The continent as always, has great promise. This was the unanimous conclusion from the just-ended World Economic Forum, which is traditionally held at the Swiss resort town of Davos every year. However, significant obstacles stand in the way of the continent reclaiming its mantle of economic growth.
- The World Economic Forum held in Davos every has just ended. This year’s conference ran under the theme of Collaboration in a fragmented world.
- Africa was on the agenda of the World Economic Forum as is frequently the case.
- Discussions on Africa at the conference mainly centred on how the continent can regain its growth trajectory.
The World Economic Forum (WEF) identified four principal factors causing economic headwinds in Africa and will stall its economic growth as a continent unless dealt with. The so called “stallers” of Africa’s economic growth are and will remain as conflict, COVID, climate, and cost of living.
WEF found that these are the factors will slow the growth of Africa. Another perhaps more ominous factor established by the conference in Davos slowing down economic growth in Africa was the unsustainably high levels of debt. Countries in Africa are spending on debt service payments as much as twice their budget on education and as much as four times their budget on healthcare. For instance, Ghana is the most recent country in Africa to default on its external loans. This happened in December 2022 when the government announced that it would suspend its external loans’ payments.
Those technocrats from Africa who attended this year’s WEF 2023 in Davos have advised that governments employ austerity measures. These measures, though necessary, will not be popular.
An Affair of Royalty and Diplomacy
The World Economic Forum is not an ordinary affair. Once upon a time a South African publication decried the sometimes over the top and ostentatious exhibition of wealth displayed at the resort town of Switzerland after the journalist who had been assigned there noticed the almost endless fleet of private jets that were parked at an airport. Davos is the stage where money talks and wealth seemingly does not whisper as it commonly thought to be the case. This almost religious convocation hosts world leader and high-flying business executives who gather to talk… Just that… Talk…
It is not the only international gathering of high-powered individuals whose influence shapes the world. There have been other gatherings that have hogged the limelight and media space but were no more than just that… Gatherings.
COP 26, which was held in Glasgow in 2021, was very big on hype but woefully light on concrete actions. COP 27 which was held in 2022 does not seem to have made much of a difference as well. The lacklustre narrative around the outcome of the climate conferences has to do with the failure to provide adequate support to Africa, which experiences the worst effects of greenhouse gases and yet emits the least. As much as US$ 100 billion was pledged by wealthy countries to assist Africa in making the transition from reliance on fossil fuels to cleaner renewable energy sources.
Davos took place on the 16th of January and ran for a week. During the proceedings, there were discussions around Africa. Specifically, how Africa can get back on its growth trajectory, which it was on, before the onset of the COVID pandemic, as well as the devastating impact of the war between Ukraine and Europe.
This was the critical question on Africa’s agenda at the conference. The discussion on Africa included business and political luminaries, namely Najla Bouden who is the prime minister of Tunisia and Nonkululeko Nyembezi who is the chairman of Standard Bank, the continent’s largest bank by assets. Both panellists in the discussion noted the immense potential the continent has been home to the youngest population in the world. This fact places the continent on a pole position to harness this young population, which will be eager to enter the labor market and who will provide a vibrant market for goods and services. This market that the youthful population of Africa offers can only grow as the said population prospers, giving rise to a middle class that will demand high-quality goods and services.
The chairman of the Standard Bank Group emphasized the need for public-private partnerships. Ms. Nyembezi believes that these partnerships’ role in Africa’s sustainable development cannot be diminished. There is plenty of merit in this narrative, especially when one considers the sheer amount of funds needed for the investment in the development of infrastructure required to make countries in Africa competitive.
Funding for infrastructure for example, requires the patient capital needed to finance infrastructure projects, which by their very nature tend to have long gestation periods. Governments in Africa need infrastructure development. There are other stakeholders with vested interests in the development of infrastructure in Africa. Sponsors of the said projects would be happy to part with their money if there can be a trustworthy partner to assure their capital would be safe for the period that it remains outstanding.
Contractors taking on the work of developing infrastructure would be more comfortable knowing that they are participating in projects where there is backing of both the government and private sector lenders. It is on this basis that the need for the so called public private partnerships cannot be overemphasized. Infrastructure development in Africa coupled with its youth population are together a potent combination for its growth in the future.
According to a report by Juliet Masiga on the World Economic Forum’s website, indicated that the continent’s last stretch of economic growth occurred during the first part of the 21st century. Economic growth in Africa has subsequently been stalled by what the publication called, “fits and starts, with changing priorities, shifting bilateral alliances and global ‘polycrises’”. Notwithstanding these multiple factors that have stalled the continent’s economic growth the WEF acknowledges the resilience of the 54 countries that make up the continent.
The publication said that African countries, “hold the capacity to develop while shielding their populations from socioeconomic shocks.” This is an encouraging commendation given that less than a generation ago Africa was unfairly labeled the Dark Continent. During the panel discussion on Reigniting Growth in Africa, one of the panelists Vera Songwe, Chairman of the Board of Liquidity and Sustainability Facility noted that Africa faces headwinds from what she described as the four Cs. They are climate, COVID, Conflict, and cost of living.
According to the dignitary for Africa to return to its growth trajectory it needs to advance on these four fronts. In support of this assertion and perhaps in a sobering reality check the former governor of the Kenya central bank Patrick Njoroge said a level of austerity was needed. He said that African countries needed to live within their means arguing that this was the only sustainable way of achieving economic growth as borrowing costs remain high. These comments are sobering as they come against a background of widely reported debt levels of many African countries.
That a technocrat like Njoroge could call for austerity on a world stage would no doubt put a damper on proponents of stimulus and borrowing to finance expenditure. His comments would not be warmly received in any setting, especially not where the world faces the ever-increasing threat of a looming global recession. Despite its lack of popularity, austerity is the only option available to African countries. Ghana which was experiencing a debt overhang, finally defaulted on its external loans when in December 2022 the government announced that it was suspending all payments on its external obligations. A session held in Davos aptly titled, “Realizing Africa’s Century”, sounded a similarly ominous warning on the need for African governments to be mindful of their use of debt to fund development. During the discussion, it was found that African countries were paying as much as double their budgets for education and in some dire instances four times their budgets for health in debt service payments.
It is clear from these deliberations that if Africa is to regain its mantle as one of the fastest-growing economic frontiers, its leaders need clear strategies to confront the debt problem in addition to the cited Cs of conflict, climate, COVID, and cost of living. From what can be gathered no concrete action has been taken since the end of the conference to deal with the challenges Africa is facing.
