Africa’s Leap from Aid Recipient to Emerging Market

DAR ES SALAAM—As the Sahel — the area just below the Sahara desert — and the Horn of Africa continue to face severe drought, high food prices, and population displacement, millions of people have plunged into food insecurity, which has generated instability and massive human suffering. Yet, if the United States, Europe, and Africa make the right moves, Africa has the potential to not only improve the lot of a significant swath of humanity, but to enable a dynamic continental economy that benefits African and transatlantic nations alike. Given positive economic growth, demographic trends, and the effects of climate change, Africa’s window of opportunity to transition from a food aid recipient to the next big emerging market is a narrow one.

The United States and Europe are the largest providers of foreign aid to Africa, but the situation remains troubling. In 2009, the international community pledged $22 billion to address food security, but some donors are lagging on their disbursements. Attention has been largely focused on accountability in the spending of foreign aid and on food-price volatility with less emphasis on private-sector development.

The current famine demonstrates how vulnerable parts of Africa remain. Agriculture supports the livelihoods of more than 70 percent of the continent’s population — most of them surviving with few assets on rural, isolated small farms, often facing hunger and malnutrition. About 90 percent of cultivated land is still not irrigated, exposing it to drought and climate change. Limited education and poor governance deny many Africans the opportunity to thrive and prosper. Over the next 40 years, sub-Saharan Africa’s population will double, reaching 2 billion people. Urbanization will add pressure on the continent’s already crowded cities and could fuel social tensions and instability. When increasing numbers of people move to cities and find few jobs or no food, violence and upheaval are sure to follow. The United States and Europe will likely be the first to offer assistance in the face of any resulting humanitarian or political crisis.

African leaders have a chance to seize this moment. The continent is developing rapidly, with a dozen countries surpassing 6 percent GDP growth a year for six or more years. If Africa’s rapidly urbanizing, growing population can harness the region’s economic growth, it could one day join the ranks of China, India, and Brazil as an enticing emerging market. Foreign direct investment continues to be concentrated in natural resources, but fresh investments are also being made in telecommunications, real estate, and retail. The East African Community (Kenya, Uganda, Tanzania, Rwanda, and Burundi) recently agreed to streamline customs among member states; it is now driving market integration within East Africa and with the rest of the continent, and can serve as a model going forward.

Based on the analysis of the Transatlantic Experts Group on Food Security — a German Marshall Fund initiative that led a delegation to East Africa — there are other signs of progress. In Ethiopia, the United States and Europe are coordinating on pastoral livelihood programs, joint missions in the field, and engagement with the local government and civil society under the U.S.-EU Development Dialogue on Food Security. Tanzania has launched the Southern Agricultural Growth Corridor, which at about the size of Italy represents one-third of the country, and it aims to facilitate public-private partnerships that catalyze investments. The corridor will link small farmers to large commercial farms backed by energy, technology, irrigation, and roads — putting markets to work to alleviate poverty. Both U.S. and European donors and companies are supporting this locally led initiative.

The United States and Europe are missing opportunities in Africa: between 2000 and 2010, Africa’s share of exports to the United States and the European Union has fallen from 67 percent to 47 percent, while that to China has grown from 5 percent to 18 percent.  Africa can make the leap from aid recipient to emerging market, but it will take coordination and a long-term view. U.S. and European governments, funders, and businesses need to rethink African countries as markets. Enabling female entrepreneurs, young business leaders and associations, and other possible change agents will be critical. The first priority for African leaders, civil society, and business should be to create the policy climate that encourages domestic and international investment — starting with practical problems in value chains and regional corridors (e.g. roads connecting small rural farms to bigger commercial ones). Africa has capital, but financial services do not cater to small- and medium-sized enterprises that could provide business, transport, informational technology, and food processing.

If these opportunities were unlocked and backstopped by sound governance, Africa’s current growth trajectory could support farm and nonfarm employment as well as fund education, health, and infrastructure — setting off a virtuous cycle of business climate and social-economic improvements that Western governments and investors would welcome. African nations could then not only achieve the Millennium Development Goals but also become an engine for global growth.

Jonathan White is a senior program officer for the  Economic Policy Program at the German Marshall Fund in Washington, DC. 

Image by Twin and Twin Trading Images.

The views expressed in GMF publications and commentary are the views of the author alone.

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