FORESIGHT AFRICA THE CONTINENT’S GREATEST CHALLENGES AND OPPORTUNITIES FOR 2011 JANUARY 2011 ERNEST ARYEETEY EMMANUEL ASMAH MWANGI S. KIMENYI ZENIA LEWIS JOHN MUKUM MBAKU NEIPHER MOYO JOHN MUTENYO JOHN PAGE EZRA S. SURUMA OLUMIDE TAIWO Africa Growth Initiative at BROOKINGS CONTENTS Introduction ................................................................................................................................................ 1 Africa’s 2011 Elections ................................................................................................................................ 3 Mwangi S. Kimenyi Confl icts and Prospects for Economic Growth ........................................................................................... 6 Ezra S. Suruma Moving toward Opportunity: Managing Migration for Development ....................................................... 8 John Page Climate Change and Africa’s Economic Performance .............................................................................. 11 Emmanuel Asmah & Mwangi S. Kimenyi Leapfrogging Development through Technology Adoption ..................................................................... 13 Mwangi S. Kimenyi & Nelipher Moyo Improving Aid Eff ectiveness for Africa’s Economic Growth ................................................................... 16 Olumide Taiwo Th e BRICs and the New Scramble for Africa ........................................................................................... 19 Mwangi S. Kimenyi & Zenia Lewis Africa’s New Oil Economies: Managing Expectations .............................................................................. 22 Ernest Aryeetey & Emmanuel Asmah Debilitating Borders: Why Africa Cannot Compete without Regional Integration ................................. 25 John Page Driving Africa’s Growth through Expanding Exports ............................................................................. 28 John Mutenyo Africa’s War on Corruption ...................................................................................................................... 30 Mwangi S. Kimenyi & John Mukum Mbaku 1The Brookings Institution B efore the recent global economic crisis, African countries experienced one of the longest periods of economic expansion. Although Africa weathered the crisis much better than many other regions, its economies remain frag- ile and daunted by the challenge of achieving suf- fi ciently high growth rates. Yet, there are also many opportunities that off er hope for African countries to achieve sustainable growth in 2011. In this report, experts from the Africa Growth Ini- tiative at Brookings examine some of the key issues that will matter for Africa in 2011 and beyond. Th ey provide brief overviews of the issues and give policy recommendations to African governments and development partners on how to leverage the opportunities for prosperity, while anticipating and overcoming challenges that could derail Africa’s growth. Africa’s 2011 Elections. Mwangi S. Kimenyi ob- serves that 2011 will be a year of elections for Africa with 27 countries expected to hold national elec- tions. He suggests that while the elections provide opportunities to entrench democracy, they also pres- ent real challenges. He suggests that there is need for African governments and the international com- munity to prioritize investments in electoral systems across the continent. Confl icts and Prospects for Economic Growth. Ezra Suruma focuses on the issue of confl icts in 2011. He discusses how political arrangements that facilitate better representation of ethnic groups in government have helped to resolve confl ict in some countries and should be more widely used in dealing with confl icts in the upcoming year. Moving toward Opportunity: Managing Migra- tion for Development. John Page tackles the con- tentious issues of migration. He proposes that gov- ernments from developed and developing countries should shift their policy from control to managing migration and seek mutually benefi cial arrange- ments to take advantage of global migration. INTRODUCTION Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 20112 Climate Change and Africa’s Economic Perfor- mance. Emmanuel Asmah and Mwangi S. Kimenyi explain the vulnerability of African economies to the vagaries of the weather and especially draughts. Th ey propose mitigation strategies including invest- ing in draught-resistant crop varieties, irrigation in- frastructure, post-harvest technologies and process- ing facilities. Leapfrogging Development through Technology Adoption. Mwangi S. Kimenyi and Nelipher Moyo suggest that technology adoption promises to be an important source of growth for Africa in 2011. Th ey discuss the continent’s technological opportunities and provide policy recommendations to address ob- stacles that prevent African countries from taking advantage of information communication technolo- gies. Improving Aid Eff ectiveness for Africa’s Eco- nomic Growth. Olumide Taiwo examines the im- portance of improving aid eff ectiveness in 2011 and beyond. He calls on donors to adhere to the prin- ciples outlined in the Paris Declaration on Aid Ef- fectiveness and on African governments to tackle corruption, increase internal revenue generation and boost national saving. Th e BRICs and the New Scramble for Africa. Mwangi S. Kimenyi and Zenia Lewis state that the BRICs off er Africa great opportunities for econom- ic growth in 2011. However, this relationship also presents challenges. Th ey argue that African gov- ernments must forge partnerships with the BRICs that go beyond the exploitation of natural resources to promote other sectors that will facilitate long- term economic growth in Africa. Africa’s New Oil Economies: Managing Expecta- tions. Ernest Aryeetey and Emmanuel Asmah ex- plore the prospects and pitfalls associated with new oil and gas discoveries in some African countries. Th ey present strategies to manage expectations and avoid the resource curse. Debilitating Borders: Why Africa Cannot Com- pete without Regional Integration. John Page explains why regional integration should be at the forefront of Africa’s development agenda in 2011. He stresses that in order for Africa to be globally competitive in exports, the continent needs a much deeper level of regional integration than what cur- rently exists. Driving Africa’s Growth through Expanding Ex- ports. John Mutenyo analyzes how the lack of ex- port diversity and a dependence on commodities hamper export-driven growth in Africa. He pro- vides recommendations on how Africa can exploit its exporting opportunities and increase economic growth in 2011. Africa’s War on Corruption. Mwangi S. Kime- nyi and John Mukum Mbaku argue that economic performance in African countries continues to be impacted adversely by high levels of corruption. Kimenyi and Mbaku emphasize the importance of deepening and sustaining Africa’s war on corrup- tion to promote long-term economic growth in the region. 3The Brookings Institution P robably no other issue is likely to have such a signifi cant impact on Africa’s economic development in 2011 as various elections scheduled this year. Th e number of national elec- tions to be held in Africa in 2011 is unprecedented with 27 countries holding crucial presidential, leg- islative and local elections. Th ese countries include: Benin (presidential and national assembly), Burkina Faso (local), Cameroon (presidential), Cape Verde (presidential and national assembly), Central Af- rica Republic (presidential and national assembly), Chad (presidential, national assembly and local), the Democratic Republic of Congo (presidential and national assembly ), Djibouti (regional and local), Egypt (presidential), Gabon (national assembly), Liberia (presidential, house of representatives and junior senators), Madagascar (presidential, national assembly and local), Mauritania (national assem- bly, regional and local senate), Mauritius (regional assembly), Niger (presidential), Nigeria (national assembly, presidential, state assemblies and gover- nors), Rwanda (senate and local), Sao Tome (local and presidential), Seychelles (presidential), South Africa (local), Southern Sudan (independence ref- erendum), Tunisia (chamber of councilors), Uganda (presidential, national assembly and local), Zambia (presidential, national assembly and local), Zimba- bwe (constitutional referendum, presidential, na- tional assembly, senate and local). How these elec- tions turn out—whether they are considered fair or not, results disputed or accepted, peaceful or vio- lent—will have a major impact on the development prospects in the continent. Th e fact that regular competitive elections have be- come institutionalized in the African political land- scape is in itself a positive sign of emerging democ- racies. Elections have been an important aspect of entrenching democracy in Africa. Th ey have given many Africans, who for a long time were under op- pressive dictatorships, the opportunity to elect lead- ers that represent the needs of the African citizens and prioritize development goals. Elections have been instrumental in removing incompetent and AFRICA’S 2011 ELECTIONS MWANGI S. KIMENYI Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 20114 corrupt leaders in Africa, which has increased the growth prospects for African countries. Th ere is compelling evidence that where elections are held on a regular basis, the leaders are more accountable and service delivery improves considerably. Elections have provided citizens with a voice to express how they should be governed and the services they de- mand. In this respect, the fact that so many African countries will be holding elections in 2011 should be seen a positive sign for the continent’s economic development. However, competitive elections have not always turned out well in Africa. In fact, a few recent elec- tions, such as those in Kenya, Zimbabwe and Côte d’Ivoire, have tended to weaken the institution, with claims of rigged and stolen elections. In these and other cases, elections have actually further polar- ized ethnic groups and led to violent confl icts. In other cases, elections have allowed specifi c groups to continue their dominance over others by excluding smaller ethnic groups from sharing in the fruits of development. Elections in Africa have often been marred by widespread vote buying, bribery and vot- er intimidation. Th e rise in electoral fraud in Africa threatens to undermine the expected gains of the electoral process as these contested elections could degenerate into widespread confl icts. Probably the worst aspect of competitive elections in Africa has been their infl uence on ethnic poli- tics. Elections have unfortunately tended to be ex- tremely polarizing as African politicians have often used ethnicity as the axis for political mobilization. Rather than uniting various groups, electoral politics in Africa has tended to divide the diff erent ethnic groups and erode trust among them. Such negative outcomes do not bode well for creating the key so- cial networks that are conducive for economic de- velopment in Africa. INVESTING IN ELECTIONS Many of the upcoming elections off er hope in the solidifying democracy in Africa. Nevertheless, dan- ger looms if these elections are not managed appro- priately. As we start the year, there is need for Africa and the international community to invest in elec- tions in order to improve the electoral processes and maximize their benefi ts. Th ere are two policy priorities that should be taken in order to ensure that the benefi ts of the 2011 elec- tions in Africa are realized. Th e fi rst has to do with the diff usion of power. African elections have been so contentious partly due to the high concentration of power in the executive. Winning a presidential race in Africa often gives the new president im- mense powers to distribute benefi ts to his/her sup- porters at the expense of other citizens. To minimize these discretionary powers, there is need for major institutional reforms that place suffi cient constraints on executive powers. Th is way, even coalitions that do not win could still hold the leadership account- able. Th e second priority should be investment in Africa’s electoral systems—voter registrations, identifi cation, voting equipment, independent electoral commis- sions, vote monitoring and tallying, etc. Th e source of problems in recent disputed elections in Africa has been weaknesses in the electoral processes. Many African countries scheduled to hold elections in 2011 are ill-prepared to conduct credible, free and fair elections. 5The Brookings Institution Development partners can play a crucial by sup- porting electoral systems early on and by acting as independent observers. It is also important that re- gional organizations be prepared to handle potential and very likely chaos and violence that could arise from disputed elections. Africans and the interna- tional community should not be caught by surprise if violent confl icts arise after some of the elections take place. Well-managed elections will greatly advance the in- stitutional infrastructure and forge economic growth in African countries. But, poorly managed elections are likely to weaken institutions, create confl icts and undermine growth not only in the countries con- cerned but also in neighboring countries. SELECTED REFERENCES Bratton, Michael and Mwangi S. Kimenyi (2008). ``Vot- ing in Kenya: Putting Ethnicity in Perspective,” Jour- nal of East African Studies, 2 (2): 273-290. Collier, Paul, Gutierrez-Romero, Roxana and Kime- nyi, Mwangi S. (2010). “Democracy and Prosper- ity,” Forthcoming, in C. Adams, P. Collier and N. Ndung’u, Policies for Prosperity, Oxford University Press. Kimenyi, Mwangi S. and Shughart, William F. II (2010). “Th e Political Economy of Constitutional Choice: A Study of the 2005 Kenyan Constitutional Referen- dum,” Constitutional Political Economy, 21: 1-27. Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 20116 CONFLICTS AND PROSPECTS FOR ECONOMIC GROWTH EZRA S. SURUMA T here is substantial evidence that the resolu- tion of confl icts in Africa is a fundamental prerequisite for sustainable economic de- velopment and growth. Countries that were pre- viously torn by confl icts such as Angola, Uganda, Rwanda, Burundi, Liberia, Sierra Leone and Ethio- pia have moved decisively from economic stagna- tion and decline to steady economic growth. But Africa remains home to a number of signifi cant confl icts. Th ese confl icts impart considerable costs to the countries concerned but also to their neigh- bors. Furthermore, there are many fragile states, and the possibility of new confl icts is real. Th e causes of confl icts in Africa include ethnic dis- trust, religious discrimination and intolerance, cor- ruption, injustice and poor governance. In some cases, the internal divisions may be fuelled by ex- ternal forces seeking, for example, to exploit natu- ral resources. In other cases, external powers might intervene in the politics of the African countries where they wish to infl uence the governments con- sidered to be geo-politically strategic or sensitive to their own interests. Many nations of Africa are somewhere in the middle between extreme violence, as in the case of Somalia, and virtual domestic peace, such as Tanzania or Bo- tswana. Th ere are some countries, which though not totally violent, are nevertheless experiencing con- siderable stress and tension. For example, countries such as Côte d’Ivoire, Sudan and the Democratic Republic of Congo (DRC) have United Nations peacekeeping forces stationed in their countries to help resolve internal confl icts. Th e island of Mada- gascar probably fi ts into this category as well. Eco- nomic growth in these countries is considerably muted and citizens are exposed to fear and violence. Yet, in other African countries, a high degree of sta- bility has been established, but some bursts of vio- lence reveal that considerable underlying tensions remain unresolved. Examples of these are the vari- ous outbreaks of violence in Nigeria in the Northern Region and in Plateau and Delta States, the Lord’s 7The Brookings Institution Resistance Army (LRA) insurgency in Uganda, the post-election violence in Kenya in 2007, and the po- litical cleavages in Zimbabwe. Despite strong eff orts in these countries to resolve the underlying confl icts, there is still considerable unease and uncertainty about peace and political stability there. Th e ultimate resolution of confl icts in Africa requires political leadership that skillfully adopts formulas that suit the peculiar conditions of these African states. For example, the adoption of “broad-based” political parties that attempt to include all tribes and religions have helped Uganda to enjoy relative sta- bility and growth in the last 25 years compared to previous years. Similarly, the experiment in Burundi in which every ethnic group is guaranteed a speci- fi ed proportion of representation in the executive and parliament appears to be promising, following a long period of very fi erce and bloody confl icts. Simi- lar “inclusion” models were indispensable to the po- litical settlements, however tenuous, that followed electoral impasses in Zimbabwe and Kenya. As we faced the debacle of political confl ict and gridlock in Côte d’Ivoire at the end of 2010, and now anticipate presidential elections in a host of African countries in 2011, fear and uncertainty will be acutely felt both within Africa and the world community. Africa will need creative leadership that sees beyond “winner takes all” and instead designs accommodative arrangements to include represen- tations of all tribes and religions. African confl icts may not be solved by focusing on the correctness of electoral procedures alone. It may be even more critical to ensure that the design of the constitution assures an acceptable representation of all groups in all the structures of government. Th e resolution of confl icts and the establishment of a harmonious coexistence among Africans require, as elsewhere, the irrevocable and certain assurance of economic and political justice for all. 2011 presents immense opportunities for Africa to achieve high rates of economic growth; however, these opportunities can only materialize if peace is maintained. Given the recent record, there is a high likelihood of the emergence of new confl icts and escalation of existing ones. Such unfortunate out- comes could greatly undermine growth in 2011. Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 20118 P opulation mobility has been a permanent feature of African history and it is very like- ly to increase. Growing demographic imbal- ances between Africa, Europe and North America, combined with large income gaps, will lead to strong migration pressures toward industrialized countries. As Europe’s population ages, it is projected that the European Union will need 1.6 million immigrants entering the job market every year between 2010 and 2050. Africa has the demographic potential to close the gap. Th e majority of African migrants, however, will remain within the continent, where growing intra-regional income diff erences will contribute to substantially greater mobility of workers. Th e major impacts of increased migration on Afri- can economies are likely to come through migrant remittances and highly skilled migration. Globally, remittances are a leading source of development fi - nance and in Africa they are of growing signifi cance. Th ere is little agreement but great emotion about the impact of highly skilled migration on Africa’s development. On the positive side, skilled migration results in a refl ow of remittances and may provide incentives for skill formation. It may also encour- age fl ows of commerce, investment and knowledge through diaspora communities. Set against these gains are possible reductions in institutional capac- ity, declines in the productivity of networked pro- fessions—such as health care—and adverse distri- butional consequences from public fi nancing of skill formation. MANAGING MIGRATION Of course the most intriguing question arising from increasing migration is whether some economies in Africa might be able to manage migration for de- velopment. Africa has a large number of landlocked, resource-scarce countries. Th ese economies face the dimmest prospects of growing to middle-income status and their economic future is likely to require that they specialize in the export of goods and ser- vices that have high value to transport costs—mainly those that embody high levels of human skills. MOVING TOWARD OPPORTUNITY: MANAGING MIGRATION FOR DEVELOPMENT JOHN PAGE 9The Brookings Institution Not surprisingly, the policies and investments need- ed to export goods and services that embody hu- man skills are complementary to exporting the skills themselves. Investments in education and training are required and the limited evidence suggests that the opportunity to migrate raises the demand for skills. Falling transportation costs and correspond- ing investments in transport infrastructure can ben- efi t both trade and migration. Aggressively invest- ing to create the skills needed for e-commerce, as Rwanda has done, can have the benefi cial, if unin- tended, consequence of providing the language and communication skills needed to equip nationals to compete in third country labor markets. For countries at either end of the migration chain, viewing migration as part of the solution to the de- velopment problem—rather than as a symptom— off ers considerable promise. To grasp the opportu- nity off ered by increasing migration, governments will need a migration strategy and a clearer under- standing of the costs and benefi ts. TOWARD MIGRATION POLICY With very few exceptions, governments in Africa and in destination countries have approached mi- gration in institutional and policy terms from a con- trol perspective. Managing migration will require a diff erent policy perspective: one that attempts to maximize the benefi ts of migration while minimiz- ing its economic and social costs. For African countries of origin, some policy inter- ventions are reasonably straightforward and have an ample evidence base to support them. For example, fi nancial sector reforms to extend formal banking to rural areas and to provide a broader array of fi nancial instruments to small savers can increase the share of remittances that fl ow into the formal fi nancial system and increase fi nancial depth. Active policies to encourage the physical or virtual return of skilled migrants—as have recently begun in Ghana and Ni- geria—off er the potential for using the diaspora as a development resource. Other aspects of migration policy are highly conten- tious, such as the appropriate response to the migra- tion of highly skilled professionals. At present, we have very little evidence on whether the brain drain’s net impact is positive or negative. Nevertheless, a number of policy lessons drawn from the experience of countries outside of Africa—many of them con- cerning what not to do—are relevant. Existing evidence suggests that policies restricting the mobility of highly skilled individuals directly or through educational restrictions are not likely to work. Brain drain is rarely the root problem. Chal- lenges in education, health care and public fi nance combined with the magnitude of income diff eren- tials between sending and receiving countries pro- vide powerful incentives for individuals to move. It is however possible to recover some of the publicly fi nanced costs of skilled migration. Careers in medi- cine, engineering and other technical subjects are fast becoming global and tend to be the most costly fi elds in terms of training. Requiring students to pay for a portion of the cost of their training seems both fair and effi cient. A shift in perspective from control to management would also benefi t the destination countries. De- mographic pressure, persistent income diff erentials, spreading networks of migrants, increasingly intense communications, and the growing ability to aff ord Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 201110 the cost of migration mean that the rich countries of Europe, North America and Asia will face rising migration pressures. Integrating migration into the development agenda and seeking mutually benefi cial arrangements with the countries of origin in Africa off er a greater prospect of long-term success than increasing controls. Multilateral approaches are also needed. Th erefore, strengthening global institutions that can establish and enforce rules governing mi- gration, as is the case for trade and fi nance, should be a high priority. SELECTED REFERENCES Lucas, R.E.B (2006). “Migration and Development in Africa,” Journal of African Economies 15(2): 337-395. Page, John and Sonia Plaza (2006). “Migration and De- velopment: A Survey of the Global Evidence,” Jour- nal of African Economies 15(2): 245-336. Plaza, Sonia, Navarrete, Mario and Dilip Ratha (2010). “Migration and Remittances Household Surveys: Methodological Issues and New Findings from Sub- Saharan Africa, 2010,” Washington, D.C.: World Bank. 11The Brookings Institution I n Africa, the majority of the population lives in rural areas and is largely dependent on tra- ditional agriculture. Although the share of ag- riculture to GDP has been declining, the sector still accounts for about 30 percent and employs about 70 percent of the African labor force. Th erefore, the performance of the sector is crucial to economic growth and even more so to the livelihoods of the poor, especially as it relates to food security. Unfor- tunately, agricultural production on the continent experiences wide swings as a result of exogenous shocks. Th e performance of the African economies in 2011 will be aff ected by such shocks and how well-prepared the countries are to deal with them. Probably no other factor impacts agricultural pro- duction as much as adverse weather conditions, es- pecially draughts. Recent history has been marked with frequent draughts that have resulted in whole- sale crop failure. Some areas that have experienced extreme draughts in the last few years include the Horn of Africa, East and Central Africa and parts of Southern Africa. Even where draughts have not been as severe, rainfall tends to be unreliable result- ing in lower agricultural outputs. Associated with these trends have been expanding deserts, lower water tables and shrinking fresh water masses. Th e impacts of the adverse weather conditions have been far reaching—the starvation of millions of people and deaths of thousands of domestic animals and wildlife. It is apparent that economic performance in Africa is intractably tied to the whims of the weather. One of the main features of African agriculture is that it remains primarily dependent on rainfall. As such, any disruption in the amounts and patterns of rainfall has detrimental impact on agricultural pro- duction, overall economic growth and food security. Furthermore, climate change is increasingly threat- ening Africa’s agricultural production. Th us, unless there are concerted eff orts to shift radically from rain-fed agriculture, Africa will remain exposed to the vagaries of the climate. But the challenges asso- CLIMATE CHANGE AND AFRICA’S ECONOMIC PERFORMANCE EMMANUEL ASMAH & MWANGI S. KIMENYI Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 201112 ciated with climate change are compounded by the fact that many African governments are unprepared to deal with such shocks. In 2011, weather patterns, and especially draughts, could derail economic growth in Africa. POLICY OPTIONS In the short run, African countries can reduce the negative production eff ects caused by draughts by investing in draught-resistant crop varieties. Such technologies that could be adapted to many of the countries are available but the rate of diff usion has been slow. In addition, African countries have not invested adequately in post-harvest technologies. During periods of good rains, surplus crops (e.g. grains-maize, wheat, beans) go to waste or are sold at throw-away prices because of the lack of storage facilities or opportunities to process the crops (into powder milk or canned fruits, for example), so that they can be stored for longer periods of time. In- vesting in such technologies will greatly reduce the negative impact of weather conditions. Clearly, rain-fed agriculture has limits and cannot be relied on to feed burgeoning populations or be a source of sustainable economic growth. In addition, there is increasing competition for water for various uses—especially with rapid growth in urban popula- tions. Th us, in the long term, African countries must increase their investment in irrigation infrastructure and also water-conserving technologies such as drip irrigation, dam construction and rain water harvest- ing. Unfortunately many irrigation projects built before and soon after independence have been ne- glected and gone to disuse. In terms of development cooperation, African gov- ernments should seek collaboration with countries that have advanced agricultural technologies suit- able for harsh climates. A good example is Israel—a country which has made major strides in this direc- tion. In addition, there is need to deepen collabora- tion in areas of research on agricultural technologies and water conservation. Climate change does make the impact of adverse weather even more serious. As such, Africa must fo- cus on climate change mitigation strategies. Farm- ers should be provided appropriate incentives to undertake agro-forestry projects to enhance carbon sequestration. Distributing climate data regarding seasonal climate forecasts and early warning sys- tems can help small farmers make informed deci- sions. Capacity building, education, training and public awareness on climate-related issues should be prioritized and appropriately coordinated. Th ese strategies will be important in reducing Africa’s ex- posure to the risks associated with the weather and changing climate. 13The Brookings Institution A lthough agriculture and natural resources will continue to be important drivers of Africa’s economic growth in 2011, it is the application of modern technologies that will have the most signifi cant impact on the growth trajec- tories of most African economies. Specifi cally, the greatest opportunity for growth will come from technological innovation and the adoption of new technologies in services sectors, such as banking, insurance, health, education and agriculture. New opportunities have arisen that make it possible for low-income economies to leapfrog other countries by adopting technologies that are suitable to their specifi c circumstances. Th ose countries that em- brace and invest in technology will be able to sustain growth and be competitive regionally and interna- tionally moving forward. In the last decade, Africa saw rapid growth in the information and communication technology (ICT) sector, resulting in major transformation of African business operations and processes. Th e ICT sector has helped to reduce the cost of communication, increase market information, formalize capital, in- crease productivity, and facilitate capital accumula- tion in Africa. Th erefore, it is now easier to do busi- ness in the region. Th e most striking advances in ICT have been in the use of mobile phone technology. Africa is now touted as the world’s fastest growing mobile phone market, as the number of mobile phone subscrip- tions increased from 16 million in 2000 to half a bil- lion by 2010. One of the areas where technology has had a signifi cant impact on the lives of the poor is in mobile banking. Innovations have made it possible for millions of poor Africans to have access to fi nan- cial services through their mobile phones. However, despite the impressive growth rates in Africa over the last decade, the region continues to lag behind the rest of the world in terms of access to fi nancial services. Only 1 in 5 households in Sub-Saharan Africa have access to formal fi nancial services. LEAPFROGGING DEVELOPMENT THROUGH TECHNOLOGY ADOPTION MWANGI S. KIMENYI & NELIPHER MOYO Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 201114 Although mobile banking has the potential to ex- tend fi nancial services to Africa’s poorest, it contin- ues to be underutilized in many countries. Evidence suggests that mobile banking has been less success- ful in countries that do not have a widespread na- tional identifi cation system. Th erefore, it is critical that African governments invest in national identi- fi cation systems in order to reap the benefi ts of mo- bile banking. Indeed, having an identity is becoming increasingly more important as Africa enters the digital age. Mobile phone technology also has the potential to transform the delivery of health services in Africa. About 64 percent of Sub-Saharan Africans live in rural areas where health services are scarce. Mo- bile-health, or m-health, could improve the health of millions of Africans at a fraction of the cost of traditional delivery methods through more effi cient transmission of information about drugs, diagnosis and faster identifi cation of disease outbreaks. Although the agricultural sector is important for growth and development in Africa, agricultural productivity in Africa remains far below the region’s potential. One of the most eff ective ways to increase agricultural productivity in Africa is through the use of high-yield seed varieties. In a recent study, the African Development Bank found that the use of high-yield variety seeds and fertilizers would in- crease cereal production by 75 percent in Africa. Use of new high-yield seed varieties, chemical fertilizers and other inputs must be prioritized if Africa is to achieve higher growth rates and food security. Tech- nology off ers the opportunity to transmit important information about new seeds, new inputs and also information about market prices at a relatively low cost. Technology also presents business opportunities for Africa’s entrepreneurs. Wages in emerging mar- kets have been increasing, which makes Africa well placed to become the next signifi cant destination for outsourced IT services. Th e region has a large English- and French-speaking population that is literate in information technology and earns wages much lower than its counterparts in India and Chi- na. Th ese factors make Africa an ideal destination for ICT outsourced jobs. Exploiting these oppor- tunities promises to be very important in boosting growth in 2011. PUBLIC‐PRIVATE PARTNERSHIPS TO CLOSE THE DIGITAL DIVIDE While there has been tremendous progress in the last decade, Africa’s adoption of modern technology still lags behind other nations. For many countries, investments in new technologies have been largely neglected. Underinvestment in technology in Africa represents serious market and government failures that can be overcome through public-private part- nerships. African governments must invest in im- proving the business climate and more specifi cally, the regulatory environment. Th ey should also invest in complementary infrastructure, such as roads and electricity, in order to take advantage of and have proper access to new technologies. Th ere is scope to utilize public and private partnerships especially as it pertains to large infrastructural projects, such as ex- tending fi ber optic cables. Also critically important is to increase investments in research and extension services to improve access to information of clients, such as farmers and patients. Technological innova- 15The Brookings Institution tions must be prioritized by African governments so that accelerated and sustainable growth can be achieved in 2011. SELECTED REFERENCES Kimenyi, Mwangi S. and Njuguna S. Ndung’u (2009). “Expanding the Financial Services Frontier: Lessons From Mobile Phone Banking in Kenya,” Brookings Institution Publication. Moussa, Sami Zaki (2002). “Technology Transfer for Agriculture Growth in Africa,” Abidjan: African Development Bank. OECD, AfDB and UNECA (2009). Th e African Eco- nomic Outlook (AEO) 2009 on Innovation and New Technologies in Africa, OECD Printing Press. Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 201116 IMPROVING AID EFFECTIVENESS FOR AFRICA’S ECONOMIC GROWTH OLUMIDE TAIWO F oreign aid is being squeezed as donor coun- tries and their respective development agen- cies are cutting budgets in the aftermath of the global recession. Accordingly, many African countries that depend substantially on this assis- tance are already revising the amounts of foreign aid to include in their respective state budgets. Donor support for development projects, which makes up a large percentage of foreign aid, is also expected to be cut over the next few years. Th is means that Af- rican countries will face even larger fi nancing gaps, which is likely to dampen their economic recoveries in 2011 and beyond. Compounding the problem of cuts in aid funding is the fact that existing aid to many African countries has not been as eff ective as it should be in promoting development in the region. For African countries to improve their development prospects and to achieve and sustain long-term growth, it is crucial that both donors and recipient governments ensure that every dollar of development aid is used eff ectively. THE ROLE OF DONORS Donors can help Africa’s growth and development by adopting procedures for improving aid eff ective- ness. First and foremost, donors must reduce the uncertainties and volatilities surrounding resource fl ows to aid recipient countries in Africa and else- where. Shortfalls in aid disbursements relative to pledges create major diffi culties for recipient coun- try governments in planning development projects and the delivery of vital services. As a consequence, recipient country governments end up running to domestic banks for fi nancing or being forced to make spending cuts that are often imprudent and disastrous. Th e shocks that follow may actually de- feat the original purpose and goal of the aid money from the donor country or organization. Second, donors would be better served if they adopt at least the fi rst two principles of the Paris Declara- tion on Aid Eff ectiveness. Th e fi rst principle of the Paris Declaration emphasizes the need to allow re- 17The Brookings Institution cipient countries to defi ne their own development priorities and programs while donors assist in help- ing recipient countries achieve those priorities. Th is is a clear departure from the traditional top-down aid approach of the last decade. With many African countries now possessing well-educated and well- trained civil servants, donors can be reassured that these civil servants are knowledgeable in the eco- nomic and political aff airs of their countries and are capable in implementing development aid projects and programs. Donors also need to align their aid principles with recipients so to ensure that aid does not result in market distortions. For example, donors interested in supporting the health care system of a country need to direct their aid money to the health care system of that country rather than create a separate and independent system. Creating a separate sys- tem from the recipient country’s health care system could end up poaching critical resources away from the country’s own system. Th e second principle of the Paris Declaration stress- es the need to support eff orts to strengthen statisti- cal and measurement systems of recipient countries. Th e lack of well-functioning statistical systems and consequently the absence of reliable data remain one of the most serious problems facing development ef- forts in African countries. Many domestic policies and programs that sound good in theory turn out to be poor in practice because they are not conceived based on a clear understanding and assessment of the situation on the ground. As a consequence, large amounts of aid end up being wasted on poorly con- ceived programs. Another issue of aid eff ectiveness that donors must address is the various conditionality and strings at- tached to development aid. Th is type of aid repre- sents a large proportion of overall donor aid to Af- rica. While donors often impose strings tied to aid in order to ensure that the money is not diverted, these funds in many cases end up sitting in bank accounts and are not utilized for a large part of the duration of the assistance. Rather than keeping these funds idle, donors should be more fl exible in setting conditions tied to aid. In order to deal with the typical principal-agent fear of aid recipients not following through with the implementation of donor wishes, donors can innovatively involve civil society to improve transparency and accountability in the aid disbursement and utilization process. For example, donors could furnish project support funds to strong civil society groups that can act as account- ability mechanisms by monitoring the implementa- tion progress of aid recipient governments. THE ROLE OF AFRICAN GOVERNMENTS African governments also have a role to play in improving aid eff ectiveness by passing and imple- menting important anti-corruption reforms. Fears about corruption and other forms of government abuse remain critical sources of concern for donor countries and their respective agencies. Many Afri- can governments have made substantial progress in good governance and in the war on corruption, but more progress needs to be made. Donor worries over government corruption in Af- rican countries have led to the proliferation of non- governmental organizations. Th ese NGOs are seen Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 201118 as an alternative to aid recipient governments and sometimes even compete with governments for aid money. As African country governments demon- strate their seriousness in tackling internal corrup- tion and collusion issues, they must also ensure that aid money is not being wasted on avoidable over- heads by NGOs. For example, an NGO dealing with rural health issues has no business maintain- ing a presence or offi ce in a major city. African gov- ernments must also make eff orts to eradicate ghost NGOs from their foreign assistance sectors. Foreign aid fl ows can have substantial impacts on the economic growth and human development of Africa in 2011 and beyond. But the impact will only be felt when aid is utilized effi ciently, and recipient countries are able to increase their level of internal project fi nancing as a result of the assistance. African countries have learned an important lesson during the recent global recession that aid infl ows are not going to be permanent. Th erefore, it is imperative that African governments turn these lessons into plans of action that minimize their reliance on for- eign aid in the foreseeable future. It is imperative for African governments to begin strengthening their internal revenue generation capabilities and pursue policies that can help increase their levels of national savings. Th is will enable them to gradually increase the amounts of down-payment on projects that are presently supported by external aid and to gradually close the fi nancing gap. 19The Brookings Institution THE BRICS AND THE NEW SCRAMBLE FOR AFRICA MWANGI S. KIMENYI & ZENIA LEWIS B razil, Russia, India and China (BRICs) have literally invaded the African continent, but not with arms. Instead, they have invaded Africa with money, goods, ideas, and drilling and mining equipment. Largely absent just a few years ago, the BRICs are now slowly but surely edging out Western countries in Africa in the areas of trade and investment, and to some degree development aid. India and China in particular, and to some extent Brazil, have increased their engagement in Africa in rather dramatic ways. Th e BRIC countries are now becoming major players in the continent, which has not only changed Africa’s traditional trade and in- vestment relations but also created signifi cant op- portunities and challenges for Africa’s economies. Th ere is no doubt that Africa’s growth in 2011 will be infl uenced by its relationship with the BRICs. One of the most important dimensions of this bur- geoning relationship is foreign direct investment (FDI). Although most FDI to Africa still comes from the United States, Western Europe and Japan, the largest increases in FDI to Africa in recent years has come from the BRICs. Over the past 10 years, FDI fl ows from the BRICs to Africa have increased consistently, only falling slightly in 2009 due to the global economic crisis. While the bulk of the BRICs’ FDI to Africa has been concentrated in South Af- rica, Egypt and Morocco, the BRICs have recently taken a greater interest in investing in other coun- tries across Africa. While this is positive for Africa since foreign direct investment can be a strong cata- lyst for economic growth and development, there are serious concerns over the BRIC countries’ appetite for the continent’s natural resources. In fact, some analysts have characterized the BRICs as leading a modern day scramble for Africa. Indeed, the BRICs are already major players in the exploitation of key natural resources in Nigeria, Sudan, the Democratic Republic of Congo and Angola. For example over the last two years, Brazil and China expanded their investments in oil in Angola, Nigeria and Sudan, in mining in Liberia and Mozambique, and in gas in Nigeria. Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 201120 However, the BRICs are beginning to invest in other sectors as well. India, for example, has diver- sifi ed its investment portfolio in Africa to include textiles, small- and medium-sized enterprises, social services such as health and education, information communication technology and automobiles. BRIC countries are also now heavily involved in massive construction projects around Africa. Th ey are help- ing build roads, dams, hydroelectric power stations, railways and buildings. In addition, trade between the BRICs and Africa has expanded greatly and in some cases the BRICs have replaced Africa’s tradi- tional trading partners, even though exports to the BRICs from Africa are still mainly dominated in natural resources. BRIC countries are also becom- ing important actors in development aid to Africa. In addition to concessionary and soft loans, lines of credit and grants, the BRICs, and especially China, are providing project aid to expand and improve Africa’s infrastructure. MANAGING RELATIONS FOR AFRICA’S DEVELOPMENT While the BRICS are opening up opportunities for Africa to diversify its trading partners in new markets and to forge new mutually benefi cial part- nerships, these opportunities come with major chal- lenges. Th e recent attention on Africa by the BRICs is not solely based on an altruistic goal to improve the economic well-being of Africans. Rather, BRIC countries are trying to maximize their own strategic economic and political interests by engaging with African countries. Th erefore, African policymakers must also be strategic in dealing with BRIC coun- tries just as they should be with other foreign part- ners. One issue that requires careful attention and man- agement from African policymakers is natural re- source exploitation contracts. Th ere are growing concerns over the lack of transparency in the signing of these contracts with the BRICs. In some cases, BRIC countries seem unconcerned with corruption and may even be contributing to the survival unac- countable regimes. In addition, there are increasing concerns over BRIC projects in Africa that fail to maintain internationally accepted environmental standards. Th erefore, African nations must invest in the contracting process and African policymakers must push for more transparency in the contracting process. Th e international community must also sub- ject the BRICs to accepted accountability restraints with regard to the exploitation of natural resources. Th e issue of growing project aid from the BRICs also requires some careful consideration by African policymakers. While such aid is helping Africa nar- row the infrastructure gap, it is important that this aid not be used as a way to endow monopoly rights for the BRICs in the exploitation of Africa’s natu- ral resources or to hold African countries hostage to future contracts related to new projects and main- tenance. Ultimately in 2011, African policymakers must work to shift Africa’s relationship with the BRICs from one based primarily on natural resources to one that advances the continent’s long-term economic growth and development trajectories. Th e prospects for long-term growth in African economies will depend on the transformation of their current pro- duction structures. Th us, African policymakers must identify and demand that the BRICs focus on those investments that best contribute in the transforma- tion of African economies. 21The Brookings Institution SELECTED REFERENCES Brautigam, Deborah. “Africa’s Eastern Promise.” Foreign Aff airs, January 5, 2010 (http://www.foreignaff airs. com/articles/65916/deborah-brautigam/africa’s- eastern-promise?page=show). Jopson, Barney. “BRICs in Africa: Adding it up.” Finan- cial Times, Beyond BRICs Blog, August 5, 2010 (http:// blogs.ft.com/beyond-brics/2010/08/05/76851/). Mohan, N Chandra. “Th e India-China FDI Safari.” Business Standard India, December 17, 2010 ( http:// www.business-standard.com/india/news/n-chandra- mohanindia-china-fdi-safari/418517/). Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 201122 AFRICA’S NEW OIL ECONOMIES: MANAGING EXPECTATIONS ERNEST ARYEETEY & EMMANUEL ASMAH T he recent discoveries of oil and gas deposits in some African countries, such as Ghana, Ethiopia, Sierra Leone, São Tomé and Príncipe, and Uganda, present new opportunities to chart a sustainable growth and development path that facilitates poverty reduction. Ghana and Ugan- da are two of the countries that are currently attract- ing most of the attention. Ghana’s off shore Jubilee fi eld, situated approximately 60 kilometers from the mainland is estimated to have oil reserves of 1.8 bil- lion barrels as well as signifi cant gas deposits. Th e Jubilee fi eld, which began offi cial commercial pro- duction in mid-December 2010, is initially expected to produce 55,000 barrels of oil per day with output set to rise to 120,000 barrels per day over the next six months. For Uganda, the quantity of oil reserves underground located near the Albertine valley is es- timated at 2 billion barrels, translating to 100,000 to 300,000 barrels of oil per day. Commercial oil pro- duction in Uganda is expected to start in 2013. Admittedly, in the absence of new large fi nds, these oil discoveries come nowhere near the over 30 bil- lion barrels of reserves in Nigeria or the 12 billion barrels in Angola. Yet, there are growing expecta- tions among the citizens of these new oil economies of the immediate upswings in their livelihoods and improvements in quality of life. Th e newly discov- ered natural resources and the associated windfalls are expected to be used to deliver substantial social, economic and infrastructure improvements in these African countries. Th e masses of unemployed youth are looking forward to new jobs; local fi shermen fear losing their livelihoods while others are anticipating increased national prosperity and a possible end to donor dependence and conditionality. Th ese new oil discoveries have also come in the midst of serious concerns and controversies that have characterized the empirical relationship between oil rents and development, particularly in oil exporting African countries. Th e disappointing development 23The Brookings Institution performance of many resource-rich economies has been a topical issue among policymakers, NGOs, civil society and academics. Many countries have failed to leverage their natural resource wealth to build strong and stable states with sustained long- term economic growth. For some of these countries, oil, gas and mineral wealth have instead become as- sociated with high poverty rates, weak state institu- tions, corruption and confl ict. Clearly, these expectations—whether explicit or im- plicit, clear or fuzzy, realistic or unrealistic, evidence- based or opinionated—need to be managed in or- der to avoid any potentially negative consequences. Such consequences could include: a disappointed and disengaged public, an indebted government that has borrowed against possible incoming natural resource revenues, diffi cult development planning, Dutch disease, increases in rent-seeking, and gener- al mistrust within society. All of these consequences will need to be managed accordingly. Th e good news for these new African oil economies is that there is now a broad understanding of some of the measures that need to be put in place in order to manage these expectations and avoid the resource curse. Botswana, Canada, Australia and Norway are among the coun- tries that have eff ectively managed their natural re- sources to advance development. Some common themes on how to manage the ex- pectations and avoid the resource curse are summa- rized below: Th ere is the need to improve the quality of in- stitutions and to insist on accountability and transparency of resource revenues. Transparency over the allocation of mineral rights, the reve- 1. nues generated, and how the revenues are spent is essential. Providing reliable and timely information to all stakeholders involved—including local com- munities, civil society organizations, the broader public, national and local government, Parlia- ment, oil companies, private sector and the busi- ness community—is crucial in helping shape public expectations. Strengthening the capacity of the legal system, government auditors, parliamentary commis- sions and civil society to regulate the sector and monitor activities on the ground in order to ad- dress the adverse economic, social and environ- mental consequences is necessary. Th e absence of a long-term national develop- ment strategy with broad consensus on spend- ing priorities may encourage wrong investment decisions, wastefulness and mismanagement of revenues with serious negative implications for the economy. Th e design and implementation of appropriate policies matter. For example, fi scal strategies that smooth cycles have been raised in the poli- cy discussion. A subsidy or tax relief for the non- resource export sectors that are hurt by a loss of competitiveness due to the natural resource bonanza and the spill-over eff ects have proven to be worthwhile. With regards to how governments can use rev- enues from natural resources, the consensus is to invest in the long-term accumulation of all 2. 3. 4. 5. 6. Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 201124 forms of capital (human, physical and institu- tional), as opposed to fi nancing current con- sumption. Spending and investment in educa- tion, health and infrastructure development is certainly a good thing. But if it is done in isola- tion without adequate spending on the tradable sector, it could adversely aff ect the employment and welfare of people engaged in the tradable sector. Strategies should also take into account the fact that some resources are non-renewable. Th us, there is the need to limit fi scal discretion in order to avoid the over-use of revenues. In this regard, it may help to put some of the revenues into fi scal reserves or sovereign wealth funds to avoid over-use of revenues and to ensure that the interests of future generations are safeguarded. It is important to mention the need for strong po- litical leadership and for developing country part- ners to support the process by broadening the scope of engagement beyond extractive sectors and by enhancing technology transfer and learning. Step- ping up technical support and training for national capacity-building by donors will be extremely help- ful. Current global initiatives, such as the Extractive Industries Transparency Initiative and the IMF’s multi-donor Tropical Trust Fund on Managing Natural Resource Wealth, need to be commended and given the necessary support. Also, given that China and India are important players in the new scramble for Africa’s resources, African govern- ments should take steps to ensure that their growing interaction with these rising economic powers re- sult in economic diversifi cation, technology transfer and learning, rather than simply the sale of African commodities and raw materials. 7. 25The Brookings Institution DEBILITATING BORDERS: WHY AFRICA CANNOT COMPETE WITHOUT REGIONAL INTEGRATION JOHN PAGE F or the vast majority of Africa’s economies, the lack of globally competitive industries and services is a powerful threat to their fu- ture growth. Th e last 40 years have not been good for structural change in Africa. By many measures, Africa has actually “deindustrialized” over the past few decades. Without major changes in its econom- ic structure, Africa will not be able to create enough good jobs and will remain vulnerable to shocks and to a likely long run decline in commodity prices. In 2011 and beyond, Africa’s future prospects for industrialization appear brighter. If China and In- dia continue their rapid growth, the fundamentals of location and labor costs should favor a shift in labor intensive manufacturing toward poorer coun- tries. However, this does not guarantee that it will move to countries in Africa. Th e region will have to compete with both poorer areas in the existing man- ufacturing powerhouses and with poorer economies in other places. Changes in the structure of global manufacturing may help shift some manufactured production to Af- rican countries. Since around 1980, manufacturing for many products has been broken up into “tasks”, each of which can be undertaken where costs are the lowest. Recent industrializers such as Vietnam have exploited this opportunity to break into global markets. African countries need to do the same and insert themselves into task trade. However, the bor- ders between African countries will be a key deter- minant of success or failure in this endeavor. REGIONAL INTEGRATION MATTERS Regional integration matters for Africa’s industrial- ization in part because Africa is the continent with the largest number of landlocked countries. For ex- porters in these economies, poor infrastructure in neighboring coastal economies, incoherent regula- tions, ineffi cient customs procedures and “informal” taxes in transportation corridors slow transit times and raise costs. Task-based production is particu- Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 201126 larly sensitive to high transport and logistics costs. Without much deeper integration with their coastal neighbors, Africa’s land locked economies will fi nd themselves locked out of trade in tasks. Paul Collier and Tony Venables suggest that borders limit the prospects for industrialization of Africa’s coastal economies as well. Th e problem is that Af- rica’s coastal cities may be too small to be globally competitive. Cities generate powerful scale econo- mies. One rule of thumb is that each time the size of a city doubles, the productivity of the activities within it increases by around 4 to 8 percent. Th is implies that a fi rm operating in a city of 10 million people has unit costs of around 40 percent lower than if it operated in a city of only 100,000. Small countries have small cities and Africa is a continent of small countries. A comparison of In- dia and Africa makes this point. India has two cities of over 20 million people while the typical African capital city such as Nairobi has a population of only around 3 million. Africa’s borders have inhibited the growth of mega-cities. To overcome this prob- lem, integration that permits the free movement of goods, capital and people across national borders al- lowing the formation of regional cities across Africa is essential. STRENGTHENING REGIONAL INTEGRATION Th e political rhetoric aside, very little real progress has been made in achieving the deep integration needed for industrial development in Africa. Tan- gible progress to improve trade logistics has been slow. Investments in Africa’s regional infrastructure are hampered by the complexity of multi-country projects and the time required for decisions by mul- tiple governments. Institutional reforms—such as common standards, regulations and one stop border facilities—have also failed to materialize. Th e reason for this failure is simple: regional invest- ments and institutions require collective action. In many cases, infrastructure that gives market access to landlocked countries mostly benefi ts the landlocked, yet the costs accrue disproportionately to the coastal countries. Regional agreements that either require coastal countries to spend money on market access for landlocked neighbors or create a mechanism by which the landlocked countries can compensate the coastal countries for their expenditures are needed. Regional city formation will call for a form of politi- cal integration in Africa that is considerably deeper than what currently exists. Durable regional rules and institutions will be needed to support large pop- ulation movements across national borders. Regional agreements may also need the scope for large fi scal transfers to mitigate the pattern of winners and los- ers that will come from large population movements with gains concentrated in mega-cities. AN AGENDA FOR ACTION For Africa’s leaders, the political will to solve the collective action problems that hamstring regional agreements will be crucial. During the past 10 years, regional initiatives have tended to focus on politi- cally visible, but practically limited gestures—such as commitments to the creation of a common cur- rency, a common market or a common policy. In- stead, regional leaders need to start at the beginning with common power pools, trans-border infrastruc- ture, improved regional institutions and working ar- 27The Brookings Institution rangements for the free movement of goods. Well- functioning regional investments and institutions need to be the fi rst priority. Africa’s development partners are also part of the problem. Aid agencies continue to prefer dealing with national rather than regional authorities in Africa. Th e European Union through its economic partnership agreements should be well placed to sup- port deeper regional integration in Africa, but it has largely squandered the opportunity. Th e eligibility criteria of the Africa Growth and Opportunity Act discourage the formation of regional value chains in Africa. Despite their dedicated regional lending windows, the multilateral development banks have also been slow to meet the challenge of strengthen- ing regional integration in Africa. In 2011, new ideas, resources and instruments will be needed to reduce the debilitating impact of bor- ders so that African countries can compete in global manufacturing. SELECTED REFERENCES Collier, Paul and Anthony Venables (2008). “Trade and Economic Performance: Does Africa’s Fragmenta- tion Matter?” Annual World Bank Conference on De- velopment Economics. Washington: World Bank. Dadush, Uri (2010). In 2050, A World Transformed, Tunis: African Development Bank. Page, John (2009) “Africa’s Growth Turnaround: From Fewer Mistakes to Sustained Growth,” Commission on Growth and Development Working Paper No. 54 Washington: World Bank. Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 201128 DRIVING AFRICA’S GROWTH THROUGH EXPANDING EXPORTS JOHN MUTENYO A n important source of potential growth for African economies in 2011 is through the exploitation of export opportunities, both regionally and internationally. Th ere is a consensus that increased export growth leads to overall eco- nomic growth. Indeed, the experiences of the Asian Tigers and more recently of Brazil, China, India and South Africa support this observation. Increasing exports is also associated with other gains, like ac- cess to larger markets which in turn enables exploi- tation of economies of scale, effi ciency gains from technological spillovers and better resource alloca- tion, employment generation and foreign exchange earnings. By following the market and trade liber- alization reforms of the 1980s, African exports rose from 22 percent of GDP in 1983 to an average of 32 percent during the last two decades. Likewise, real GDP growth rose from an average of negative 3 percent in 1983 to an average of over 4 percent during the past two decades. Th e evidence suggests that there is a strong correlation between economic growth and export performance. Even though Africa’s export revenues have been ris- ing in the last two decades, its overall export perfor- mance as a share of the world total has been persis- tently declining during this same period. Specifi cally, Africa’s share of total world exports plummeted from 4.1 percent in 1981 to 1.7 percent in 1998, only rising slightly to 2.4 percent in 2009. Over this entire period, Africa has on average only accounted for about 2 percent of total global exports, of which 30 percent is attributed to South Africa. Africa’s export performance is in sharp contrast to that of China’s. In 1980, China’s export revenue was 28 per- cent of that of Africa’s. But by 2009, that same ra- tio had risen to 408 percent. While China’s exports accounted for 1.1 percent of total global exports in 1981, its share had risen to 9.8 percent by 2009. Africa’s exports are constrained by several problems. First, African exports are not diversifi ed, with 80 per- cent of its exports concentrated in oil, minerals and primary agricultural commodities. Fuel and miner- als alone account for over 50 percent of Africa’s to- 29The Brookings Institution tal exports. Broken down by country, it is clear that the region’s exports are consistently dominated by primary agricultural commodities, natural resources and minerals. For example, in Angola, 94 percent of exports are in crude oil; in Burundi, 72 percent of exports are in coff ee; in Equatorial Guinea, 99 per- cent of exports are oil and gas; in Malawi, 55 percent of exports are in tobacco; in Nigeria, 82 percent of exports are in crude petroleum; in Sierra Leone, 90 percent of exports are in diamonds; in Zambia, 70 percent of exports are in copper. Africa’s lack of ex- port diversity and dependence on commodities are further compounded by its share of industry to total GDP, which declined from 37 percent in 1981 to 33 percent in 2010. Primary commodities are vulnerable to changes in world prices, leading to deterioration in the terms of trade. Experience from the recent global fi nan- cial crisis shows that less diversifi ed African coun- tries—particularly those that are natural resource- rich and depend on oil and minerals such as Angola, Botswana, Equatorial Guinea—were aff ected most during the crisis. Th ose African countries that are more diversifi ed tended to be more resilient during the global fi nancial crisis (Ghana, Senegal, Tanzania and Uganda) or recovered faster (Kenya, Mauritius and South Africa). Th e second problem constraining Africa’s export growth is that the destinations for Africa’s exports are also less diversifi ed. About 70 percent of Africa’s exports go to the United States and the European Union, while less than 10 percent is traded within Africa. Evidence from the recent fi nancial crisis shows that countries that are more dependent on the U.S. and EU markets for exports were more negatively impacted by the crisis than those coun- tries that depended on intra-regional trade within Africa. Th us, in addition to expanding exports, there is need for African countries to exploit intra-Africa trade for sustainable economic growth. Other issues constraining Africa’s capacity to in- crease its exports include high levels of corruption, high costs of doing business due to poor institutions and infrastructure and trade protectionism in the form of non-tariff barriers on Africa’s exports. To exploit the exporting opportunities, African countries should prioritize infrastructure develop- ment and establish functioning special economic zones and export processing zones. Implementing these actions should help improve the investment climate, encourage foreign direct investment and ultimately help African countries diversify their production. African countries must also increase in- tra-regional trade through the expansion of regional trade blocs and the elimination of regional trade barriers. Finally, due to unfavorable and deteriorat- ing terms of trade faced by African primary com- modity exports, there is a need to focus on adding value to primary commodities. Developed countries can help support the growth of African economies more eff ectively through provi- sions of preferential market access for African goods rather than just through giving aid to African coun- tries. In addition, agricultural subsidies from devel- oped countries act as signifi cant barriers for Afri- can agricultural exports to penetrate the markets in these countries. Well-designed market access poli- cies can have a signifi cant impact on the growth of African economies but the continued subsidizing of agriculture by developed countries will be a diffi cult constraint to Africa’s growth in 2011. Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 201130 AFRICA’S WAR ON CORRUPTION MWANGI S. KIMENYI & JOHN MUKUM MBAKU* It is now widely recognized that a crucial determi- nant of a country’s economic performance is the quality of its institutions of governance. Although there have been signifi cant improvements in gover- nance in some African countries during the last two decades, most African countries have not succeeded in reforming their governance systems into instru- ments of peaceful coexistence, wealth creation and economic growth, and social development. Unfor- tunately the prevalence of corruption still remains one of the continent’s most diffi cult obstacles for development. Th e ability of Africa to sustain high rates of economic growth in 2011 will depend, to a great extent, on how well its countries are able to transform their governance systems, especially as it pertains to fi ghting corruption. For Africa, the cost of poor governance is enormous. Household and business surveys by various reputa- ble organizations, such as the World Bank’s Gover- nance Indicators, rank virtually all African countries among the worst performers in terms of governance. According to Transparency International’s 2010 Corruption Perceptions Index, Africa is the most cor- rupt region of the world. Poor governance, especially the prevalence of extremely high levels of corrup- tion, will undoubtedly continue to have negative impacts on Africa’s wealth creation and economic growth in 2011. Poor governance can manifest itself in many ways. Corruption, rent seeking, public fi nancial malfea- sance, and the arbitrary and capricious allocation of public goods and services are just some of the ways in which poor governance manifests itself in African economies. For the poor, corruption is an insidious institution that strips poor people of their human dignity and deprives them of access to public goods and services that could enhance their ability to dig themselves out of poverty. In many Africa countries, civil servants often allocate public goods and services capriciously, favoring those who are willing and able to pay bribes. Th is process of service allocation not only increases ineffi ciency and discourages produc- 31The Brookings Institution tive activities in the economy, but it also subjects a large part of the population to cruel and unnecessary suff ering; the poor end up deprived of welfare-en- hancing, life-saving public goods and services, such as clean water, prenatal care for pregnant women, primary education, police protection, shelter and ba- sic health care. In addition, poor governance creates uncertainties in the economy, which discourages investment in pro- ductive capacity. Market participants are not likely to willingly invest in such economies for fear that they would not be able to have access to the fruits of their investments. Th us, poor governance can drive away foreign investors and force domestic inves- tors to seek refuge in economies with more effi cient and stable institutional arrangements. In addition to capital fl ight, poor governance has also been in- strumental in forcing many of Africa’s scarce human capital resources to fl ee. Estimates of the cost of corruption to African economies are mind-boggling. Th e African Union has estimated that during the 1990s corruption was costing African economies about $148 billion per year, or about 25 percent of Africa’s total output. Other reports show that in one year corrupt Afri- can politicians and civil servants diverted amounts in excess of $30 billion in development aid to for- eign bank accounts. But the impact of corruption is especially costly to the poor with estimates show- ing that low-income households in Africa spend as much as 2-3 percent of their income on bribes. Lack of accountability is also prevalent in service delivery as evidenced by high rates of absenteeism by front- line providers (nurses, doctors, teachers, etc.). Esti- mates show that up to 25 percent of teachers are absent from schools at any given time, which has detrimental impact on learning outcomes. Other consequences of poor governance include underin- vestment in public goods such as roads, electricity and telecommunications infrastructure. Th ere is no question that poor governance remains a very seri- ous challenge to the long-term development of Af- rica in 2011 and beyond. DEEPENING AND SUSTAINING GOVERNANCE REFORMS Th e quest for economic growth and development in Africa must focus on good governance in its broadest sense—a concept that includes good corporate, eco- nomic and political governance. Specifi cally, good governance, at the very least, entails: (1) transparen- cy and accountability in both the public and private spheres; (2) maintenance of the rule of law; (3) pro- vision of all market participants with incentive sys- tems that enhance their involvement in productive activities; (4) protection of the person and property of individuals; (5) enforcement of property rights and freely negotiated contracts; and (6) the main- tenance of an institutional environment conducive to mutually benefi cial free exchange and peaceful coexistence. One of the most important policies to ensure the continent’s economic growth is to fast track Africa’s war on corruption. Although most African coun- tries have set up elaborate anticorruption units, these bodies are largely ineff ective and some have even been compromised by the appointing authori- ties. In some African countries, the war on corrup- tion has been derailed by selective allegations and prosecutions largely infl uenced by ethnicity, while in others the judiciaries have been overly compromised Foresight Africa: The Continent’s Greatest Challenges and Opportunities for 201132 and become ineff ective in the adjudication of cor- ruption cases. Th ere is a pressing need for national governments and development partners to prioritize the strength- ening of autonomous anticorruption bodies and the reforming of national judiciaries. Th ose countries in Africa that succeed in the war on corruption will win handsome returns by way of economic growth in 2011 and beyond. SELECTED REFERENCES Kimenyi, Mwangi S. (1997). Ethnic Diversity and Liberty: Th e African Dilemma, Aldershot, UK and Northamp- ton, MA: Edward Elgar. Kimenyi, Mwangi S. and John M. Mbaku (1999). Insti- tutions and Collective Choice in Developing Countries: Applications of the Th eory of Public Choice, Aldershot, UK: Ashgate. Mbaku, John M. (2004). “NEPAD and Prospects for Development in Africa,” International Studies, Vol. 41(4): 387-409. Mbaku, John M. (2004). Institutions and Development in Africa, Trenton, NJ: Africa World Press. Olson, Mancur, Jr. (1996). “Distinguished Lecture on Economics in Government: Big Bills Left on Th e Sidewalk: Why Some Countries are Rich, and Oth- ers Poor,” Journal of Economic Perspective, Vol. 10(2): 3-24. Transparency International (2004). Corruption Percep- tions Index 2010, Berlin: Transparency International Press. * John Mukum Mbaku is professor of economics and the John S. Hin- kley fellow at Weber State University in Utah. Cover Photos (from top): © James Martone/ World Bank, Trevor Samson / World Bank, Jonathan Ernst/World Bank 1775 Massachusetts Avenue, NW Washington, DC 20036 202-797-6000 www.brookings.edu/global