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Saturday, June 16, 2007

The Challenges facing Africa's economic renaissance

Is Africa, often dubbed the hopeless continent, finally taking off? The mood is unusually bullish. A recent report of the United Nations Economic Commission for Africa indicates that the continent achieved an annual growth rate of 5.7 percent in 2006. However, boom-and-bust cycles have stymied real economic progress in Africa.

Africa's economy has sometimes grown only to slump when commodity prices drop. Most African countries depend hugely on rain-fed agriculture and on commodities.

The Organization for Economic Cooperation and Development argues that, though the oil and metal boom is a windfall for African producers, it risks pushing the region back into a commodity corner, harming efforts to foster diversification.

Overall, Africa's economic growth is not strong enough to meet critical development goals. Growth in 45 out the 52 countries clustered in the range of 3 percent to 7 percent. The 7 percent is considered as the minimum growth rate needed to halve extreme poverty by 2015. By this measure, and at current trends, few countries would be on track to achieve the Millennium Development Goals. Current projections are that in 2015 Africa's poverty rate will remain over 38
percent; far above the 22.3 percent which was set as its Millennium Development Goals.

Africa's high population growth, deteriorating natural resource (forests, water, soil) base, a penchant for internal conflict and a notoriously variable climate (and now climate change) pose the most intractable threat to the continents ability to sustain, much less increase the current economic growth rate over the long term.

Africa's population currently growing at 2.4 percent is projected to increase from the current estimate of 800 million to 1.8 billion by 2050. This scenario presents both risks and opportunities. Africa's robust growth has only had minor backward and forward linkages with agriculture, manufacturing and services, thus limiting its contribution to reduction in unemployment and underemployment.

With little of off-farm employment opportunities, nearly 70 percent of Africa's population will depend on land for food, employment and subsistence. Under the medium population projections, per capita arable land will drop to 0.07 hectares (the benchmark land scarcity limit) in eight African countries, including Kenya. Another six African countries, including Rwanda and Malawi are projected to be only fractionally above the 0.07 hectare benchmark.

Below 0.07 ha, farmers must employ highly intensive and generally expensive agricultural methods such as use of inorganic fertilizers, pesticides and irrigation. It is not surprising that nearly 300 million people in Africa are chronically hungry. People suffering from hunger are marginalized within the economy, contributing little to output and still less to purchasing and savings. Nevertheless, the 44 percent of Africa's population aged below 14 years is a great
opportunity. If they are healthy and adequately trained, they constitute a powerful engine for domestic growth and poverty reduction.

According to the Comprehensive Africa Agriculture Development report prepared for NEPAD by FAO in 2002, soil nutrient depletion represents a significant loss of natural capital valued at an estimated US$1 billion to 3 billion per year. In the Nyando river basin of Kenya, soil losses amount to $42.7 million annually based on a conservative value of $15 per ton of soil. Losses of this magnitude will undermine the current economic upturn.

Climate change may have a graver effect on Africa than any other continent. For example, crop failure from climate change will result in a $25 billion loss while 231,661Sq.miles of arable will be ruined. Millions of people face famine and floods with relentless regularity, thanks to the El Nino/ La Nina phenomenon, increasing their vulnerability to hunger, disease and poverty. In 2005 World Food Program appealed for urgent donations of more than $150 million to prevent a food crisis in southern Africa following prolonged.

WFP warned that almost 10 million people in six countries; Zambia, Zimbabwe, Malawi, Mozambique, Lesotho and Swaziland urgently needed food aid. The El Nino phenomenon which triggers outbreaks of Rift Valley Fever causes colossal livestock fatalities in Kenya, Somalia and Tanzania. Rift valley fever is a disease which primarily affects animals, but occasionally causes disease in humans. The disease is often severe in many domesticated animals including cattle, sheep, camels and goats.

Africa is a tinderbox of fragile ecosystems and resource scarcity (land, water, pasture) lit by the spark of ethnic rivalry and bad governance. The conflict in Darfur, the Rwandan genocide of 1994 and the incessant ethnic clashes in Kenya all have roots in resource scarcity. According to the World Bank, half of the indicators point to a risk of conflict for the average country in Africa. Investment climate surveys portray Africa as a high-risk place to do business. Conflict situations lead invariably to less investment, unemployment, lower incomes, less growth and exacerbate poverty.

Enter China, Africa's most fervent investor. China sank $12 billion in aid and bought exports worth $19.2 billion in 2005. China could also be the tripwire for Africa's potential failure to attain sustainable economic growth. The high demand for African commodities reduces the incentives for economic diversification. Sudden surges in export revenues will increase the risk of currency instability due to fluctuations in commodity prices. There is also a risk for countries that have just reduced their debt burden through Highly Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative to accumulate more debt through Chinese infrastructure and export credit loans.

How pessimistic! You must be saying. The point of this is to highlight the fundamentals that set the real pace and direction of economic transformation for the continent. The key insight to be gained is that there is real work to be done by Africans to get the continent on a firm and confident trajectory of sustainable economic growth. Culturally tuned policies aimed at advancing women's health and rights must be implemented to manage the high population growth.
There must be action on environmental policy and regulation to reverse land degradation and manage the effects of climate change.

Africa states must build political institutions that generate dynamic stability. Internal security must be guaranteed to enable a stable civil environment that upholds security of persons, property, access to and equality before the law. Governments must build social cohesion, eliminate conflict and ease the paths to self betterment for their citizens through equitable access to resources, services and opportunities that will improve earnings, consumer purchasing power,
savings and investments.

The fight against HIV/AIDS must not be lost. The patterns of death in the ruling echelons now reflect the mortality patterns of the general population. According to the Institute for Democracy in South Africa mortality patterns in South Africa, Malawi, Namibia, Zambia, Tanzania and Senegal show that HIV/AIDS is a threat to democracy and governance. This will have direct impacts on planning and policy implementation.

Come on Africa, let's get to work!

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