Fresh Opportunities for Africa in a Multipolar World
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Fresh Opportunities for Africa in a Multipolar World
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By Isaac Kwaku Fokuo, Founder and Principal, Botho Emerging Markets Group
June 12, 2017
There have been major shifts towards globalisation over the past two decades, largely fuelled by the advancement of information technology, which has increased the speed and reach of information and opened up new opportunities and markets for corporations.
The most palpable effect of this shift has been its influence in driving a new multipolar world order led by the rise of countries like China and India that are determined to challenge the global power status quo. Fuelled by their extensive resource bases and increasing political stability, most African countries have embraced globalisation. It is within this reality that Africa seeks to advance its agency.
Elsewhere, globalisation has caused angst. In the West, as companies have relocated abroad in search of cheaper labour, the wages of low-skilled workers have come under pressure.
This has led to a growing populism that is fuelling more protectionist policy agendas. Such insularity in the medium to long term is in fact good for Africa. Less intervention by Western powers could mean more opportunities for self-determination and consequently accelerated economic growth for the continent.
The trials of post-independence
In the post-independence period the great majority of African nations experienced violence and instability. As economic development waned they found themselves forced to turn to multinational institutions for assistance.
The World Bank and the International Monetary Fund (IMF) were set up as a result of the Bretton Woods conference in 1944 to promote economic development and international cooperation in the aftermath of the Second World War. The US holds approximately 17% of votes in the World Bank, while the rich nations of the G7 control more than 45%.
In contrast, the 48 countries that make up sub-Saharan Africa have less than 9% of the voting share between them. Voting parity, however, has been a minor problem where the Bretton Woods institutions are concerned.
Criticisms have generally centred around the very restrictive approaches they have adopted towards policy formation, resulting in detrimental economic effects on the countries seeking financial assistance. In the African case, the conditions attached to structural adjustment programmes (SAPs) have been a major source of controversy.
SAPs were imposed to ensure debt repayment amid economic restructuring. But their requirements that poorer countries reduce spending on core areas like education and health while concurrently prioritising debt repayment have been cited as factors that have undermined Africa’s growth.
However, Africa is now on a continent-wide growth trajectory. The number of armed conflicts in Africa has gradually declined from at least 30 at the end of the Cold War to below a dozen today; the number of successful coups fell by two-thirds in the same period. The result is a continent more secure and ripe for investment.
Until the late 90s Africa was the only region in the world where inflows of official development assistance (ODA) outstripped private capital inflows. In 1990 the makeup of external flows to sub-Saharan Africa was about 62% ODA, 31% foreign direct investment (FDI), and approximately 7% remittances. By 2012, ODA accounted for barely 22% of external flows to Africa.
The role of China
Though still powerful financial forces, the World Bank and the IMF are losing their influence. Developing nations, who saw little alternative in seeking financial refuge in these institutions, have started to go elsewhere, China being a primary location. Chinese investments in Africa have risen sharply in recent years, from $7bn in 2008 to $26bn in 2013.
By July 2016 Chinese investments had increased by 515% from full-year 2015 figures. Chinese investments come largely unencumbered with conditions. These seemingly open-ended arrangements have been controversial because some claim the relationships are emboldening corrupt and despotic leaders, and that Chinese investors are indifferent to the rule of law, in contrast with the way Western investors tend to steer clear of poor-governance environments.
However, a recent study by the Brookings Institution found that Chinese investment was spread across different the governance environments, with investments in countries with poor governance balanced out by those in ones with relatively good governance. China has opened opportunities for Africa in ways of massive infrastructural spend. Its increased footprint in Africa has shifted the emphasis from the development of political and social institutional spending to infrastructure development for economic facilitation.
Africa in a multipolar world
Africa is becoming the next frontier of economic opportunity for investors. In natural resources, Western corporations are no longer able to acquire large tracts of land for exploratory activities for little to no royalties.
Fiscal regimes have become sophisticated in capturing more rents for host governments and local regulations are making it more difficult for corporations to repatriate revenues, increasing local impact. Local content agendas across the continent are transforming the erstwhile resource curse. Governments are drafting legislation with the goal of increasing local skills, and participating in the provision of goods and services.
Increasing global insularity is having little impact in curbing Africa’s development agenda. Africa is in fact emerging as a relevant economic bloc in what is shaping up to be a diverse multipolar global environment. Although the overall status of the BRICS countries (Brazil, Russia, India, China and South Africa) remains questionable, individually they still represent some of the fastest-growing emerging economies, and the MINT countries, comprising Malaysia, Indonesia, Nigeria and Turkey, are also making their mark.
Paul Kagame, whose own transformation of Rwanda has provided a blueprint for many countries, has been tasked with overseeing institutional reform of the African Union. The transformations are designed to take advantage of the new opportunities, and drive unity and development across the continent.
Africa will not, however, exist in a vacuum. Its nations must be willing and able to transform with the changing tides. Such transformation should be grounded in a shrewd and effective leadership devoid of traditional ways of thinking.