We must address political economy of growth without development in Africa
23 Oct 2015 by Jean-Luc Stalon, Deputy Country Director of UNDP in Mali
In Africa, many countries with sustained economic growth continue to display extreme levels of inequality and poverty. Access to higher education, with an overall rate of 7 % of the population, is the lowest in the world.
Despite the continent being one of the biggest producers of petroleum and having huge hydropower capacity, 621 million Africans don’t have access to electricity. The risk of a child dying before completing five years of age is still highest in the world — 81 per 1,000 live birth — about seven times higher than that in Europe.
Understanding the causes of this paradox is likely to dominate the next decade of policy thinking.
One emerging understanding is that growth needs to be accompanied by sound fiscal and social policies to have a tangible impact on inequalities and poverty eradication. This means that the state needs to make large-scale investments in education and health to reach all sectors of the population.
In order to do this, states should tap into two huge sources of revenue:
First, they need to enhance tax collection. It is estimated that achieving just 1 % tax efficiency would generate $30 billion and 2 % would unlock an amount that would exceed international aid. But due to corruption, the bulk of these potential resources is lost.
Second, revenue can be increased by placing more emphasis on the taxation of foreign companies in Africa. Recent statistics show that while large foreign companies generate profits that can reach up to 10 % of hosting countries’ GDP, they are almost entirely repatriated to the country of origin. Besides, the host countries also lose a lot through tax havens.
Investing in sectors such as health and education is critical, but new policy thinking should go further in order to truly make growth inclusive. There is also a need to account for the factors of change that are shaping tomorrow’s African political economy.
Demography is the first. It is estimated that Africa’s population will have risen to 4.4 billion by 2100. This means a shift in the way we address the needs of the poor in slums and in the suburbs of megacities. It also implies profound changes in the African agricultural production model to match the increase in food needs, making industrialisation and mechanisation a priority in the decades to come.
The second of these factors is entrepreneurship. In 2014, 26 % of Africans created businesses, compared with 7.4 % in Europe and 13.4 % in the US. These entrepreneurs need the support of the state to improve their business environment, enable job creation and stimulate investment.
A third factor to account for is the growth of the renewable energy sector. Climate change is having devastating effects, not only on the environment, but also on the economy.
Hence any effort to foster development should include climate change adaptation strategies that focus on building resilience to extreme weather events such as droughts and floods.
Lastly, the explosion of the information technologies sector needs to be appreciated. Africa counts roughly 850 million mobile phone users, 200 million Internet users and 120 million Facebook subscribers.
The IT boom is changing the way people conduct business, expanding their access to the market, and providing worldwide connectivity.
The old-fashioned idea that Africa is rural and backward is changing fast. Recent developments in the political sphere reflect a societal transformation that places the civil society at the forefront, with higher expectations in terms of accountability.
These are the new realities that we need to account for, and that we need to feed into our conceptualisation of pro-poor policies.
A longer version of this post was originally published by The East African. Click here to read.