Regional integration emerged as a dominant theme at this year’s World Economic Forum on Africa, a three-day gathering of world leaders in Kigali, Rwanda, last week to discuss growth and development on the continent.
It was an issue that was woven into virtually every discussion, from climate change to governance, and manufacturing to agriculture. Among business leaders, political officials and civil society representatives there was a resounding consensus that the continent needs to prioritize regional integration as a way to promote inclusive development.
“The biggest opportunity for Africa is Africa,” Johan Aurik, managing partner and chairman of global consultancy A.T. Kearney, told a panel audience, referring to the role that the continent’s size, scale and human capital can play in unlocking new growth.
Yet its 54 countries and more than a billion people have largely functioned as disparate and disaggregated markets. The result has typically been high business costs and investment that reaches a fraction of its potential.
“We need to break down barriers to trade in and among ourselves,” Kenyan President Uhuru Kenyatta said. “We need to think of regional markets of 200 million [people]. I don’t see us talking. We’re too far apart.”
The WEF meetings convened amid inauspicious times for the continent’s growth prospects.
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“Bad things come in threes,” said David Lipton, first deputy managing director of the International Monetary Fund. The 2014 Ebola outbreak, severe drought and a sharp, steady decline in oil and commodity prices have all hampered Africa’s recent growth. Newly revised forecasts from the IMF put economic growth for all of sub-Saharan Africa this year at 3 percent, which is below the global average.
But fundamental drivers such as long-term demand for Africa’s commodities and a young, growing population remain pretty strong, Lipton told a WEF audience. Presently, around half of the continent’s 1 billion people are under the age of 20.
For many, the particular challenge of plunging commodity prices equates to a chance for African countries to reinvent or diversify their economies away from oil, mining and other extractive industries.
“It’s a wake up call,” Kenyatta urged. “It’s not the raw materials that make Africa wealthy, it’s our people.”
The most immediate gains put forward by various discussants were productive investments in agriculture or manufacturing. Investments in agricultural subsidies or production systems to boost yields for smallholder farmers can deliver near-term measurable results towards that promote inclusive growth.
“Agriculture is the base,” said Winnie Byanyima, executive director of Oxfam International.
Many productive gains are also to be had in the manufacturing sector. Despite its size and population, the entire continent still only accounts for roughly 1.5 percent of total global manufacturing output. From cotton to cocoa to petroleum products, too many materials that are sourced from Africa have their value added offshore, numerous panelists said.
“The challenge for us is to move our economies into more productive sectors,” said Nigerian billionaire and philanthropist Tony Elumelu.
But even if agricultural production increased and there was growth in value-added manufacturing, the gains from those sectors would stand to benefit even more from economies more tightly knit through commerce and trade.
The continent’s current fragmentation and its inability to connect intracontinental markets remains one of the biggest inhibitors to inclusive and sustainable growth. A shocking 90 percent of Africa’s volume of trade occurs with countries outside of the continent.
The fragmentation and disconnect, in turn, discourages large volume investment from private equity and other financiers who are attracted to scale. They stem from two shortfalls — infrastructure and nontariff barriers.
Infrastructure has suffered from underinvestment, creating a physical disconnect for goods and services. Governments and financial institutions have taken note, however, and have been prioritizing upgrades to physical infrastructure.
Virtual barriers are an equally high priority. Average tariffs throughout the continent are less than 5 percent, according to Arancha Gonzalez, executive director of the International Trade Center. But so-called nontariff barriers — customs delays, import quotas and other regulatory approvals – can cost businesses up to 40 percent of the value of a tradeable good, the ITC estimates.
By investing in and implementing tools and systems that facilitate trade, African countries could see a 10 to 30 percent jump in their gross domestic products, Tarek Sultan, the chief executive of the global logistics firm Agility, projected. Electronic systems that better monitor the movement of goods, upgrades to power plants and processing facilities are needed to create more frictionless borders and unlock what he called a “fourth industrial revolution” for Africa.
A host of initiatives are currently underway to unlock these types of supply side constraints. Among them is Power Africa, a United States government-led investment to expand energy infrastructure on the continent through financial aid and technical assistance. Though not a plan that is directly focused on trade, its aim is to address broader bottlenecks in power and infrastructure systems that will eventually facilitate cross-border commerce.
“Regional integration is difficult,” said U.S. Trade Representative Michael Froman. “But all of the elements are here. If [governments] can build out their supply chain and logistics, they can capture a higher percentage of value.”
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