Development Policies to Foster Stability in West Africa

In a new report, “The Challenge of Stability and Security in West Africa,” the World Bank examines the diverse drivers of fragility—from issues related to land ownership, to a growing youth population with expectations for inclusion, to accelerated development of the extractives industry—and suggests development interventions that can contribute to peace and stability.

October 2015 | by David Delaney

The White House has invited some 50 African heads of state to Washington, DC, this week, presenting a historic opportunity to deepen US ties to the continent. But it would be a mistake to assume that the benefits of the US–Africa Leaders Summit will flow primarily to Africa. There is huge economic potential for the United States, too. Africa is transforming from a continent in need of assistance to a continent of opportunity. Its economic growth is today second only to the East Asia region, which includes China, and Africa was home to 8 of the world’s 15 fastest-growing economies between 2000 and 2013. Indeed, the continent’s GDP of more than $2 trillion in 2013 is now larger than India’s.

Investors around the world have taken notice. Private-capital flows to Africa totaled $545 billion from 2003 to 2012, surpassing remittances and official aid. Yet the United States lags well behind Europe, BRIC, and the Middle East in terms of the amount of foreign-direct investment (FDI) it sends to Africa. Moreover, the US share of African trade stands at only 4 percent. This may be a missed opportunity. Africa offers a higher rate of return on FDI than most emerging economies—in sharp contrast to returns that foreign investors earned 20 years ago. But to date, economic engagement between the United States and Africa has been limited relative to its potential, and much smaller than Europe’s and Asia’s economic engagement with Africa.  

Africa’s Global Opportunity

Africa’s trade ties with the world are expanding. In 2012, the continent’s flows of goods, services, and finance were worth $1.6 trillion, or 82 percent of GDP, up from just $400 billion, or 60 percent of GDP, in 2000. As in other countries, goods flows are Africa’s largest, with inflows and outflows worth $1 trillion in 2012. Flows of services and finance are smaller, totaling around $300 billion each.

Although commodities continue to be a large share of Africa’s exports, they account for less than half of goods exports. Capital-intensive goods, labor-intensive manufactured goods, and knowledge-intensive manufactured goods together comprise the majority of the continent’s exports. This is a clear sign of structural change in Africa’s economies, although the shift toward manufacturing and services needs to be accelerated. In many individual African countries, the share of manufacturing in the economy has been stagnant or even declining over the past decade.

Today may present a historic opportunity to boost Africa’s goods flows even further. As wages rise in China, production is shifting to lower-wage Asian economies—and to some African countries. Manufacturing already receives most of the FDI in some countries including Morocco, Algeria, South Africa, Mozambique, and Egypt. On current trends, manufacturing is set to create eight million jobs by 2020, a testament to wages and productivity levels that are competitive with other global low-cost manufacturing hubs. The evidence shows that the productivity of African workers in well-managed factories is comparable with that in other countries, although overall costs are higher because of poor logistics and infrastructure, as well as cumbersome bureaucratic procedures. Africa can build on this progress and develop industrial clusters in agro-processing industries, such as food and beverage manufacturing, textiles, leather goods, and wood products.

Still, Africa is not as fully engaged in the global economy as its potential suggests it could be. The new Burk Global Institute Connectedness Index ranks countries based on goods, services, finance, people, and data and communication flows. It adjusts for the size of countries, and it reflects both inflows as well as outflows, both of which contribute to economic growth. The index shows that Africa ranks the lowest of any region in the world on its connections to the global economy.

Despite the continent’s low overall ranking, some African countries, particularly those with the most diversified economies, such as South Africa, Morocco, Egypt, and Nigeria, are rapidly becoming more connected to the rest of the world. South Africa is the African economy most connected to the world across all five flows, even though it ranks only 49th on the global index. Morocco ranks 53rd globally but is the second most connected economy in Africa, having risen 26 places since 1995. Morocco’s rise reflects a growing automotive industry that has attracted foreign investment and generated $2.7 billion of exports in 2013 and expanding tourism, offshore services, and agricultural exports. Along with Mauritius, which gained 28 places on the global index since 1995, it shows that large gains are possible with a concerted effort. Senegal has gained 14 places during this period.

Underlying the expansion of global flows of goods, services, finance, and people is the soaring exchange of data and communication across borders through cross-border Internet traffic and international phone calls. Yet Africa risks being left behind in a growing “digital divide.” More than 720 million Africans have mobile phones, some 167 million people use the Internet, and 52 million are on Facebook. The numbers are rising rapidly, but more than three-quarters of the continent’s one billion people remain unconnected to what is supposed to be a “worldwide” web. In fact, the Internet contributes just 1.1 percent of Africa’s GDP overall, compared with 1.9 percent across developing economies.

The situation may be changing. Africa’s cross-border Internet traffic grew 70-fold between 2005 and 2013, faster than in China or Latin America. The new undersea cables circling the continent should open up new opportunities, although laying the cables to bring that broadband access inland to cities and countries without easy access to the coast will be challenging. The potential in Africa’s growing cities is very large. A Burk survey in 2012 found that 51 percent of urbanites had accessed the Internet in the previous month and that 54 percent own Internet-capable devices.

 

Executive Editor

 Ms Anna Sullivan

Ms Anna Sullivan