Africa needs to seize this growth opportunity

Africa needs to seize this growth opportunity

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This week’s UK-Africa Investment Summit will provide a welcome business-focused forum for leaders to assess the challenges and opportunities for African countries.  Throughout the summit, I will stress the importance – and difficulty – of transformational improvements in economic programs. Faster, more sustained and broad-based growth is the only path to creating the jobs and stability needed for the millions of young people reaching working age and is vital to the World Bank’s mission of alleviating poverty and raising living standards.

Investors are eager to have a positive impact on development while seeking portfolio diversification and sound returns. Building these investments has been difficult, but with effort and leadership, the opportunity exists for many African countries to become competitive. Significant progress has been achieved in Africa over the past decade, thanks to the efforts of a new generation of policymakers and business leaders emerging across the continent. 

In countries such as Ethiopia, people are urging their governments to push forward with ambitious reforms. The spread of new technologies and smarter financial regulation, notably in Kenya, has opened opportunities for digital financial services, providing millions of more people, including women and small-scale entrepreneurs, with economic opportunities. Low-carbon energy investments, including those supported by the World Bank Group’s International Finance Corporation, can help unleash growth.

Africa’s success stories prove that countries can grow.  Foreign investment and international development assistance – notably from the UK – have each played an important role. But much more work needs to be done.

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The building blocks for progress are known. Countries need rules of law that encourage competition and are enforced. Sound money, spending discipline, clean water and dependable electricity are all required for progress. Taxes and regulation must be balanced and encourage sustainable growth – with an early focus on more productive, market-based agricultural sectors. Adequate capital is important, and human capital is the most valuable. It can be built through sound health and education systems, a strong focus on outcomes, and legal structures that give all the opportunity to succeed.

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Many countries in Africa have a long way to go to create these conditions. Too often, wide-ranging, top-down and unfocused policies and programs leave space for vested interests – both domestic and foreign – to further their own agendas and resist opening markets, making Africa’s business environment less attractive for investment. Policy planners are too often influenced by these vested interests. This has held back development, leaving fragility and conflict for many millions of people.

A key obstacle to foreign investment is that some of Africa’s biggest economies – for example, Nigeria, South Africa, and Angola – have not performed well in recent years.  Another challenge is that cross-border trade and investment, which is vital for growth, isn’t making enough progress to lift Africa’s average growth rate. Vested interests are at the core of both challenges.

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Four of the areas that need urgent attention: First, reforming state-owned enterprises and de-monopolizing markets for greater competition. For many nations, the government footprint remains excessive, crowding out private-sector activity in agriculture, transport, and energy.

Second, Africa needs to reduce barriers to cross-border trade. Red tape and excessive regulation keep goods, services, ideas, and resources from flowing freely among countries.  More intra-regional trade can generate pressure and resources for improved infrastructure.

Third, government debts and investments need to be more transparent. This will give people more voice in the contracts and commitments made by their governments, a critical basis for implementing the rule of law.

Fourth, the region must address “learning poverty”. Our recent study reported on children’s ability at the age of 10 to read a basic story. In some African countries, as many as 80 per cent can’t do this. UK leaders, including the prime minister, have strongly supported programs to keep girls in school long enough to learn skills and break out of poverty.

As donors and investors, we can all agree that the time for Africa is now. We must not wait for every economic condition to be perfect.  Let’s seize the moment and start delivering immediate wins that can rapidly transform economies and improve people’s lives.

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