intensive. An equivalent pathway for Ghana, coastal and resource-rich, will exploit different opportunities.
These transitions offer huge long-term potential for international business. Their success is also existentially important for the west to deflect African governments from alternative options.
But transitions are precarious. Once Covid-19 hit, Rwanda closed its borders. It contained the spread of the virus and ensured that more than 60 per cent of its population of 13mn are vaccinated — on a par with European levels. The country has since reopened and aims to double tourism receipts to $800mn by 2024. However, the shock illustrates that transitions need underpinning.
Rwanda’s airline, hotels, game parks and other businesses faced the same financial stresses as those in advanced economies. Affluent governments provided huge fiscal support for their businesses. Now, as Covid recedes, the patterns of demand and costs have so changed that some companies will close. But, having preserved the organisational capacity of business, other enterprises will be well-positioned to grow, helping to offset job losses.
Transitions in Africa required fiscal support from the international community to enable governments to provide similar assistance. The need for such support remains acute: they are short of private sector organisational capital and can ill-afford Covid-inflicted bankruptcies. Yet, during the pandemic, this capital was not sufficiently forthcoming.
In the wake of Covid disruption, business opportunities are becoming apparent around the world: some businesses should be allowed to close, but many should be financed to survive, and others marked for rapid expansion.
Providing similar assistance for African transitions is a massive global public good: they need support to enable them to become the role models that will inspire other countries.
Fortunately, there is a way of linking the fiscal resources of affluent governments with many of those businesses in Africa which, in the global public interest, they should be financing. The money involved would be trivial both absolutely and relative to the likely pay-off.
Between them, the governments of affluent countries own about 40 development finance institutions, most doing business with African enterprises. If they pooled information, they could rapidly estimate the total cost of the necessary support and report it publicly to the G20, the international financial institutions, and the African Union. A coalition of willing states could commit to share the modest sums involved.
This would set a precedent: African transitions would be safeguarded against derailments beyond domestic control. This would make the continent more appealing to global investors and help prime it for growth.
Paul Collier is Professor of Economics and Public Policy at the Blavatnik School of Government, Oxford university, and a director of the International Growth Centre