Capitalism is failing Africa. A relatively small number of entrepreneurs have prospered on the continent in the past decade, becoming the face of the “Africa Rising” narrative. But hundreds of millions more have remained poor and unemployed, and lacking electricity, good schools and access to adequate healthcare.
The collective gross domestic product of the continent’s 54 nations is roughly $1.5tn — less than that of Brazil alone, at more than $2tn. Africa, with 70 per cent of the world’s strategic minerals, has about 2 per cent of world trade and 1 per cent of global manufacturing.
Capitalism has been the greatest creator of national wealth in world history, lifting billions out of poverty from Singapore to China, and from South Korea to Brazil. But Africa stands on the cusp of a lost opportunity because its leaders — and those who assess its progress in London, Paris and Washington — are wrongly fixated on the rise and fall of GDP and foreign investment flows, mostly into resource extraction industries and modern shopping malls.
They are in thrall to orthodoxies better suited for more mature economies. African countries need to focus on creating broad-based growth across sectors and social classes in order to promote jobs and labour productivity. This is what improves GDP per capita, which has remained stagnant at less than $3,000 in most African countries. Africa must stop counting malls and measure jobs and their productivity instead.
There is no shortcut to that outcome that can ignore building industrial economies based on manufacturing. African nations must reject the misleading notion that they can join the west by becoming post-industrial societies without having first been industrial ones.
Africa should be striving for self-sufficiency and to become part of the globalised production value chain. This requires the consistent development of skilled labour, linking innovation to industrial production, as well as investment — both domestic and foreign — in infrastructure and manufacturing.
Fossil power has turned out to be a mirage in countries such as Nigeria. They need to switch to a strategy based on renewable energy that is often quicker to install and is increasingly cost-effective.
If countries across Africa are to achieve inclusive economic growth on this basis, another shibboleth must be confronted: the one which decrees that for economies to prosper and grow, governments must get out of the way of business. On the contrary, governments must lead the way, with a firm hand on the wheel and by setting policy that creates an enabling environment for market-based growth that creates jobs.
They must also keep a careful eye on market actors with regulation and oversight that has wider social objectives in view. Markets must work for society and not the other way round. That, surely, is one of the lessons of the global financial crisis.
This is not an argument for a heavy-handed statist approach that would choke productivity and stifle competition. Nevertheless, a strategic role for governments remains essential. The question is whether African governments are capable of making the right policy choices. Ethiopia and Rwanda offer hopeful examples.
African countries need to remove incentives for systemic corruption if the proceeds of growth are to be widely shared. The Nigerian government under President Muhammadu Buhari has rightly withdrawn subsidies and deregulated the importation of refined petroleum products. Next, it should review its policy of maintaining an artificially fixed exchange rate, in the face of depressed income from crude oil. This has bred corrupt arbitrage in currency markets and hurt productivity.
Another key to manufacturing-based, inclusive growth is “smart protectionism” — temporary tariffs that would protect nascent industries from the cheap imports that have rendered African economies uncompetitive on the global stage. For developing countries, such as many of those in Africa, this can be achieved within the rules of the World Trade Organisation.
For capitalism to work for Africa, just as it has for China and much of east Asia, public policymakers must shake off the shackles of orthodoxy.