WEF Africa_Schwab and ZumaMay 8 to 10 marks the annual summit on Africa hosted by the World Economic Forum, in Cape Town. I will attend, and participate in several interesting sessions covering inter alia the G20; the role of think tanks in Africa; and regional economic integration. But what to expect from the overall summit?

The forum posted this paragraph as the ‘teaser’ whereby it sets the summit agenda:

With an expected annual growth of 5% in 2012-2013, sub-Saharan Africa continues its transformative journey from a developing continent to a hub of global growth. According to the World Bank, almost half of Africa’s countries have attained middle-income status. At the same time, the continent’s positive outlook is threatened by fluctuating commodity prices, rising inequality and youth unemployment. To build on its achievements, Africa’s leaders need to strengthen the continent’s competitiveness, foster inclusive growth and build resilience in a volatile global environment. Accelerating economic diversification, boosting strategic infrastructure and unlocking talent are critical success factors in this new leadership context.

The first part of the paragraph reflects the ‘Africa hype’ phenomenon seen in recent years in the wake of the developed world’s ongoing economic crisis. There is no doubt that economic growth rates, on aggregate, are high across the sub-continent, but I seriously doubt that we are on our way to being a ‘hub for global growth’. Furthermore, these growth rates are generally from low bases so that it will take decades of sustained rapid growth in those economies for real development gains to be made. The claim that almost half of Africa’s economies have attained middle income status is difficult to sustain in light of the evident development challenges that many countries face. This claim extends to the likes of Sudan and Angola for example – countries with major oil export industries that greatly inflate the per capita income statistics on the basis of which middle income status is based. So while  urban populations are undoubtedly growing rapidly, they remain on the whole poor, and their medium term income prospects are not great. Hence the cautionary note sounded in the WEF’s blurb is appropriate.

Similarly, those relatively rapid growth rates are still driven primarily by commodity exports, and favourable terms of trade driven by Chinese demand in particular. Yet Chinese economic growth is entering a new, structurally lower pattern as the historic rebalancing away from the current export-driven manufacturing growth path intensifies in favour of domestic consumption that is more ecologically friendly. European demand will stay structurally repressed for the foreseeable future, leaving the US economy to pick up the inevitable slack. While I have some faith that US demand will recover, it is not likely to attain pre-crisis levels in the short to medium term. Therefore it is just a matter of time before the commodities ‘super cycle’ moderates with attendant implications for sub-Saharan growth rates.

Once growth rates shift into a structurally lower pattern, domestic political strife will intensify across the sub-continent. Already we have seen a significant surge in civil strife, afflicting West, Central, and to some extent East Africa. Mali, the Central African Republic, the eastern part of the Democratic Republic of the Congo, and the horn of Africa seem to be embroiled in endemic conflicts. These are likely to intensify and spill over into neighbouring states, adding to often fragile domestic political situations. Some key states also face leadership transitions and elections that will be keenly contested, with unpredictable results: Nigeria, Uganda, and Rwanda come to mind. Partly for these reasons the African Union, in collaboration with the United Nations, is actively intervening in key crisis zones through deploying peace enforcement missions. The next few years will provide some stern tests of African and global leaders’ will to manage chronic conflicts.

North Africa also faces ongoing political and economic turmoil in the wake of the Arab Spring, which has hobbled the sub-region’s most significant economy – Egypt – for the foreseeable future. Many south of the Sahara worry that continued instability to the north will destabilise regions closest to the locus of Arab Spring instability. The Malian situation, and the recent coup in the Central African Republic, for example, are attributed by some to the exodus of armed groups and weapons from Libya into the desert in the wake of Gadaffi’s fall.

For all these reasons and more economic diversification remains a key imperative. But how can weak and fragile states pursue these strategies? All too often import-substitution is the default choice, but it is a misguided one in my view. A far better bet would be to pursue integration into global or regional value chain networks operated by multinational companies. However, this is at best a medium-term proposition, and will depend substantially on reducing a host of transactions costs on region-wide bases, not raising transactions costs through throwing up barriers to imports. A crucial supplement will be to build meaningful regional economic communities, something with which the continent has had rather poor results on the whole, with the substantial exception of the East African Community.

So the WEF blurb seems to me to be spot on. In fact it rhymes closely with a recent guardedly optimistic assessment of the continent’s prospects by a formerly fierce critic and author of a widely cited report titled ‘The Hopeless Continent’: The Economist. Hopefully the discussions inside the WEF’s summit centre will rise to the occasion. And even more hopefully perhaps African leaders will grasp the collective nettle, roll up their sleeves, and get stuck into a very daunting agenda.

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