Wednesday, January 14, 2015

2015: How half of Africa's GDP at stake in 10 elections can be bigger

Nearly half of sub-Saharan Africa’s Gross Domestic Product  (GDP) will be at stake when Zambia next week kicks off a swarm of presidential elections around the continent, with at least 10 countries expected to have voted this year when the dust settles, including Africa’s two most populous nations.

Nigeria and Ethiopia’s general elections will add to ballots in Sudan, Cote d’Ivoire, Tanzania and Togo, while troubled South Sudan, Central African Republic and Burkina Faso will also attempt a vote. 

Excluding another five countries that have parliamentary votes, these voters account for 47% of the region’s 960 million-strong population. With a gross GDP of $750 billion, this means that were they a single country, they would have a per capita income of about $1,728, or nearly five dollars a day for every citizen to theoretically live on.

None of them currently come within a dollar of this figure, which is inside the African Development’s Bank middle class entry ticket of two dollars a day.

The size of the economic and population numbers at stake are a powerful call for the region to speed up its unity agenda, according to the AfDB, which has released its integration-themed annual report which shows just how much of a difference breaking down continental walls would make.

But because few elections in Africa radically change a country’s economic or political course and lift voters, the alternative is push for regional integration that will carry the majority of Africans with it. The lender’s data shows that for every billion dollars sunk into infrastructure, an average of 60,000 jobs are created, even more for some cross-border projects.

We culled some significant facts and numbers from the report that make a case for regional economic integration, the benefits of which include wider access to capital markets and the pooling of resources for major projects in industries such as energy and transport: 

 1. Intra-African trade has in absolute terms increased fourfold over the last decade to reach $130 billion, despite in relative terms remaining at 12%. Between 2003-2012 intra-African greenfield Foreign Direct Investment nearly tripled, to reach 21% of all greenfield inflows into the continent. South Africa, Kenya and Nigeria lead, highlighting the importance of ongoing Tripartite Free Trade Area (FTA) negotiations which would further unlock regional markets for African firms.  

2. Cross border banking and financial services are the dominant sector in intra-African FDI, accounting for about 50% of greenfield projects between 2003 and 2014. Four large banking groups are present in at least 18 countries—Nigeria’s UBA, South Africa’s Stanbic, Morocco’s BMCE and Ecobank, the latter in 32 countries. This trend has been influenced by among other factors financial liberalisation and favourable regulation.

3. Stock markets in Africa have grown from 5 in 1990, to the 29 that currently represent 38 nations. Yet the total market capitalisation of stock exchanges in Africa has remained low, accounting for less than 2% of the world’s total. One bourse, the Johannesburg Stock Exchange (JSE), represents 65% of the total African market capitalisation. This is changing, in large part due to the establishment of regional stock exchanges and cross-listings. 

4. Close to 25% of Africa’s 54 countries, or 16, are landlocked, more than in any other region, which means higher costs and risks of doing business. When conflict is taken into account, it could actually be argued that they are “double landlocked”.

5. On average, Africa experiences more migration per year, than many other parts of the world. The popular perception, reinforced by reports of sinking migrant ships, is that they are moving to the West. But the report notes that in sub-Saharan Africa, the majority of people—65%— usually migrate within their immediate sub-region. Also, while conflict and related issues were big push factors in the past, climate change issues and the youth “bulge” have newly emerged. An estimated 31 million, or 2.5-3% of the continent’s population, are documented international migrants.

6. Due to the absence of pro-integration migration regimes, Africa has some of the world’s most onerous visa restrictions. On average, Africans need visas to visit 60% of African countries. Only Comoros, Madagascar, Mozambique, Rwanda and Seychelles offer visa-free access or visa-on-arrival to citizens of all African countries. 

The DR Congo, Equatorial Guinea, Sao Tome and Principe and Sudan require all African entrants to apply for a visa before arrival. And 16 African countries are currently developing restrictive migration policies, even as alarmed economists show that opening up movement can significantly increase world GDP, by up to 100%.

7. In 2010, remittances from the African diaspora amounted to $40 billion, or 2.6% of regional GDP. In several fragile states remittances may exceed 50% of their GDP, yet it is estimated that at least $15 billion a year is lost to high fees, burdensome documentary requirements and lack of competition in the money transfer market. It for example costs as much $32 to send $200 between Burkina Faso and Ghana.

8. South African firms in 2010 accounted for about a fourth of all intra-African exports, but only 10% of imports; a major imbalance in part due to its protective nature. Indeed the country  accounts for more than 90% of imports in sub-Saharan African countries for over 1,000 country/product combinations (export opportunities). The only region on the continent that it is not a major supplier to is North Africa.  

9. Regional integration in Africa is not too recent a process; the Lagos Plan of Action was adopted by regional heads of state in 1980, with the Abuja Treaty of 1991 giving it “teeth”. Regional Economic Communities (RECs), of which there are eight, were then identified as the building blocks, with an eventual view to establishing an African Economic Community. A protocol of on relations between the AEC and RECs entered into force in 1998. The problem has been that while Africa knows what to do about integration, it is not explicit on how to do it.  

10. Of the eight economic blocs, the East African Community (EAC) has made the most progress towards an economic union. It started with a customs union in 2009, a common market a year later leading to a fully functioning Free Trade Area. In 2013 its five member countries adopted a protocol that envisions a monetary union in ten years. Comesa, SADC and Ecowas have FTAs, though not fully running, while the rest have plans on paper, excluding IGAD which has no such ambition. (Three EAC states - Kenya, Uganda, Rwanda - also have a single tourist visa, and Rwanda and Uganda now operate single customs/immigrations points at their land borders).

11. One of the main challenges to Africa’s regional integration has been the reluctance of member states to cede their sovereignty to the secretariats of RECs and the African Union. In contrast, the member states of the European Union cede their national sovereignty on all trade matters to their secretariat, which represents them at the World Trade Organisation. However, the Comesa-EAC-SADC tripartite has moved towards adopting such a general structure.

12. Though there are benefits to be had, the issue of overlapping membership has also been a major stumbling block. There are 17 regional integration agreements in Africa, and of Africa’s 54 countries, only Algeria, Cape Verde and Mozambique are party to only one agreement. Cote d’Ivoire holds the “record”, as a member of five regional organisations.

13. A regional approach to infrastructure development is the best way to deliver on the continent’s economic goals, the bank says. Among the benefits are delivering economies of scale, enabling market efficiency and supporting the mobility of among other factors capital and skill. The strongly-backed Programme for Infrastructure Development in Africa (PIDA) has taken up the continental challenge. Data show that between 2003 and 2012 African countries increased investments as a share of its GDP to about 22%.

14. The regional infrastructure financing need has been estimated at $360 billion, which would sustain an average economic growth rate of 6% between 2012 and 2040, when PIDA’s long-term infrastructure plan winds down. PIDA categorises some 433 projects with a cost of $68 billon as priority, with the main headache being their innovative financing.

15. Commitments for infrastructural development reached $89 billion in 2012, with the largest share (47%) committed by African governments. Chinese investors have surpassed traditional investors and now account for 15% of pledges. The Asian country’s investment investment in African infrastructure grew more than five-fold between 2006 and 2012, mainly in energy.     

16. For every $1 billion invested in infrastructure, between 26,000 and 110,000 direct and indirect jobs can be created, with this being highest in the roads sector, and lowest in the capital-intensive power sector.

-Mail and Guardian Africa

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