INSIGHTS & IDEAS

Transforming Africa for a Safer and More Sustainable Future

March 13, 2023
This article was originally published as a chapter in the following publication: Sonobe, T., N. J. A. Buchoud, R. Akbar, R. M. Qibthiyyah, and B. Altansukh, eds. 2023. A World in Crisis, a World in Progress: Growing Better Together. Tokyo: Asian Development Bank Institute.
Despite episodes of rapid GDP growth, most African countries have failed to achieve economic transformation since gaining independence. Overall, African economies have not developed strong manufacturing industries, instead becoming dependent on the extractive or low-productivity services and agriculture sectors. According to the African Center for Economic Transformation’s (ACET) framework of economic transformation—defined as “Growth with DEPTH”—they have neglected to improve their economies, based on the following indicators: diversification, export competitiveness, productivity increases, technological upgrading, and human well-being. This has left them vulnerable to sudden economic shocks and commodity price downturns.

This lack of resilience is a fundamental weakness that has harmed the historical development trajectory of many African countries; it is threatening the continent’s economic future and the well-being of its people. African countries are ill-prepared to face the current multitude of global political, financial, climate, and economic crises. At the same time, poverty reduction and progress towards the Sustainable Development Goals (SDGs) have been slow, and without radical change, it is very likely that the SDG target to eradicate poverty by 2030 will be missed.

Business-as-usual will not only leave the African continent poorer and less resilient, it also poses significant risks to global efforts to build a safer and more sustainable future. With Africa’s population set to increase from 16% of the world’s population to 26% by 2050 and 40% by 2100, as well as accounting for 42% of the world’s youth by 2030, the global community needs to prioritize support for Africa’s economic transformation to realize its ambition for a safer and sustainable global economy.

Africa’s economic interests have been poorly represented in global economic fora. This is certainly the case with the Group of Twenty (G20), where, apart from a few significant initiatives such as the “Compact with Africa” and some coronavirus disease (COVID-19) support programs, the forum has failed to provide Africa with the kind of support it needs to achieve economic transformation. To secure a safer and more sustainable future for Africa, the G20 needs to take Africa’s transformation seriously. Aside from greater African inclusion and representation, this will require support for major reforms to the global financial architecture, a just energy transition for Africa, and the development and implementation of transformation agendas for resilience and sustainability.

Africa’s Economic Transformation Journey

The African Transformation Index (ATI) quantifies Africa’s economic transformation trajectory. The ATI is rooted in ACET’s “Growth with DEPTH” framework, which defines economic transformation as economic growth combined with improvements in diversification, export competitiveness, productivity increases, technological upgrading, and human well-being (i.e., DEPTH). Within this framework, diversification of production and exports means countries must diversify their production and export base to hedge against internal and external shocks. Increased export competitiveness means countries should have export products that can compete with the best globally and regionally. Productivity increases and technological upgrading on the farm, in manufacturing, and in services will allow countries to create wealth. Finally, human well-being can be brought about by expanding formal employment and raising incomes.

The ATI measures progress across all dimensions of DEPTH on a scale of 0–100. The aggregate ATI score for Africa combines all five DEPTH indicators and measures the average for 30 countries on the continent. This aggregate ATI score has never exceeded 40, and after trending upwards during a period of high GDP growth in the early 2000s, it has mostly stagnated over the past decade (Figure 15.1).

The ATI score trend for the period 2000–2020 highlights a pattern in African economic development that has persisted for many decades. Since independence, many African economies have experienced countless cycles of development booms and busts. Growth has been largely erratic, rising to 5% or more for a few years and then fizzling out or dropping substantially. In the most recent episode of this cycle, illustrated in Figure 15.1, the continent experienced its longest period of growth acceleration, lasting from the early 2000s until 2007 when the global financial crisis kicked in.

During that period, many African countries were growing faster than they had in the previous four decades, and faster than most other countries around the world. Six of the world’s 10 fastest-growing countries—Angola, Nigeria, Ethiopia, Chad, Mozambique, and Rwanda—were in Sub-Saharan Africa (ACET 2014). And in stark contrast to the continent’s development in the 1980s and 1990s, there were considerable improvements in governance and incomes. Africa’s impressive growth performance during this period enabled countries to make positive progress in the fight against poverty and allowed for the emergence of a middle class. The continent appeared to be on track to replicate the economic success of the “Asian Tigers”, leading to the emergence of the “Africa Rising” narrative.

However, just as this narrative reached its peak, the 2008 global financial crisis struck, subduing consumer and investment demand and resulting in a global slowdown. The prolonged effects of the global financial crisis and the commodity price bust which ensued between 2013 and 2016 had a severe impact on African development. The continent’s growth, which had been buoyed primarily by high commodity prices, buckled once again. Since the end of the commodity super-cycle in 2014-2015, the continent’s economic transformation journey has mostly regressed or stagnated, and much of the progress made in the previous decade has been wiped out. The pace of economic transformation during this period was not fast enough to create the number of productive jobs needed to address the problem of unemployment and significantly reduce poverty.

Today, African countries face a multitude of economic and social challenges that have threatened sustained growth and exposed structural weaknesses and a lack of resilience in most African economies. Economic challenges are fueled by macroeconomic imbalances, political instability, and the socioeconomic impact of COVID-19 and the Russian Federation-Ukraine war. The anticipated strong rebound of African economies from the pandemic has been foiled by domestic price pressures caused by the ongoing Russian Federation-Ukraine war, which has led to major fuel and food price hikes (World Bank 2022). The war is also upending global efforts to resolve the broken development finance landscape, with resources that could be channeled to help developing countries bounce back from the COVID-19 crisis being allocated to the war.

Fiscal deficits remain high in the continent, and public debts are rising. At least 48% of African countries have debt-to-GDP ratios above 70% and a few are at risk of default. Furthermore, low levels of domestic revenue mobilization and high import dependency threaten macroeconomic stability and dampen transformation prospects. Alongside these challenges, increasing joblessness has led to high levels of youth unemployment and underemployment, threatening peace and social stability. Climate change has had a negative impact on natural resources, such as land and water, which are critical to people’s lives and livelihoods. Scarce resources and poverty have led to conflicts that threaten the realization of a safer future for the continent. Conflict also remains one of Africa’s biggest challenges, ravaging the lives of tens of thousands of people and displacing millions annually and severely damaging the prospects of social and economic development.

As African countries seek to address these urgent imminent and long-term economic and social challenges, it is crucial not to lose sight of the underlying structural factors that have left the countries so vulnerable to these shocks. Building resilience will require African countries and international partners to look beyond crises and develop and implement agendas for economic transformation.

The G20 and Africa

Since its formation in 1999, the G20 has consistently renewed its commitment to sustained growth through its annual summits. G20 deliberations, actions, and plans have been widely consistent with the Millennium Development Goals (MDGs) and the Sustainable Development Goals (SDGs). Due to its size, flexibility, and coverage, the group remains one of the most distinguished and influential platforms for deliberating and acting swiftly on solutions to emerging global issues. Prior to 2016, Africa’s development had been peripheral in the deliberations and commitments of the group. There were no established working groups with a focus on African development or Africa in general and very little effort had been made to integrate African viewpoints within the forum (Hallink 2016).

It is therefore not surprising that between 2009 and 2016, the G20 adopted only 34 commitments on Africa — 47% of which focused on official development assistance (ODA) commitments to meet development goals (Hallink 2017). Most of these commitments focused on delivering a fair and sustainable global recovery and helping Africa realize the MDGs by honoring commitments on aid for trade and debt relief. The 2010 summit, for example, focused mostly on replenishment for concessional lending facilities of the multilateral development banks (MDBs), especially the World Bank and the African Development Bank. Some critics have noted that the G20’s failure to clearly define a set of desired outcomes for the continent has made the platform ineffective in holding its members to account (Hallink 2016).

The G20’s proactiveness toward Africa only evolved in 2016 under the People’s Republic of China’s presidency when the group committed to supporting industrialization in Africa. Since then, a raft of commitments and initiatives have been rolled out to foster a more inclusive partnership between the G20 and Africa. Under the G20’s Finance Track, in 2017 the Compact with Africa (CwA) program was launched to drive sustainable development in selected reform-minded African countries by boosting private investment and increasing the provision of infrastructure through macroeconomic, business, and financing frameworks. Since its launch, 12 African countries have joined the initiative. An Africa Advisory Group (AAG), co-chaired by South Africa and Germany, was constituted to drive policy actions under the CwA framework.

The CwA represents the most ambitious undertaking by the G20 for a renewed and enhanced partnership between the G20 and Africa. The program promises opportunities for channeling investment into critical sectors of the economies of participating African countries. While the program has had some successes, there are concerns that there has been little progress on private sector investment. Outside Germany and France, there also seems to be less engagement from other G20 countries in driving private investment. Furthermore, critics state that the program is not comprehensive enough to contribute effectively to the continent’s development challenges. The German Institute for Global and Area Studies (GIGA) notes that the CwA fails to address three critical development issues: (i) human capital development through education; (ii) social and environmental
risks associated with private investment; and (iii) the G20 members’ role in the uncertain and unfair trade and investment policy regimes that harm investment in Africa (Lay 2017).

Aside from the CwA, the other major recent G20 activity related to Africa took place at the height of the COVID-19 pandemic, when the G20 introduced the Debt Service Suspension Initiative (DSSI), which instituted a moratorium on debt service for developing countries. About 30 sovereign sub-Saharan Africa countries—that is, 80% of eligible countries in the region—participated in the DSSI, thereby enabling them to channel resources towards fighting the pandemic and safeguarding lives and livelihoods. In October 2021, the G20 pledged to recycle $100 billion worth of Special Drawing Rights from members to vulnerable low-income and lower-middle-income countries, most of which are in the African continent.

Beyond the CwA and the DSSI, a number of the key challenges being navigated by African countries have not been prioritized at G20 forums. Major global forces operating today that will significantly impact the future of the continent like water scarcity, food security, urbanization, population growth and demographic change, conflicts and migration, regional integration, and the shifting trade and production patterns that have limited participation of African small and medium-sized enterprises have been neglected or undervalued at the summits. Also, issues around green manufacturing and digital infrastructure have barely been explored. The G20 has mostly dealt with these issues at the global level, but the nature and impact of these global forces in Africa differ significantly from the rest of the world and deserve special attention.

The Way Forward

Governments, private firms, workers, the media, civil society, and development partners all have mutually reinforcing roles in building a safer and more sustainable future. The G20, in particular, could do more to safeguard the process of building a safer and sustainable future for the African continent by undertaking the following.

Giving Africa more representation to ensure that the African agenda and African interests are always represented. This could be done by increasing the representation of the continent to include Nigeria (the most populous country on the continent) and giving special privileges to allow the representatives of the continent to participate in in G20 technical meetings and not just the plenaries.

Supporting a comprehensive African transformation agenda for resilience and sustainability. While it is crucial to deal with the immediacy of COVID-19-related financial and health crises, it is also crucial to deal with the long-term structural challenges of transformation and resilience—which has long threatened the sustained growth of many African economies. Growth with DEPTH is the new paradigm for a safer and sustainable future. Comprehensive transformation plans should have a unified national vision developed through broad consultations with the private sector, civil society, and think tanks, and have the capacity to transcend political administrations. Supporting a comprehensive African transformation agenda will also allow the G20 to develop a medium- to long-term strategy for Africa.

Supporting green growth and a just energy transition. Africa has contributed to less than 4% of total global greenhouse gas emissions (GHGs) and is the most vulnerable continent in terms of the impacts of climate change. However, the region receives under 4% of global climate finance, mostly in the form of loans, with more of these funds directed at climate mitigation as opposed to climate adaptation (Savvidou et al. 2021). The G20 can support green growth and a just transition on the continent by improving energy access by helping utilities address operational and financial challenges, such as rehabilitating and expanding national transmission networks and undertaking institutional and policy reforms to attract private investment. It can also help by improving regional integrated electricity markets through power pools to facilitate trade across different countries. Finally, it could help accelerate the roll-out of renewable energy technologies across the continent. This includes technology transfers to manufacture solar panels and batteries at selected regional centers (Asafu-Adjaye 2022).

Supporting the emergence of a fairer global finance architecture that can support sustainable development financing. Africa’s SDGs financing needs are huge and estimated at about 11% of GDP per annum to 2030, with incremental financing needs estimated at between $614 billion and $638 billion annually (UNECA 2019). The current development finance architecture is broken. It neither caters to the needs of lower middle-class economies nor accommodates the nuances in the operations of recent numerous private creditors, high cost of debt, short maturity periods, and unfair credit ratings that often lead to unsustainable debt (Owusu-Gyamfi and Commodore 2021). To mitigate high debt resolution costs, we support calls by the institutions like Brookings for the G20 to lead efforts to design a new development finance framework that is fit-for-purpose and contains the plurality and diversity of all creditors (Heitzig, Ordu, and Senbet 2021). We also support the call by the Bridgetown Initiative to reform the Common Framework and revamp the DSSI to facilitate systematic debt service suspension from other creditors and borrowers, including MDBs, and middle-income countries who risk defaulting. The G20 will need to heighten efforts to ensure full participation of all creditors,
including private ones, in ongoing debt restructuring and resolution efforts to help African economies sustainably meet their debt obligations and development needs. Including private actors in global debt management efforts requires the creation of a public registry for loan and debt data, which adequately covers debt across countries of all income levels and instruments (Munevar 2021). The G20 should also heed calls to explore the feasibility of establishing independent and publicly owned credit reference agencies that will assess Africa’s credit ratings more fairly and transparently. These should hopefully bring down the cost of borrowing to levels like those in other countries.

This article was originally published as a chapter in the following publication: Sonobe, T., N. J. A. Buchoud, R. Akbar, R. M. Qibthiyyah, and B. Altansukh, eds. 2023. A World in Crisis, a World in Progress: Growing Better Together. Tokyo: Asian Development Bank Institute.
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