Arize Nwobu Acs
On May 22-26, 2017, the African Development Bank Group will hold its 17 Annual Meetings in Ahmedebad, India, with the central theme, ‘’Transforming Agriculture for Wealth Creation in Africa.’’ Earlier, in April, AfDB President, Dr Akinwunmi Adesina and his team went on a four-day official visit to India, ‘’to set the stage for improved cooperation between the development bank and India, as well as India’s relation with Africa in general’’. During the visit, the Dean of African Diplomatic Corps in India, Ambassador, Alen Tsesaye Woldemariam of the State of Eritrea, commended AfDB’s ‘’steadfast commitment for a better Africa’’, even as Adesina noted that ‘’India’s experiences are relevant to Africa’s development’’.
Between 2000-2010, noted as the ‘’Indian Decade’’, Africa’s economic relations with India recorded remarkable growth, with India as the dominant partner. By 2013, Africa accounted for 16 per cent of India’s Foreign Direct Investment (FDI), worth US$13.6billion, while Africa’s FDI to India was five times higher at US$65.4billion, representing 26 per cent of the country’s total inward FDI of which a large proportion, reportedly, came through Mauritius because of the double taxation avoidance agreement (DTA) signed between India and Mauritius.
AfDB, under Adesina, is focused on a five-point agenda christened ‘’5-Highs’’, namely, ‘’Light up and Power Africa’’, ‘’Feed Africa’’, ‘’Industrialize Africa’’, ‘’Integrate Africa’’ and ‘’Improve the Quality of life for the People’’. The ‘’5-Highs’’ are a build up on the existing AfDB’s ten years strategy (TYS)- (2013-2022), entitled, ‘’At the Centre of Africa’s Transformation’’, which focuses on achieving inclusive growth, transiting to green growth through five operational priorities- infrastructure development, regional economic integration, private sector development, governance and accountability and skills and technology, and with special emphasis on gender, fragile states and agriculture and food security.
Over five years to 2015, AfDB has deployed US$5.5billion in investments in the agriculture sector, with a portfolio of 6000 agriculture projects, to develop value chain infrastructure, and boost agriculture yield and productivity, introduced fertilizers technologies, new seeds varieties, built irrigation systems and roads, and invested in transportation corridors to link producers to urban markets, and reportedly, recorded 97 per cent rating on its agriculture projects, above average.
However, it has been observed by experts that the ‘’agriculture miracle’’ that has transformed other developing countries has not been experienced by Africa. Also, the continent has failed to industrialize in the twenty five years since the first African Industrialization Day. Reports show that, in 2010, sub-Sahara Africa’s average share of manufacturing value added in GDP was 10 per cent, unchanged from the 1970’s, and manufacturing output per person was about one third of the average for all developing countries while manufactured export per person is about 10 per cent, all of which contributed to over 42 per cent of the population living below the US1.25 poverty line and around one in four people in sub-Sahara Africa being unnourished.
The developments had prompted AfDB, the Brookings Institution and the United Nations University-World Institute for Development (UNN-WIDER) to come together to answer the question why there is so little industry in Africa.
The take off point to evolving solutions to the challenges of African economies is the realization that African economies remain largely factor-driven. The World Economic Forum’s Global Competitiveness Report divided countries into three stages, namely, 1, Factor-driven economies, ‘’where countries compete on the basis of price as they buy and sell basic products, 2, Efficiency-driven economies, ‘’where growth is based on the development of more efficient production processes and increased product quality’’, 3, Innovation-driven economies, ‘’where companies compete by producing and developing new and different products and services by using the most sophisticated process.’’
Most developed economies are innovation-driven, while BRIC nations (Brazil, Russia, India and China) are efficiency-driven, though China competitiveness is noted to be ahead of others and fast-driving to the innovation stage. Also, South Africa is fast driving towards maturity stage with world class infrastructure, a prerequisite for poverty reduction.
Factor-driven economies do not rule the world, thus African economies need to evolve essential and adaptive policy options and strategies to transit from being factor-driven to efficiency-driven. They need to embrace innovations across various facets, including their financing systems, entrepreneurial strategies, education, leadership, existing inimical cultures, and also embrace technology through strategic partnerships with developed economies.
As noted by Peter Howitt, ‘’economies that cease to transform themselves are destined to fall off the path of growth’’, and growth need to be inclusive and matched with development which entail increase in citizens quality of life, measured by literacy rates, poverty rates, environmental quality, life expectancy and freedom of expression.
The importance of the financial system cannot be overemphasized. It is the axle on which the wheel of economy revolves. A robust financial system correlates macro-economic stability needed to effectively power economic growth. African economies need an effective combination of development banking, vibrant capital markets and a net work of commodity exchanges to redefine their financing structures and catalyze faster and greater industrial growth and achieve sustainable development. African economies need to re-invent their economies and evolve dominant market-based financing structures to catalyze industrial growth faster. The capital market is one of the most important factors of funding infrastructure with strong socio-economic impact.
As noted by the International Finance Corporation (IFC), the private arm of the World Bank, had noted that ‘’Africa cannot adequately address its enormous development financing needs with existing funding sources. The private sector through local capital markets can help bridge the financing gap.’’ At an International conference on the capital market, in Kigali, in 2015 Jingdong Hua, IFC Vice President and Treasurer, also noted that, ‘’vibrant capital markets are the foundations for accelerating and sustaining economic development of any economy’’.
The mechanism of the capital market optimally allocates capital, and catalyzes industrial growth faster and helps economies to achieve inclusive growth through greater job opportunities among other benefits. Research reports show that countries with more liquid stock markets enjoy faster growth rates of real per capita GDP over subsequent years as they increase economy wide mobility of productive resources.
The expansion of the capital market has been a major factor for consistent growth in India; the Indian economy is characterized by its vibrant equity and debt markets. South Africa also has vibrant capital markets, and Malaysia was transformed after it implemented two capital market master plans which were launched by the Prime Minister.
Also, Africa needs a crop of entrepreneurs, like Aliko Dangote , Africa’s richest man , and such others, whose mind sets are conditioned to start local and think global, and who would later list their businesses on the stock exchange to access a large pool of long term capital with flexible funding options, and imbibe culture of best practices towards building African conglomerates or multinationals, and facilitate the spread of national wealth through public share ownerships. Most of the best businesses in developed economies are listed on their stock exchanges.
For the transformation of the agriculture industry in Africa, the role of commodity exchanges is central. Commodity exchanges are very important to economic development; they boost farming by stimulating demand for produces, and increases survival and prosperity among farmers, serve as the wheel of commerce and economic development and makes economies more efficient. It has been reported that advanced economies would not have been where they are in the past 100 years without commodity exchanges.
As noted by, John Page, Senior Fellow, Global Economy Development, ‘’there is need for market improving solutions, Africa need to develop a network of viable privately-owned commodity exchanges as has been effectively used in Brazil, US, Chile, Argentina’’. South Africa is also operating successful commodity exchanges.
Besides transforming their financing mechanisms, African economies need other such innovations in their leaderships and elite culture, which demands value re-orientation, and creative destruction of technological innovations and functional education. The values cherished by most leadership in Africa are highly materialistic and uninspiring, and the elites tend to organize their societies for their benefits, all of which contribute to widen the gap between the rich and the poor and reinforce the culture and vicious cycle of poverty.
As the AfDB Group, one of the prides of Africa, prepares to convene for its 17 Annual Meetings in Ahmedebad, India, with a focus on Agriculture development in Africa, these and other such critical factors that can spur growth and sustainable development in Africa may also be considered as part of their deliberations for the greater benefit of Africa.
–Arize Nwobu Acs, is, Assistant Director/ Head, Research and Technical, Chartered Institute of Stockbrokers, Lagos. He wrote via arizenwobu@yahhoo.com Tel 08033021230
