Africapitalism – Pathway to Socio-Economic Development of Africa, with special reference to Nigeria by Jones O. Edobor, PhD Delivered at the NIDOE Project Summit 2017 In collaboration with African Tide Union e.v. On May 27, 2017 At the Lensing Carree Conference Centre In Dortmund, Germany
First of all, let me thank the organisers of this event for inviting me to make this presentation. I am honoured to be here today.
May I give you an overview of how I intend to proceed. The introductory part shall briefly discuss the growing population in Africa, the socio-economic challenges they pose, what Afrcapitalism intends to achieve and whether Africapitalism could be a role model for Africa. I shall also touch on some other relevant economic philosophies as they relate to the topic and discuss the role of the private sector in achieving sustainable regional development.
In the main part, we shall discuss the necessary macroeconomic policies and the role of government in creating the kind of enabling environment required for the private sector to thrive. I shall touch on the need for Africa’s economic and infrastructural integration to be intensified, amongst others.
Summarizing, I shall briefly touch on what roles the African Diaspora can play in facilitating the process of the development of Africa.
As I proceed, I intend to point to some pathways of possible solutions to the issues identified. Given time constraints, this presentation will not be exhaustive.
Actually, when I told some friends that I was going to Germany to talk on Africapitalism this weekend, they scratched their heads trying to figure out and finally asked me what that is? So, I won’t be surprised if any of you in this hall is also wondering about what it is. Before expatiating on or attempting an answer, let us look at the population figures of Africa to understand the urgency and enormity of the challenges Africa may be facing in about 50 years. The UN calculates that there are more than 7 billion living humans on Earth at the moment, from which about 1.2 billion (17%) live on the African continent, with an international trade share of less than 5%.
In fact, while Global population growth peaked several decades ago and has been decreasing since then, Africa’s growth has continued to see annual acceleration and by some estimates of up to 30 million people a year. Some estimates have it that by 2050, just 33 years from now, the total population of Africa will have doubled to 2.4 billion. According to a recent article in the Guardian, of the 2.37 billion increases in population expected worldwide by 2050, Africa alone will contribute 54% and by 2100, Africa will contribute 82% of total growth of 3.2 billion of the overall increase of 3.8 billion people worldwide.
It is important to note that Nigeria will be adding more people to the world’s population by 2050 than any other country, according to UN projections.
These rather alarming figures are calling for appropriate and adequate responses by Africa’s leaders.
A close look at the performance of Africa’s economy between 2000 and 2010 reveals that the continent achieved an overall average real annual GDP growth of 5.4% in that period. Regionally, for example the growth in the Sub- Sahara region was even higher, averaging around 7%.
These were rather impressive overall growths; unfortunately, these growths have not lead to significant job creation and the alleviation of poverty. This development is contrary to what Economists would normally expect from growths of 2% and above that lasted for such a long period of time, which is job creation. So, why hasn’t this happened? This is primarily because Africa’s growths have been fueled by increases in the demand for Africa’s natural resources, whose extractions processes are highly mechanized and are exported unprocessed.
To respond to these challenges Africa’s economists must dare to challenge the status quo and devise new approaches that recognize the continent’s specific needs, with emphasis on private initiatives.
The question you might probably be wanting to ask is, isn’t this what economic neoliberalism philosophy, with emphasis on private initiatives and extensive economic liberalization policies, such as privatization of public assets, deregulation, free trade, and reductions in government interventions, in order to increase the role of the private sector, is all about?
Indeed, economic neoliberalism was a paradigm shift away from the post- war Keynesian approach that propagates aggregate demand side approach with strong government interventions through fiscal policies.
In fact, renowned economists such as Friedrich Hayek, Milton Friedman and James M. Buchanan and many others, who have been championing economic liberalism have been demanding a pushback of the roles of government in economic and social development. There are so many philosophies that include “creating shared value, meaning the competitiveness of a company and its health depend on the health of the communities around it.
There are philosophies such as corporate responsibilities and social economic models, to mention a few.
With so many economic theories and philosophies around, so what does “Africapitalism” set out to accomplish that the other philosophies cannot achieve? The term Africapitalism was first used by the Nigerian ex banker Mr. Elumelu in 2010.
In an article for the “Economist magazine” in 2014, he described Africapitalism as the process of transforming private investment into prosperity and social progress throughout Africa. And that African private sector has the power to transform the continent through long term investments, creating both economic prosperity and social wealth. It is a call for a commitment by the African private sector to expand their scopes from merely seeking profitability in their ventures to a more inclusive approach that also consider the socio-economic development of the continent; by diverting resources to such sectors as education, healthcare and agriculture, social capital and mass transit, energy, finance and infrastructures that have potentials of multiplier effects, to aid local development.
In other words, Africa’s private investments should have social corporate responsibility components in them by combining financial profitability with wealth creation for all stakeholders that is not limited to the profitability interests of shareholders alone.
Some have described it as capitalism with African values. The role of government in all this is to provide an enabling environment.
Essentially, the philosophy is professing that private investments, while seeking profitability, should be long term (multigenerational), impactful and inclusive in their concept.
Indeed, the philosophy can be summarized as follows:
• Investment should be long-term, mainly in strategic sectors, with the intent to provide development dividends to all stakeholders
• Entrepreneurship: To facilitate skills development.
• The harmonization of cross border physical infrastructure that facilitates
intra-African commerce and trade.
In pursuance of the principles of the concept, the charitable Emetulu foundation has set aside about US$100million to target grooming about 1000 African young entrepreneurs yearly for a period of 10 years. Thus far, about 2000 African entrepreneurs are said to have benefitted from the 12 week leadership training programme and the alumni are collaborating and competing across Africa. This kind of charitable foundation is worth emulating and should be a role model for Africa’s rich people.
There is no doubt, that there are merits to this concept and that if it becomes the guiding principle during the conceptual phases of new ventures in Africa, it has the potential of transforming Africa’s future through sustainable development.
Indeed, if there was any time that the African people and leaders needed to sit down and discuss the future of the continent, it is now. As Africa’s population is growing, so also are its economic challenges. In fact Africa is not a poor continent. It is amongst the richest continents, as it concerns natural resources.
Africa’s misfortune is that it is being run down by ineptitude leaders, who continue to mismanage and squander its revenues. However, with rising challenges, revenues from the export of unprocessed natural resources won’t be enough to meet the needs of the continent in 50 years from now. Furthermore, this problem is likely to be compounded by the fact demand for some of these natural resources will decline as alternatives are being sought across the world.
For sustainable economic development to take place, at least, by growths not caused by the exploitation and exportation of unprocessed raw materials, Africa needs to start investing wisely, diversifying and strengthening its strategic private sectors with due consideration to their gender and ecological impacts, while ensuring that value is added to its natural resources before they leave the continent. Putting Africans to work can only occur through adding additional value to whatever we are doing, creating new products and services locally to meet the continent’s needs.
As the oil that lubricates economic expansion is confidence, ensuring government’s policies are clear, consistent and concrete is critical to promote the right climate for economic growth needed to create jobs. Africa’s leaders will have to ensure through smart policies that the benefits of the continent’s natural resources remain largely in the continent.
Indeed, my concern is that though Africapitalism (big business) recognizes the importance of inclusiveness in long term investments in strategic sectors but it offers little impulses to SMEs that provide the highest numbers of employment in Africa.
From macroeconomic perspectives, governments should consider doing the following to create that enabling environment for the private sector to thrive:
Access to Capital
Africa’s capital markets have to be oriented towards its private sector needs and moved away from short term equity investors that are driven by quick returns, which dictates interest rates to the disadvantage of the SMEs. FDIs mostly get attracted to places with investment friendly climates. Monetary policies should encourage commercial banks to provide affordable loans to SMEs. The bank of commerce and industry and other financial tools, such as crowd funding, amongst others to provide affordable loans to SMEs should be strengthened or promoted.
The planned Nigerian Diaspora Bond, while seeking profitability, should consider focussing on providing business support for social technology ventures, including knowledge transfer activities, mentorship and providing access to funding for viable start-ups Innovativeness and technology
Initiatives linked to adding value to endogenous resources should be supported through tax incentives and even through some direct financial aids.
This is because such endogenous resources linked initiatives are more likely to create sustainable jobs.
Encouraging micro initiatives to create jobs and diversifying an already existing activity in order to improve on products and services don’t just happen by wishing it; it is a process that goes through phases of concrete initiatives and actions. To create the right climate for start-ups, the following should be considered:
• provide necessary packages that include financial aid, technical and administrative support;
• Encourage networks to place individual and small initiatives for guidance and support and to facilitate co-operation between networks to take advantages of both formal and informal experiences.
And to analyze successful experiences from which lessons can be drawn by new start-ups.
Africa is not sufficiently benefitting from the outsourcing fallouts of globalization, because of lack of well-trained manpower. In most of Africa, there seems not what could be called a national education strategy, which clearly identifies the strategic goals the nation’s education strives to achieve that is backed by clear actions. A national need based approach may better serve Africa, which implies that the educational emphases are steered from universal to tailored local needs.
Let’s take Nigeria as an example; too many students in Nigeria are earning degrees in arts, literature and social sciences, while there’s a shortage in science and engineering graduates. Government should guide young people into fields where job prospects are much better and are strategic to the nation’s future.
Nigeria is known to currently lack well trained artisans. Steering more students into vocational or technical schools at a young age will generate more skilled workers that the private sector may need to thrive.
Create “lean” regulatory agencies
Too much bureaucracy slows down the pace of transactions, reduce productivity and efficiency. In too many places of Africa, business owners are confronted with redundant layers of red tapes that strangulate business initiatives, cost time and money and are generating nothing of value. Keeping regulatory agencies lean and compelling them to streamline procedures, publish fees, firm deadlines for completing their work with a clear mandate to remove outdated and needless rules would be creating an enabling environment that promotes the private sector.
Set up outreach networks for small businesses to find customers across the
whole of Africa and elsewhere.
The African Union could sponsor “buy Africa and invest Africa” initiative across the whole of Africa to sensitize Africans of the need to spend their money and circulate it in Africa.
Create a national jobs database
A national database enables policy makers to know of mismatch between the skills workers have and the skills that companies need at the labor market. The NIDOE database initiative could be of strategic importance to the country.
Corruption is impeding the development of Africa, raising the cost of transactions, reducing productivity and efficiency, and harming the competiveness of the African private sector. Indeed, Africa’s form of corruption of looting the treasury empty and then transferring the loot abroad or converting it into foreign currencies and locking it away is like robbing a people and then strangulating them. These actions cause the ripple effects of money that only occurs when in circulation to come to a halt.
This widespread behaviour is exacerbating the poverty level of the African continent. Thus, this is simply not only a crime against the state but against each individual citizen of the country.
Frankly, so long as officials are looting taxpayer’s money, and transferring them to private accounts abroad, the impact of the mobilization of the private sector and the Nigerians in the Diaspora to invest in Africa shall be minimal.
The African Diaspora has a significant role to play in all this. It could start by avoiding rolling out red carpets for these looters and haters of Africa when they are visiting. The African Diaspora has to find the courage to stand out and walk their talk.
Tourism is big business and international travel is booming. The number of overseas visitors is rising yearly. What could Nigeria’s government do to help the hospitality sector in Nigeria? For instance, by doing the following:
1. Streamlining the visa process for tourists and aggressively promoting travel to Nigeria.
2. Addressing the issue of security and safety
3. Identifying and refurbishing potential tourist attractions
4. Creating standards and improving on the skills and quality of employees in the hospitality sector
5. Introducing mandatory standards for facilities in the sector
Lure Nigerians back home
When considering the critical human resource necessary to get Africa on the path of sustainable development, it becomes apparent that amongst the underlying causes of the continent’s rather unsatisfactory state is brain drain. Africa has to find ways to lure a critical number of these people back home.
Nigeria for example is known to have hundreds of thousands of professionals scattered across the world that can turn the fortune of the country around in a few years. Hopefully, the planned Diaspora Commission in Nigeria will be instrumental in luring a critical mass back home. To this end, a diaspora committee should look at the following to work out
recommendations and action plans:
(i) Working conditions (ii) relevant infrastructure (iii) social service delivery,
(iv) confident building measures,(v) improving on standard of education
(vi) pervading corruption (vii) Security (viii) Energy/power (ix) Retirement
schemes, (x) mass transit and (xi) internet connectivity infrastructures.
Summarizing, given the emphasis of this presentation, I have intentionally left out discussing monetary policies; such as interest rates, price stability, exchange rates and which impacts they have on the private sector. You may wish to refer to my recent papers and interview on the issue.
For intra Africa’s trade to prosper, Africa would have to find ways to move away from its current fragmentation in regional systems to a unified system.
Africa with a population of less than that of China or India has five different economic systems that aren’t coordinating. At a time and in a world that is increasingly becoming a global village, the question is whether Africa should be fragmented in:
• Economic Community of West African Countries (ECOWAS)
• East African Community (EAC)
• Economic Community of Central African States (ECCAS)
• Southern Africa Development Community (SADC)
• UMA (Union of Maghreb Arabs)
Africa has to get better integrated and linked by standardized railway tracks
and connected by roads and waterways to cut costs of transportation. In an
essay by M. Arino in 2014, she wrote that according to data from the African
Union Commission, transport costs are 63% higher in African countries than
the average in developed countries. These high costs pose impediments to
Dr. Jones O. Edobor
Economist, lives in Vienna