Opinion: As populism rises, focus on Africa’s economic opportunities

The populist mood sweeping across many high-income countries appears to present a bleak prospect for Africa. As rich nations slash aid budgets and embrace inward-looking policies, Africa faces a critical juncture that demands a fundamental shift in how it presents itself to the world. Rather than focusing on aid dependency, the continent needs to emphasize its rapidly expanding consumer markets and work to correct investor misperceptions driven by negative media coverage and inadequate market data. Better tools for measuring and understanding African consumer sentiment could help transform the continent’s image from an aid recipient to an attractive investment destination. The European Commission, Europe’s largest aid donor, is planning to slash its aid budget by 35%, France and Germany are planning similar-sized cuts, while the Republican Project 2025 that underpins the thinking of the incoming Trump administration recommends that the United States “terminate” all contributions to the World Bank. Western electorates are rewarding governments that focus on their own domestic priorities instead of assisting lower-income nations. A senior development official recently described this nativist populism as pitting “the poor at home against the poor overseas, and the short term against the long term.” For Africa, these pendulum swings away from internationalism and multilateralism could hardly come at a worse time. The continent is already being hammered by high debt repayment costs, low productivity, and a series of major humanitarian crises, driven at least in part by climate change — just as aid and empathy are in short supply. Given that this inward-facing mood is likely to last, what can African governments and multilateral institutions do? Changing the perception of Africa First and foremost, there needs to be a concerted effort to focus on Africa’s economic opportunities, to shift perceptions by emphasizing the huge potential of Africa’s markets. The demographic boom now underway on the continent is well-known. Its impact is often discussed in terms of supply — the strain placed on migration, government services, urban environments, and jobs — but what tends to get overlooked are the demand implications. Africa’s domestic markets are growing rapidly. The African middle class — currently estimated to be around 300 million — is expected to reach 500 million by 2030. That means a 60% increase in five years. Spending levels per capita may be low compared to developed countries, but McKinsey projects that two-thirds of Africa’s estimated 303 million households will have at least some level of discretionary income next year, and that consumer spending will reach $2.1 trillion. On top of that, the African Continental Free Trade Agreement is not far from uniting these consumers in a single free trade area that will lift an estimated 30 million out of poverty through major tariff reductions. The agreement is taking time to come into effect because it is not easy to bring 55 countries into a single trading bloc, but according to AfCFTA’s secretary general, 37 countries are now “trading under the rules and the preferences.” Yet despite this promising news in domestic market growth, Africa remains an extraordinarily tough sell to investors; 2024 looks like the worst year for private equity fundraising in Africa “in a decade.” Interest rate hikes in the U.S. certainly did not help, causing a lot of the deal flow to dry up, but the biggest cause may be investors mispricing risk on the continent. Africa’s image in overseas media is overwhelmingly negative. In a populist atmosphere when people show less interest in the rest of the world, only the bad news tends to break through — natural disasters, wars, and poverty. Investors who don’t have a deep understanding of the African continent are disproportionately influenced by the headlines. A recent report suggests that negative media coverage is costing African countries as much as $4.2 billion in additional interest payments every year. There is a lot of dynamism happening in African markets, but investors tend to apply the same criteria to countries with vastly different cultures and trajectories. Moreover, the three big credit rating agencies devote scant resources to Africa. There is a lively debate going on about whether African credit risk is being mispriced — the African Union is threatening to set up its own credit ratings agency — but what is undeniably true is that the major agencies have very few analysts based on the ground in Africa. Focus on the African consumer Despite having the fastest-growing consumer markets in the world, the continent remains a consumer data black hole. One simple but powerful tool to improve this situation is the consumer sentiment index. Consumer sentiment is a well-established barometer of economic activities. According to the Federal Reserve Bank of Chicago, “it is an indicator of the way people plan to spend their income. During times of economic stress, we pay particularly close attention to how consumers feel about the economy.” Strong domestic consumer markets are key to Africa’s economic transformation; they are an essential driver of economic diversification, growth, and jobs. Yet very little is known about the average African consumer and how they make decisions. Every Organisation for Economic Co-operation and Development, or OECD, country has a consumer sentiment index, usually run by a major university. However, according to our research, only five countries in Africa currently track consumer sentiment. A stable baseline of publicly available sentiment data across the continent would give investors the means to compare different consumer markets and provide valuable data for central banks and development agencies, making it possible to price risk and opportunity more efficiently. Better data tools like this on African markets will give investors reasons to take a fresh look at Africa — and help to shift the narrative away from Africa as a problem to Africa as an attractive market destination. In a world that is turning its back on foreign aid, that is a tantalizing prospect. A small step perhaps, but small steps can lead to big ones.