Africa, a continent to be reckoned with

_{Translation of this article is provided by kompreno, using a combination of machine translation and human correction. More articles from MO* are included in kompreno‘s curation of the finest analysis, opinion & reporting — from all across Europe, translated into your language.}

People in Africa are young. In most of the 55 countries, about half are under the age of 20. Many of those 750 million children and young people will also start relatively child-rich families, making Africa the only continent where the population will increase rapidly this century.

The United Nations (UN) expects the population there to rise from the current 1.5 billion to more than 2.5 billion by 2050. Nigeria would then have about the same population as the EU. By the end of the century, Africa would have 3.5 billion inhabitants, making one-third of the world's population an African.

Those population figures will make what happens on the continent more important to the rest of the world. Whether it is the size of the African market, Africa's impact on climate change, or migration from Africa, the numerical strength will weigh. Africa will (have to) be looked and listened to more in the future. In fact, when African countries stand united as an Africa group at world trade or climate summits, this sometimes already happens now.

But interest appears mainly on the ground in Africa itself. China is very active there, which in turn makes the United States interested and threatens the dominance of the Europeans. But Russia, India, Brazil, Turkey ... are also present. This is not so surprising. After all, Africa, which accounts for more than a quarter of all UN votes, is immense natural resources, a rapidly growing market, and is the creativity of one in four young people by 2030. What superpower wants to remain absent there?

But that does not mean that Africa will become a superpower or even a unit. Or that it gets a grip on its future. Or that Africa will become the continent its young people dream of.

Jakkie Cilliers of the South African Institute for Security Studies (ISS), a leading think tank in Africa, expects that this income gap between Africa and the rest of the world will continue to grow at least until 2040. That is why he calls for greater availability of contraceptives, and better education for women, so that the number of children per woman falls faster.

'When I delivered that message in the African Union in 2018, it did not catch on. Many African leaders told me I did not understand the benefits of high fertility rates,' he says. 'Meanwhile, the message is starting to catch on. In doing so, it is crucial to phrase it in terms of prosperity. If I say that Nigeria will not reach 1.7, the threshold at which the population dividend really starts to play, until 2062, and that therefore the labour factor will remain a brake on income growth until then, the message gets through better than when the Gates Foundation promotes contraceptives. The latter is very sensitive.'

Need for more jobs

Whether Africa's favourable demographic winds will be exploited economically in the coming decades will depend on the ability of young people to contribute to prosperity. The continent therefore needs to create 23 million jobs a year, Loïc De Cannière calculates in his book.

This requires structural change in the African economy, argues the African Development Bank (AOB), which was established in 1964 by the African Union. In its African Economic Outlook 2024, the AOB describes how, in 25 African countries, the majority of the population still works in agriculture. The average annual income in those countries is about €800.

In only 10 African countries, such as South Africa, Morocco, Egypt or Mauritius, more people work in industry than in agriculture. There, annual income averages 3,500 euros. In between are 20 countries where more people work in services than in agriculture. Furthermore, nine in 10 African countries derive at least 60 per cent of their export earnings from the sale of (usually some) raw materials. This makes them vulnerable to fluctuations in world market prices.

As in all other continents, economic development in Africa means that fewer people will work in agriculture. A successful development path also presupposes a more diverse economy that does not depend on a few products. The path towards it depends on many factors.

Industry remains important

Learning from economically more developed countries proves crucial in this regard. French economist and global researcher on inequality, Thomas Piketty, cites the spread of knowledge and technology as the main explanation for the decline in income disparities between countries. In recent decades, successful states in Asia managed to do so by inserting themselves into global production chains. In this way, they acquired technology and knowledge and created many, initially poorly paid jobs. This approach works better if the companies shaping the international production chains see a profit in producing in a certain country.

A lot of African countries are keen to leverage their critical raw materials for the energy transition to produce their own batteries and electric vehicles. But can this succeed when local energy supply and transport are poor, and when multinational companies can mine the raw materials just as cheaply in countries that do not require them to produce locally?

Morocco is already managing to work its way up in the automotive sector. This year it is producing 800,000 cars, half of them for Renault. Next year, it will already exceed one million, thanks in part to Chinese investment. 'That Morocco has free trade agreements with both the EU and the US makes it an interesting production platform for those huge markets,' Cilliers explains.

Of course, it remains to be seen whether industry is as necessary for development in 2024 as it once was. Automation means industry creates fewer jobs than before, and fierce competition from Asia makes it difficult for Africa to claim its place. Moreover, the AOB notes that in many African countries services create more jobs than industry. Tourism and transport lead the way, followed by digital and financial services.

However, many African governments continue to consider industry important because it creates many additional jobs in supply chain and logistics. However, many do believe it is best to start with the development of an agro-industry that processes greater local food production to ensure its own food supply rather than having to spend billions each year on food imports. Loïc de Cannière agrees, pointing out the importance and strength of the many informal enterprises and (micro-)SMEs from Incofin's experience as an impact investor. Also important is the expansion of the African Continental Free Trade Area (AfCFTA), the unified African market. This allows African companies to produce on a large scale, and thus more efficiently. It will also promote intra-African trade, which is still very limited.

Investing in SDGs

Economic development also drives more general factors of social and human development, as pursued by the UN Sustainable Development Goals, the SDGs. From the point of view of economic transformation, the AOB particularly advocates investing in SDGs related to infrastructure, education and energy.

This requires a lot of resources, as Africa achieves only 56 per cent of the SDGs on average by 2030, the lowest figure of any region. Poverty there rose from 33 per cent in 2013 to 38 per cent by 2023. A third of children are malnourished and therefore immature. 600 million Africans lack access to electricity. In terms of education and health, although major progress has been made over the past five decades, Africa is also lagging behind the rest of the world in these areas.

The AOB attributes this poor SDG performance, among other things, to the fact that African countries collect on average only 13.6 per cent of their income in taxes, compared to 15.4 per cent in other developing countries, and more than 30 per cent in rich countries. The bank therefore advocates for more tax revenue, although it believes its collection and spending could be much more efficient and correct.

The AOB, where African countries own 60 per cent of the shares but of which the US is the second largest shareholder after Nigeria, stresses that the structural transformation of African economies "will depend largely on the quality, relevance and effectiveness of policies, and on the implementation of development plans.

The voice of young people

That view marks a turnaround after several decades of neoliberal policies. 'Poor countries need an active, development-oriented state,' Cilliers also stresses. 'This is why the neoliberal discourse promoted by the West through the International Monetary Fund and the World Bank, where the state should do as little as possible and leave the economy to the markets, has been so damaging for Africa. Multinational companies do not spontaneously invest in low-income countries. Good government policy is crucial.'

Now that the US wants to create industrial jobs domestically with subsidies and tariffs, and China has proved so successful, the ideological turn seems to have started in Africa too: the state may steer. That should not blind us to the fact that African states often have shaky and poor governance. 'But that is not enough as an argument to deny the crucial role of the state in development processes,' says Cilliers.

Perhaps African youth can make a difference in this area. 'I think it is positive that there are so many young Africans, but where is their voice?' wonders Baudouin Mena Sebu, researcher at the Institute for Development Studies at the University of Antwerp. 'Even in Africa, they are not much addressed. That's why I think the protests in Kenya are positive. Maybe young people can push politics in the right direction?'

Just as European youth were part of the foundation of the Green Deal, African youth may be able to improve governance in Africa in the coming decades. Young people denounce corruption and mismanagement. Should the new generations make African democracy work better, it would be a huge achievement.

Immense investment needs

Countries that developed successfully often benefited from a favourable international environment. South Korea could count on Western goodwill because it was on the front line of the Cold War. China benefited from globalisation. It is uncertain how that will play out for Africa. Currently, geopolitical tensions seem to be pushing the global economy towards blocisation, while African countries prefer to continue doing business with everyone.

The financial environment is rather difficult for Africa. A lot of income there is siphoned off, legally or illegally, to foreign countries. The AOB describes how African countries pay much more on their sovereign bonds in euros than rich countries and other developing countries. The bank points out that the risks rating agencies assign to Africa are not realistic.

For instance, a study by Moody's of 8,000 loans learned that Africa had the lowest default risk of all regions for its infrastructure loans. Although Africa contributed almost nothing to climate change, but bears the brunt of it, it received only 4.5 per cent of the 625 billion in international climate finance mobilised in 2019-2020. Africa has immense investment needs and thus finds it hardest to get money on the money markets. It will be up to governments and international institutions to adjust Africa's financial deprivation. Paradoxically, climate change may help to do so.

Climate as both threat and opportunity

Climate change will help determine Africa's future. According to the UN, the Sahel is the region where precipitation has fallen the most globally. This may help explain the political instability in the Sahel. Baudouin Mena Sebu, who in turn often works in eastern Congo, notes how much climate concerns the local population.

'People constantly talk about the fact that the climate has changed, that the seasons are unreliable, that it is warmer, and that there are floods. I don't think we listen to those voices enough.'

But Africa is not only undergoing climate change, without strong adjustment it will also become one of the world's biggest CO2 emitters in the coming decades.

Yet climate change also presents opportunities. In its African Economic Outlook 2024, the AOB calls for Africa's 'green' GDP to be calculated. 'Natural resources such as the Congo Basin rainforest provide important global public goods, such as carbon storage and biodiversity conservation. Their value is not factored into African wealth. If it did, Africa would be able to borrow cheaper and more.'

Carbon credits, fees for storing carbon in Africa's natural environment, could become one of Africa's main exports, according to the AOB and the Institute for Security Studies, provided they offer states and companies worldwide a reliable way to offset their emissions. In this way, Africa can kill two birds with one stone: it can preserve its ecosystems because local people are compensated for them, and it provides the capital needed to invest in green energy.

This offers great opportunities, as Africa has 39 per cent of the global potential for wind and solar energy. Both to build up the carbon market and to invest massively in African green energy, it is crucial to create as secure an environment as possible. The question is whether the EU can use this challenge to establish deep cooperation with Africa.

Translation of this article is provided by kompreno, using a combination of machine translation and human correction. More articles from MO* are included in kompreno‘s curation of the finest analysis, opinion & reporting — from all across Europe, translated into your language.