Bulls n Bears Entrepreneurship Zone :: Antonio Pedro: Five roots to Central Africa’s industrialisation

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Four years after the oil boom ended and Central African countries faced a
sudden reverse in their fortunes from the strong growth of the early 2000s,
the subsequent oil glut and nose-dive of commodity prices have left a bitter
taste of over-dependence on oil and other extractive industries in the
mouths of many people in Central Africa.

The challenges are real because unfortunately, countries in Central Africa,
as producers of unprocessed raw materials, are perennially exposed to
external shocks and locked in the lower end of global value chains, as many
higher-value activities are carried out elsewhere. The extractive industries
in the sub-region remain, in general, enclaves with inadequate linkages with
the local economy. Macro-economy instability has become a reality.

Meanwhile, Central Africa needs to tackle many other pressing issues, such
as high unemployment and inequality, to name just a few. It is no wonder
therefore that most of the countries in Central Africa currently receive or
seek budget support from the IMF, sometimes referred to as the ‘lender of
last resort’. These support packages will require tough decisions from our
member States to get Central African countries back on their feet.

Some argue that the solution is simply to impose fiscal discipline, cut
expenditures, address policy failures, strengthen the rule of law, reduce
red tape, curb corruption and other dysfunctionalities, as well as eliminate
market failures and inefficiencies that are hindering progress. We don’t
dispute these stabilisation measures. In fact, we could add more of our own
to the menu, including the need to close loopholes in existing contracts,
improve tax administration and enlarge the tax base, fight illicit financial
flows, and use incentives wisely. But all of these measures would not mask
the fact that sufficient fiscal space needs to be maintained for longer-term
high-yielding investments to boost productive capabilities, enhance the
competitiveness of local economies and foster structural transformation.
While the current focus on short-term measures to restore macro-economic
stability is of course understandable, it is equally important to continue
investing in sustainable growth and structural transformation to enable the
sub-region to break the cycle of booms and busts and reduce their
vulnerability and exposure to commodity price fluctuations.

The good news is that it is nowadays hard to find anyone who disagrees on
structural transformation as the way out. Economic diversification in
general and industrialisation, in particular, have proven to be the success
formulae for countries as diverse as South Korea, Thailand, Qatar, Ireland,
Estonia, and indeed pretty much every country that has managed to
successfully transform their economy and provide a high level of development
and quality of life for their citizens. Investment opportunities for
industrialisation are widespread, and the opportunities are enormous in this
sub-region, which not only boasts fantastic natural riches but also a young
and highly educated workforce. The bad news, though, is that countries are
faced with a vexed problem: debt stress looms large but current investment
levels in Central Africa fall far short of what is needed for meaningful
industrialisation to take place and to drive sustainable growth. So, who is
going to cover these gaps? What should the region do? We offer five roots to
addressing the problem.


Root one: Make it jobs, jobs, jobs


Investment in industrialisation (and in extension, economic
diversification) creates a lot of jobs, and good ones too. At a time where
unemployment levels among youths are as high as one in five (Angola, Congo)
to even more than one in three in Gabon, there is an urgent need for public
investment in areas as diverse as infrastructure, education and healthcare
and public support for sectors such as financial services, transportation,
tourism, ICT and smart industries, that have the potential to lead the way
towards private sector driven growth. The high-quality jobs that will be
created through this investment will help Central Africa’s young and
ambitious population to grow and contribute to future growth.


Root two: Harness the power of big city life


Central Africa’s cities are growing at break-neck speed as more and more
people move from their villages to the already overcrowded urban centres in
the hope of finding a decent job and a better quality of life. While this
rapid urbanisation comes with a lot of challenges, such as congested
infrastructure, societal pressures and the ageing of the rural areas, it
also presents unique opportunities for knowledge spill-overs, as new movers
learn from existing populations and vice versa, and provides a great testing
ground for young entrepreneurs. It is, of course, no coincidence that
innovative startups and creative industries tend to be found close to urban
hubs, where the dynamism of the city life provides both a steady supply of
talent and a continuous flow of ideas and inspiration. Meanwhile, the
reduced competition for the remaining farmers in rural areas may give them
some breathing space, allowing them to scale-up and specialise their trade
in higher-yielding niches (such as in organic agricultural produce). Public
and private investment in industrialisation can give direction to this
otherwise unconstrained process, while managing the negative consequences
thereof.


Root three: Push Africa’s integration


You can see the continuous integration of Africa everywhere. Not just in
the newspapers, as high-profile events such as the recent signing of the
instruments of the African Continental Free Trade Area (AfCFTA) in Kigali
dominate the headlines, but also in our everyday lives, as we connect with
family and friends all over the continent. Regional integration comes in
many flavours, and industrialisation is going to take an enormous boost from
the increased connectedness and overtures for trade in industrially produced
goods and high-level services. Think visa-free travel, free roaming,
studying abroad, and doing business with people all over Africa as easy as
you would back home. It is now up to national policy makers in Central
African countries to quickly align their national visions with the
instruments of regional integration, by starting first with a full
operationalisation of the ECCAS-CEMAC harmonised preferential tariff, then
moving toward continental integration instruments. More countries in Central
Africa should emulate Chad and ratify the AfCFTA. It makes business sense as
any project that wants to locate in Central Africa would see its
fundamentals strengthen with the prospect of a market of 1.2 billion people
now and 2.5 billion in 2050. That’s China and India combined. These numbers
will begin to make a real difference when the right environment is created
to harness all the creative potential of the entire African continent and
the consumer-driven growth it can sustain.


Root four: Go green


We are Central Africa. We host unique biodiversity stocks and incredible
natural riches. Those need to be protected. So, as we think
industrialisation, we should think green. As such, industrialisation and
economic diversification will not only create high-quality jobs and
contribute to urbanisation and regional integration but also reduce the
dependency of Central African economies on oil and other extractive
industries, thus contributing to a cleaner growth path. Policy makers should
identify the sectors that have the greatest potential to create jobs and
promote the competitiveness of their economies while limiting the strain on
both the invaluable human and the natural riches of the sub-region. By the
way, this would be a smart move because socially responsible investors, more
particularly the so-called ethical, impact and/or positive investors,
including pension funds, mutual funds, faith-based organisations and other
institutional investors are increasingly looking for green projects.


Root five: Widen the net


Should we rejoice with the announcements made in Beijing about the
availability of US$60bn to invest in Africa in the next three years? Should
we look with hope to the EU’s new External Investment Plan and its quest to
foster industrialisation in Africa as a means to creating more jobs for our
youth? Yes and no. Of course, these are opportunities not to be missed and
we should do our homework to get the most out of it. But our financial needs
go beyond what we could possibly get from these great outside investors.
While foreign investment in infrastructure and other requirements for
industrialisation is indeed very welcome, the current levels of investment
still fall far short of what are needed for our economies to fully realise
their potential. Africa’s infrastructure funding gap alone has already been
put at $130bn-$170bn a year.

We are told that there is enough money in the world to finance development.
Indeed, institutional investors (including pension funds) and commercial
banks manage more than $100tn, some of which is patient money looking for
high-yielding long-term investment opportunities. We need to be able to
access these resources as fast as we can. The basics must be right: good and
credible bankable projects are needed to crowd in finance.

We also need to improve domestic resource mobilisation and encourage our
citizens from within and in the diaspora to channel their savings into
productive investments. Our capital markets need to grow and we need to be
able to offer other simple and attractive financial products to our
citizens. It is a future we need to build. The rate of subscription of Kenya
first infrastructure bond shows that this is not an impossible proposition.
We can do it in Central Africa too.—Howwemadeitinafrica 

 

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