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African WEF Identifies Five Key Challenges to Growth in the Region

The 25th World Economic Forum Africa found many reason for optimism across the continent, but stressed the need to tackle youth unemployment, armed conflicts, digital disparity, poor infrastructure levels and the growing wealth divide.

Photo: Jacob Zuma, South Africa’s President, at the opening of WEF Africa 2015.
Jacob Zuma, South Africa's President, at the opening of WEF Africa 2015.
Photo: Jacob Zuma, South Africa’s President, at the opening of WEF Africa 2015.
Jacob Zuma, South Africa's President, at the opening of WEF Africa 2015.

Africa is the ultimate paradox. The continent consistently sends out mixed messages. It is home to fast-growing economies, yet is seen as constantly shifting from crisis to crisis.

Sub-Saharan Africa is actually the second-fastest-growing region in the world in economic terms. According to the EY 2015 Africa Attractiveness Survey, launched at the 25th World Economic Forum (WEF) on Africa, in 2014, nine of the world's 15 fastest-growing economies were to be found in Africa. Unsurprisingly, there is also a real appetite to invest in these economies.

Speaking at the WEF Africa conference, Maria Ramos, Chief Executive of Barclays Africa Group, said that Africa's total world trade had more than doubled from 2005 to 2014. In the same period China's trade with Africa also grew, increasing fivefold to US$168 billion.

Despite these positive developments, the perception is that Africa is perennially in a state of crisis. While gains may have been made in terms of stability over the past two decades on the continent, there is still a degree of uncertainty in many countries. Overall, the economic environment is generally improving, but inequality – especially in terms of wealth distribution – continues to impede sustainable development. There is also the growing problem of armed conflicts in a number of African nations.

The WEF's inaugural Africa meeting took place in 1990, the year Nelson Mandela was released from prison. Things looked a lot different then. In line with this, the 25th WEF Africa meeting was themed: Then and Now: Reimagining Africa's Future. According to the organisers, the purpose of the event was to "find ways to enable Africa's markets, marshal its resources and inspire creativity". It was, said Elsie Kanza, Senior Director and Head of Africa for the WEF, "an opportunity to see how far Africa has come economically, socially and politically since 1990".

While there is clearly opportunity, there are also threats. Fittingly then, the WEF conference focussed both on Africa's potential and its development challenges. The panel discussions at the event saw contributions from many of those most directly involved with Africa's development – including representatives from the world of government, business, civil society and academia. Across the many seminars, five key issues emerged that were seen as the development areas the continent needs to prioritise.

1. African Youth: Demographic Dividend or Unemployment Time Bomb?

Africa is the world's youngest continent. WEF Founder and Executive Chairman Klaus Schwab said that, by 2040, 50% of the world's youth (defined by the UN as those aged between 15-24 years) would be in Africa. This represents both an opportunity and a threat to the continent's economic well-being and sustainability. Africa's youth could become either the world's largest productive workforce or its largest unemployed segment. While a larger young population also means more consumers, and therefore more growth, it also necessitates a fast-growing economy and more jobs.

Young people form the largest segment of the unemployed in many African countries. One of the main discussion points at the WEF meeting was Africa's massive youth bulge, how to prepare for it and how to capitalise on it. Speaking at the plenary session, South African President Jacob Zuma said: "Africa's youth have played an important role in shaping the continent. They need to be empowered, and that process must come through education and by growing the economy. We should prepare people now. They should be employed and we should create opportunities for them."

Photo: Motsepe: “Invest in globally competitive skills.”
Motsepe: "Invest in globally competitive skills."
Photo: Motsepe: “Invest in globally competitive skills.”
Motsepe: "Invest in globally competitive skills."

Based on International Labour Organization data, the youth unemployment rate in South Africa alone could be as high as 52%. This severely hampers the country's ability to achieve sustainable growth. Enabling the young and creating sufficient jobs, then, are seen as crucial to the economic and social development of the continent.

How, though, does Africa intend to provide such a large and steadily growing portion of its population with an economic future, ensuring they will be productively employed as the engine of the future economy? Industry and education have a huge role to play in capitalising on the continent's youth dividend. More than anything else, Africa's economies need to create jobs faster than they are currently. The employment challenge points to the need for more innovation in terms of education and training.

Highlighting this need, Patrice Motsepe, Founder and Executive Chairman of African Rainbow Minerals, a South African mining company, said: "Investment is needed in educational outcomes that will produce students and employees with skills that are globally competitive."

Echoing this sentiment, Vice President of Ghana Kwesi Amissah-Arthur said: "There is a need for a different type of education – one that prepares young people with more practical, vocational skills that can meaningfully contribute to Africa's industrialising economies."

This, then, is the pan-African challenge: can governments across the continent grow their economies fast enough to generate new jobs for the human capital of tomorrow? Or will the youth segment merely add to the continent's already large proportion of the unemployed and disenfranchised?

2. Poverty and Inequality: Closing the Economic Gap

There is no doubt that Africa, generally, in recent decades has enjoyed increasing prosperity, fuelled by economic growth (averaging about 5% from 2000 to 2010) and greater levels of democracy. This prosperity, however, only tells part of the story. High levels of inequality have characterised African society for decades and there is still great disparity in wealth distribution. Speaking at the conference, Motsepe said that Africa's economic future must be inclusive and benefit all the inhabitants of the continent – particularly the poor, unemployed and marginalised.

South Africa, a wealthy nation by African standards, is a prime example of this lack of inclusiveness. Since its transition to democracy, much progress has been made in wealth redistribution, but there is still a long way to go in order to achieve economic inclusiveness and wealth parity – particularly across the racial divide. Inequality, as measured by the Gini coefficient, is still very high in Africa. In 2011, the World Bank estimated South Africa as having the highest Gini coefficient in the world.

Mukhisa Kituyi, Secretary-General of the UN Conference on Trade and Development (UNCTAD), said that for African countries to make significant progress in reducing poverty, the continent needs sustained growth rates of at least 7% a year over the medium to long term. The objective of the South African government's ambitious National Development Plan is to end poverty and significantly reduce inequality by 2030. Clearly, South Africa's current pace of growth, at around 2%, is too slow to generate jobs quickly enough to achieve this.

Bringing prosperity to all is not going to be easy and, according to UNCTAD, the Africa Rising story is imperilled by poverty and inequality. At a panel focussed on Meeting the Development Challenge, the consendus was that the sustainable development goals need to be agreed. There has to be a universal set of targets and indicators that will frame the agendas, giving Africa its best chance yet of eradicating poverty.

The EY 2015 Africa Attractiveness Survey concluded that Africa's leaders must make a shift to inclusive, sustainable growth. To bridge the inequality gap, according to the survey, policies must be geared toward an equitable distribution of wealth. The clear implication here is that if extreme poverty is to be alleviated, wealth must not remain in the hands of a small, well-connected political and corporate elite – something for which South Africa, for one, has been increasingly under fire.

3. Infrastructure: Public-Private Co-operation Needed

Poor infrastructure was cited at the WEF as one of the reasons for the high cost of doing business in Africa. It was also seen as a major challenge to Africa's ability to achieve its development agendas and boost its economies. The transport and power infrastructure deficits, in particular, are seen as among the greatest constraints on its economic development.

Infrastructure projects are, at the same time, compelling opportunities for investors where there are limited domestic budgets to fund large capital projects. Simpiwe Tshabalala, Joint Chief Executive Officer of South Africa's Standard Bank Group, believes there are significant investment opportunities in infrastructure in Africa due to the severe lack of adequate roads, ports, airports and other facilities. He said: "We have one of the lowest investment to GDP ratios among the regions. This suggests that there are huge opportunities to execute projects that are developmental in nature, but will remunerate those willing to take risks."

Addressing Africa's US$100 billion-plus annual infrastructure deficit is the goal of the Africa Strategic Infrastructure Initiative. This is a World Economic Forum project aimed at promoting public-private co-operation and identifying solutions to the bottlenecks responsible for the failure of a number of large infrastructure projects in the region.

Nkosazana Dlamini-Zuma is Chair of the African Union. Writing in Reimagining South Africa, a collection of essays published by McKinsey and launched at the WEF, she outlined her vision of a pan-African, Cape to Cairo, continentally integrated, efficient infrastructure system for Africa. Speaking at the WEF, she said: "The transportation sector, with its desperate need for expensive infrastructure, is rife with opportunities. Together we could improve the economic outlook for all by knitting the continent together with ports, highways and railroads, making it more hospitable for African enterprises and multinational corporations."

On another front, unreliable access to electricity was described as the most critical inhibitor to medium-term development in Africa by John Veihmeyer, Global Chairman of KPMG. At the end of 2014, the severity of South Africa's electricity-generation crisis became apparent, further thwarting the country's growth prospects. South Africa's ageing and inefficient power generators were described as "highly unpredictable and volatile" by Brian Molefe, Interim Chief Executive Officer of Eskom Holdings, South Africa's state-owned electricity company, which has introduced rolling blackouts for the indefinite future.

4. Intra-state Conflict and Violence

After the end of the Cold War, during which many African states had become arenas for tension between the superpowers, the level of conflict in Africa declined sharply. Greater political stability, more frequent elections and increasing multiparty democracy throughout the past 25 years or so have all seen levels of conflict generally fall.

According to one South African research organisation – the Institute for Security Studies (ISS) – in recent years, however, and particularly since 2009/10, armed conflict is once again on the rise in Africa. This pattern coincides with the global financial crisis and the war on terror.

The type of conflict is changing, however, and today most armed conflicts in Africa are fought within – rather than between – states. Terror groups, notably Boko Haram and the al-Qaeda-linked al-Shabaab, have capitalised on economic weakness and governance deficits to recruit from marginalised communities. Terrorism has now become Africa's most serious problem.

Photo: Du Plessis: “End all wars in Africa by 2020.”
Du Plessis: "End all wars in Africa by 2020."
Photo: Du Plessis: “End all wars in Africa by 2020.”
Du Plessis: "End all wars in Africa by 2020."

According to ISS data, between 2010 and 2015, approximately 30,000 Africans perished in some 2,000 terrorist acts in 33 African countries. Last year alone saw more than 900 attacks, in which approximately 10,000 people died, making it the deadliest year for terrorism in Africa's recent history.

Anton du Plessis, Managing Director of the ISS, and a counter-terrorism expert, briefed government and business leaders about the trends for conflict and violence in Africa as part of a panel entitled Silencing the Gun. He said: "Some say Africa is the new frontier in the global war on terror. The headline acts are Boko Haram and al-Shabaab, which between them killed 8,000 people last year.

"That, though, is a sideshow compared with the millions of deaths from poor governance and unequal development. Failure of governance is the biggest risk, and the challenge is one of conflict within countries, not between them."

The African Union's lofty goal is to end all wars in Africa by 2020. Du Plessis argued that this noble ambition is likely to remain an unrealistic dream, bearing in mind Africa's current political and development trajectory, with conflict expected to escalate as Africans aspire to greater freedom and democracy.

Du Plessis acknowledged that improved development prospects and more inclusive economic growth will lead to greater stability across the continent, providing less fertile ground for terrorism and organised crime. Despite this, he warned: "Violence will be a feature of Africa's future for many years."

5. Information Technology: Reducing the Online Divide

The enabling effect of technology on economic development is well known. In fact, it has been estimated that access to broadband can increase a country's GDP by 1% a year.

Africa lags behind most of the world, with a fixed-line broadband penetration of just 5.2%. There has been much investment in developing Africa's telecoms infrastructure in recent years, however, there remains a large urban-rural divide in terms of connectivity. The cost of broadband is forecast to come down, though, inevitably allowing greater access to the internet.

The current reality, though, is that millions in Africa still remain without access. It is estimated that 80% of the continent is not connected to the internet, although the figure varies widely between urban and rural areas, as well as from country to country.

Africa has managed to leapfrog fixed-line telephony and most people access the internet via smartphones. According to Informa, a US-based financial research company, more than 90% of Africans rely on mobile devices to connect. The growth in mobile connectivity in Africa has created a platform for digital services, notably mobile finance, e-commerce, and mobile content. The mobile-money sector has benefited from mobile technology, with 12% of adults in the sub-Saharan region having mobile-money accounts.

Many of the professionals attending the WEF felt that there was a need for greater clarity from government as to how they intend to develop telecoms in Africa, with regulations and lack of transparency in the industry proving barriers to growth. African governments, it was said, needed to partner more with business to develop the industry more efficiently.

There is also a need for continued large-scale investment in the telecoms sector in order to meet Africa's development challenges. In South Africa, the Department of Telecommunications views broadband access as a basic necessity – much like a utility. Hlengiwe Mkhize, the country's Deputy Minister of Telecommunications and Postal Services, said her department is aiming to connect 90% of South Africa's population by 2020. Whether the implementation matches this ambitious rhetoric remains to be seen.

The EY 2015 Africa Attractiveness Survey suggests that the Africa Rising phenomenon can't be taken for granted, as the continent has to compete with a number of lower-risk economies that are starting to recover. The survey cautioned that, after two decades of strong economic growth, certain regions in the continent are slowing. This has been caused by various factors – including falling global oil and commodity prices, political instability and the slowdown in China.

In their conclusion, the survey's authors say: "Africa's future will not take care of itself. Africa and its leaders have reached an inflection point." This means that the continent has reached a stage where it needs to change its current trajectory. Its leaders and policymakers need to address the challenges if they want to 'reimagine' Africa's future and make meaningful progress towards inclusive, sustainable growth.

At the WEF meeting, Motsepe said: "Although emboldened with optimism and expectation, we must acknowledge that Africa's continued ascent is neither guaranteed nor inevitable."

Photo: Power vacuum: Koeberg, South Africa’s only nuclear power station.
Power vacuum: Koeberg, South Africa's only nuclear power station.
Photo: Power vacuum: Koeberg, South Africa’s only nuclear power station.
Power vacuum: Koeberg, South Africa's only nuclear power station.

The 25th World Economic Forum on Africa, 3-5 June, Cape Town, was attended by 1,250 leaders from the business community, politics, civil society and government, making it the largest meeting held by the WEF in Africa.

Mark Ronan, Special Correspondent, Cape Town

Content provided by Picture: HKTDC Research
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