OLD STONE TO NEW BUILDING
Philip Cluff discusses finding space in Africa’s economic revolution
In post-war Japan Dr Osamu Shimomura espoused facilitating low cost credit through banks with extrinsic capital creation, wherein, to quote former Japanese Prime Minister, Shinzo Abe “Governments receive back in taxes part of the flat created credit funded by its own IOUs”.
This only works if you devolve power to the masses instead of foreign investors. African governments have shown willingness to rebuke foreign investors, but they rarely do so for popular empowerment, Mugabe’s Zimbabwe being a case in point.
Unlike 1950s Japan, Africa in the 2020s cannot rely solely on foreign intervention. Child labour is outlawed in Europe, pensions ensure retirement, and secondary education is bona-fide. Africa needs to guarantee these rights whilst simultaneously confronting newer cyber security issues.
Africa has the world’s largest workforce under age 40, but lacks opportunities. Ideally, poverty reduction encourages development, and attracts foreign investment. In reality, many Africans may still need to migrate for opportunities. Well performing capital attracts more investment, which cannot happen where regulation lags so far behind innovation, especially for money laundering.
It is self-defeating for Africa to follow Middle Eastern models of domestic overinvestment, which raises living costs. How can younger, wealthier African governments invest their funds abroad instead? Remittance payments from wealthier western countries are a huge opportunity. Credit lines are crucial since 80 per cent of Africa’s businesses are classified as small- or medium-sized. Remittances count because they import transaction credibility for ordinary people. This starts at micro level since the overlap between the formal and informal economies is huge.
Banks have to find a satisfying middle ground in the search of mass SME equity. That is assuming in a seasonally affected region like the sub-Sahara that physical collateral is available for loans. Why bother learning the name of the capital city of Niger? In 2100, Niamey is predicted to be four times larger than present day Tokyo. How a bank prepares to help facilitate that without overexerting or missing out is difficult. No megacity has been built in the smartphone era so African urbanisation may look unique.
Sadly, some countries have taken a hostage approach to only providing funds to projects that will either deepen Africa’s foreign debt or create a value chain for capital flights. Simply, very few European or Asian investors would consider retiring in Angola or Zambia for example. Britain has performed amiably insofar as the London Stock Exchange has done more than other exchanges to integrate African platforms.
The crossover between savings and institutional investment shows frighteningly underdeveloped bonds between financial literacy and climate change. Explaining to two billion more Africans why they all shouldn’t have two cars, two homes etc. in 20 years’ time will be difficult. If everyone consumed as much as the US, we would need five planets to survive, and soon billions more people will be born into similar expectations.
We need to take this seriously because Africa’s risks are ramified globally. What credible difference will come through is in public health, water safety, and mass migration. The key harbingers of instability are landlocked, resource rich and corrupt. While much of Africa’s equitable businesses are still traded on global exchanges like the NYSE, stronger Western financial centres should take the opportunity to sustainably develop those capital markets.
As John Archibald Wheeler said: “Space is what prevents everything from happening to me.” If Europe ignores this current transitory period in African demography, then we can expect that space to diminish beyond our maneuverability in terms of wage and pricing.
The Stern Review on the Economics of Climate Changes suggests that temperature increase of 5 degrees will erase 10 per cent of GDP for developing nations by 2100. That megacity in Niger can hardly afford to neglect oil reserves if we haven’t crafted worthy renewable options by 2075. Commodity export markets are prone to corruption. Commodities like oil embellish more than you can reasonably spend at home. Africa does not have the means to consume its own output efficiently; hence most Angolans cannot afford to live in Luanda.
If non-renewables are under-regulated, how can we balance it towards a good outcome for population growth? Pledges for carbon reductions lose credibility as soon as political systems show themselves to be more financially credible and socially tenable. The fact that Ethiopia went from a Nobel Peace Prize to near civil war and revocation of press freedom in less than a year should be a valuable lesson for how we manage our expectations around so-called ‘Afri-growth’.
Countries like Ethiopia with inadequate water and disorganised social security face future crises that may affect more people in crowded cities. Specifically, the Nile Dam dispute may deprive hundreds of millions of East Africans in ten countries from fresh water through unilateral Egyptian control of the delta. With Egypt between the Mediterranean, Middle East, and Africa, this affects many more people than a first impression suggests. The ten most resource self-sufficient countries are African and any solution to ‘global’ crises must come out of Africa.
The matter is less about individual states. Even universal debt relief would not make Pan-Africanism sacrosanct. The inability to ratify the continental FTA in 2019 highlights how hard it is for 56 countries to synchronise, but the events of last year underscore just how important it is that we all help them find a way to do so.
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