8 September 2017

Africa's Growth Engine Is Running Low On Fuel

Photo: Daily Monitor
Beer bottles go through a production line. President Museveni has put emphasis on industrialisation in Uganda for it to move to a middle income economy.
opinion

Africa is being hit by falling aid, foreign investment and domestic resources.

At this year's U.N. General Assembly meetings, all eyes will be on a looming showdown with North Korea, and the humanitarian crises in Syria and Myanmar; but another crisis is quietly brewing in Africa.

Over the last few years, aggregate resources for Africa's development - across aid, domestic revenues, and foreign investment - have declined by 22 percent. Meanwhile, Africa's population has increased by 14 percent.

Africa is on the cusp of a demographic dividend. By 2050 its population will double, half of which will be under the age of 25. Between 2015 and 2035, there will be 450 million new workers in need of jobs in Africa- that's 22.5 million each year. The deciding factor in whether this youth boom proves to be a driver for development or for instability comes down to whether Africa's growing youth have access to education, employment and empowerment. Yet the necessary investments to harness this demographic dividend are faltering.

A new report by The ONE Campaign finds that while global aid levels have reached record levels, the share of aid going to the poorest countries continues to decline. The proportion of aid going to the least developed countries dropped from 32 percent of aid in 2013, to 28 percent in 2016. The share of aid going to Africa declined from 36 percent in 2012 to 32 percent in 2016.

One contributing factor to this declining share is the growing amount of aid that never leaves donor countries. In-donor refugee costs - the money spent to support refugees within donor countries - has grown by 27 percent from 2015 to 2016 and more than doubled since 2014.

Germany and Italy spent more aid in their own countries on refugees than they gave to the whole continent of Africa in 2016. While countries absolutely must provide for and support refugees who are fleeing violence and disasters, that money should not count as aid if it's not going to support poverty reduction in developing countries.

Unfortunately, the shifts in aid are happening at a particularly critical time for Africa. While many African countries have diversified, the continent has not been able to escape the bust in commodity prices, and between 2012 and 2015, domestic revenues decreased by 24 percent. And foreign direct investment (FDI) to Africa remains the lowest to any region in the world by far, and has fallen from 5 percent of global inflows in 2012 to 3 percent in 2016.

One of the clearest examples of the risks inherent in these trends is in Nigeria. Africa's biggest economy and most populous country has been feeling the effects of a recession since 2016, and a currency that has lost almost half its value since 2015. Shrinking oil revenues have contributed to a 24 percent decline in domestic revenues since 2012, and foreign investment has shrunk by more than half in that time. The budget shortfalls are hurting Nigeria's poorest the most. More than half of Nigeria's population live on less than $1.90 per day, and the World Bank projects the poverty rate will continue to rise in 2017 and 2018.

But this doesn't have to be the case. Some African countries are bucking the trends, diversifying their economies and attracting more private investment. The G20's Compact with Africa initiative is partnering with African countries to improve the investment climate and build in-roads into these countries - but this initiative must be expanded to many more countries and include aid investments alongside the private sector to ensure the gains contribute to poverty reduction. We need a doubling of all finance to Africa by 2020 to reverse these losses and secure education and employment for a whole generation of African youth.

Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.

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