African economies

Of course, any piece of writing with a title like this one has to start with a disclaimer / caveat: Africa is not a country.    There are huge differences with regards to make-up of the economies, governance challenges, and stages of development.  South Africa, Niger, and Cabo Verde are very, very different.  Nevertheless, significant similarities – in particular with regards to development – are shared, including the challenges faced that emanate from the global economic context. 

In a famous (and pessimistic) paper, Harvard professor Dani Rodrik had already showed the challenges.  (Too) briefly summarized: have any chance of sustaining high growth rates, Africa would have to find pathways that are so far unknown (and unlikely).  However, a recent article by EY Global sounded a more positive note, highlighting the shift in FDI from traditional extractive industries  to telecommunications, retailing and services. 

The impact of digitization is still unclear.  As I have noted in earlier blogs, much of the key technology and leverages of power are controlled by non-African actors.  There is also the question to what degree digital platforms create employment compared to the industries they displace (the famous story that Instagram was bought for 1 billion US $ while it only had 13 employees) or create less valuable jobs (e.g. Uber, Deliveroo, etc.). 

Some see opportunity.  A recent World Bank report does see “three possible reasons that could lead less skilled workers in Sub-Saharan Africa to benefit more from the adoption of digital technology than in other regions.”  Unfortunately, this does seem to be based on some (at the very least) questionable logic.  The first reason is that Africa’s manufacturing sector is small to begin with and Africans earn so little, that automation may be a limited risk.  The second is that demand for many products is so low that automation may (though this is a gamble at best) increase demand.  And finally, digital technology may increase access to (adapted) services in Africa.  The latter argument is the only one that really inspires any sense of optimism in my opinion.

An article for the ECIPE by Erik van der Marel notes that the 2008-9 financial crisis caused digital services trade to “de-link” from goods related services trade.  He expects this to continue following the COVID-19 crisis.  As a result, growth in globalization will lean heavily on digital trade and cross-border exchanges in intangibles.  Access to technology, bandwidth, ideas, and legal enforcement will be critical in this context.  Is Africa ready for this?  It will be of critical importance to have any perspective of the rapid growth needed to eradicate poverty.
 
13.09.2020, Brussels, Belgium