Opinion: Time to switch lazy caricatures of Africa for investment bids

There has been a concerning resurgence in recent months of lazy reporting on Africa as “the world economy’s problem,” blighted by poor leadership, mass conflict, and deserving of bad credit ratings. It is hard to avoid this narrative — especially when global gatherings such as the World Bank’s Fragility Forum 2024, held last month, often center on African countries and regions. Yet this sort of analysis helps no one. Instead, we should be discussing how investors can capitalize on African demographic advantages and other attributes to drive sustainable economic growth that will help the world economy. The fact is, Africans are already hard at work trying to seize the moment. Agenda 2063, the continent’s development blueprint, seeks to turn the continent into the third-largest economic area by 2063 and the world’s manufacturing hub by 2063. Recent International Monetary Fund projections show that at 4%, the economic growth rate in Africa will outpace the global average of 2.9% in 2024 — this was also the case in 2023. Moreover, six of the world’s 10 fastest-growing economies in 2024 will be African, as was the norm prior to the pandemic. The region is also arguably the most important frontier in the global fight against climate change given its natural endowment of carbon sinks and reserves of critical minerals required for the global energy transition. The International Renewable Energy Agency estimates that Africa has the potential to supply over 10% of the world’s wind capacity and 40% of the world’s solar potential by 2050. The continent is in pole position to benefit from and power the clean energy transition. “Unfortunately, negative stereotypes reinforce perceptions of Africa as a risky investment decision, which in turn translates into low and expensive investment into the continent.” --— If, therefore, the world is serious about sustaining long-term global economic growth while reducing poverty, inequality, and environmental degradation, African countries should get all the support they need to realize these opportunities. Investors and donors — bilateral and multilateral — need to get involved because, in a strictly mathematical sense, Africa cannot pull itself up only by its bootstraps. The continent as a whole might represent the world’s eighth-largest economic area, but as individual sovereign nations, most African countries have economies that are far too small to generate the kinds of resources they need to provide even the most basic of infrastructure for each citizen. Domestic taxes raised by relatively poor Africans will not be enough, at least in the medium to long run. And the enduring impacts of colonialism on the structure of African economies also make it difficult for them to tap into their own resources. Institutions such as the World Bank and IMF were set up to address exactly these sorts of constraints and provide the foundations for growth and prosperity, but as many have demonstrated, there are too many, often self-imposed, limitations on their ability to lend to African countries. Indeed, the global financial architecture as a whole is not fit for purpose. Africa needs more investment, especially through highly concessional financing and job-creating foreign direct investment to reap its demographic dividend. The international financial institutions need to reform so they can fund investment in essential infrastructure. And investors need to shift away from their current, short-term investments in extractives and raw commodities to focus on long-term, value-added production. Unfortunately, negative stereotypes reinforce perceptions of Africa as a risky investment decision, which in turn translates into low and expensive investment into the continent. Investors “believe” Africa to be a risk, hence it becomes so — a self-fulfilling prophecy. It is this kind of analysis, coupled with certain analytical products from the World Bank, IMF, and mainstream credit rating agencies that imposes an African “risk premium,” which makes access to development finance difficult and expensive. It triggers a vicious cycle. The finger is often pointed at poor or corrupt leadership as the cause of Africa’s failure to thrive. However, history demonstrates that many countries with less-than-ideal leadership can experience rapid economic growth. For instance, many countries in East Asia were dogged by acute political instability and significant corruption when they experienced miracle growth in the second half of the last century. Furthermore, many barely had functional, formal market economies. As recently as 2018, China’s informal sector accounted for almost 25% of its gross domestic product. It was external recognition of opportunity and the need for supply chain diversification that enabled the so-called Asian Tigers — and China — to attract sufficient capital and technology transfer to transform their economies. The United States invested heavily in East Asia as part of its efforts to contain and isolate the Eastern communists consisting of the Soviet Union and PRC and sway Singapore, South Korea, and others away from the communist orbit. In other words, U.S. strategic interests coincided with the development aspirations of the Asian Tigers. In Africa, perhaps because of the continent’s importance to the global economy as a reservoir for raw materials and the remoteness of the Cold War, this coincidence between African countries’ development imperatives and the strategic interests of advanced economies has not been fully recognized. But it is there and with the same, grown-up, non-condescending treatment and adaptable external attitude, Africa could be the next miracle and the savior of the world economy.