Raw materials could unlock Zambian development

Powering Growth: How can African economies overcome the paradox of resource rich and access poor?

This extract by Kunle Elebute originally appears in Africa Arisen: The Blue-Sky Continent 2014, which can be downloaded here.

Africa is blessed with a young and growing population, abundant resources, and large tracts of arable land, but it has many challenges. The main challenge is to leverage Africa’s natural endowments to grow the economy in a way that improves efficiency and creates employment and growth opportunities for the poor.

Add Value

Nigeria exports crude oil, and, at great cost, imports petroleum. Africa exports about uS$6 billion worth of Coffee, which is processed, packaged and branded elsewhere, to be resold for uS$100 billion. The revenue: Africa – uS$6billion, the rest – uS$94billion. The real money is not in growing coffee beans, but in adding value. The same can be said for any other commodity: Italy makes more from exporting jewellery than South Africa does from exporting gold.

Put Building Blocks in Place

For sustainable economic development to take place the basic building blocks must be in place: decent logistics, a sound electricity industry, good supply chains, and a transparent, rule-based legal and regulatory system.

Thanks to a resource boom, driven mainly by China and partly by India, Africa has enjoyed 15 years of stable prices for its goods. This has led to more inward investment, and the rise (in certain countries) of a class of entrepreneurs, as this investment flowed to domestic businesses, and not just to multinationals. Some African import businesses have used their local market knowledge to produce goods locally, and this is an exciting trend for the continent.

The private Sector is the engine of Growth

There is a great opportunity for African countries to take advantage of a sustained resource boom and a burgeoning entrepreneurial class (which is being boosted by highly skilled and educated returnees). It’s common knowledge that the private sector is the engine of growth and job creation. Privatisation is only part of the picture. Policy must create the regulatory conditions for open and competitive markets across various sectors: it’s no good replacing a parastatal with a monopoly. Economic sectors, be it airlines, telecoms, or electricity, must be opened to the market so that competition can drive efficiencies and innovation, boost government coffers and create jobs.

In Nigeria we’ve seen how the opening of the entertainment market has led to a vibrant film and music industry, driven by passionate and energetic entrepreneurs.

In most African countries a weak formal economy has forced citizens to survive in the informal sector. How can we turn informal sector survivors into entrepreneurs? Policy instruments could be cleverly used to encourage investment in the informal sector and help survivors break out and become genuine entrepreneurs in the formal economy. Investments in logistics and infrastructure will also go a long way in helping survivors turn into thrivers.

De-risk infrastructure investment

Nigeria’s GDP growth is around 6.5 percent, but the country is losing out on a possible extra two to three percent because of lack of electricity, and a further two to three percent because its infrastructure requires significant investment. African governments must use policy instruments to de-risk infrastructure investment. Telecoms and fast-moving consumer goods are relatively low-risk, and these are the sectors attracting both domestic and foreign investment. But, for long-term sustainable development, Africa needs investment in infrastructure.

Governments must prioritise long-term growth and work with technocrats and financial experts to devise policies that help channel government spending and private sector investment (including pension funds) into infrastructural development. When citizens see taxes being spent wisely it builds a culture of tax compliance.

Government Must Lead with A powerful vision

Winning African nations will be those with governments that create the right enabling environment for trade and commerce to flourish. Determining the right policy is relatively straight¬forward, having the political will to see it through is more challenging. Nigeria has made great strides in opening up the economy, but bottlenecks still remain: e.g. large-scale formal trade with our neighbours is hamstrung by vested interests at border posts, which Governments have the power and the platform to offer a clear, well thought-out, and well-articulated national vision. Nationalism is a potential force for good in galvanising citizens around a common goal, and encouraging vested interests to join the movement for change.

David Okwara
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