‘A paradigm shift towards forms of real wealth creation’
he World Bank recently predicted thatcountries in Africa and other developingeconomies will face series of toughchallenges in 2015.These challenges include the loomingprospect of higher borrowing costs as they adaptto a new era of low prices for oil and other keycommodities. This, according to the World BankGroup’s latest Global Economic Prospects (GEP)report would result in a fourth consecutive yearof disappointing economic growth this year. As aresult of this, African economies and otherdeveloping countries are now projected to growby 4.4 percent this year, with a likely rise to 5.2percent in 2016, and 5.4 percent in 2017.In Sub-Saharan Africa, low oil prices haveconsiderably reduced growth in commodityexportingcountries and have also slowedactivity in non-oil sectors. Specifically, growth inAfrica is forecast to slow to 4.2 per cent this year,lower than previously expected.Clearly, this is expected to compound thecontinent’s economic challenges due to themono-product structure and imbalance in a lot ofits economies. Today, about 86 per cent ofhouseholds in the continent still consume lessthan $5 a day.Regrettably, since the middle of last year,most economies in the continent have been inturmoil as they have been hit by the over 50 percent drop in crude oil prices as well as thesignificant drop in the price of some othercommodities. A lot of African economies areprimary producers and depend heavily onnatural resources for revenue to drive theirsystems.There is no doubt that African countries havea large share of the world’s natural resources.Known reserves include more than 40 per cent ofminerals such as chromium and cobalt as well asmore than 50 per cent of the global diamondreserves. As a result of these, the resource-richAfrican countries have attracted substantialinflows of foreign direct investment (FDI) intotheir countries.Nonetheless, this has not translated intoprosperity for Africa as the country’s level ofproduction as indicated by its combined grossdomestic product (GDP), which as at 2010 stoodat $1.595 trillion. Europe and North America hadGDP of $18.5 trillion and $17.5 trillionrespectively as at 2010.Africa is still plagued by dilapidatedinfrastructure, high level of poverty incidenceand out of school children. In addition, thecontinent still suffers from unemployment,hunger, social strive and inequality, amidst theabundance resources, which has remained asource of concern to a lot of people across theglobe.Experts argued that the continent is sufferingfrom “resource curse,” even as they noted thatmost countries in the continent have beenunfortunate to have bad leaders.Mr. David Adadevoh of the Ghanian Times,based in Accra, believes that Africa’s challengescan only be addressed when most economies inthe continent discontinue the over-reliance ondonour funding to support their budgets.According to him, most of the donour fundscome with stringent conditions that end upstrangulating these countries, thereby making itdifficult for them to initiate developmentalpolicies.”For us to solve the challenges in thecontinent, we need to trade among ourselves.Intra-African trade is very important. We havebig economies in Africa, look at Nigeria forinstance, one of the biggest in the continent, whycan’t these countries trade among each other,where the rules would not be stringent?”Also, the diversification of African economies isvery important. We rely so much on rawmaterials, which does not help us. We produceand export without any value addition, which isvery bad,” Adadevoh added.Also, analysts at the Credit Suisse, aninternational financial services firm, stressedthat better fiscal management could helpstabilise investment growth and savings in thecontinent.More importantly, they urged policymakersand governments to play crucial roles inimproving education, investment growth anddebt sustainability in Africa.”Improvements in fiscal management havebeen limited, particularly in many fuelexportingcountries, public spending is still procyclicaland the taxation base is not welldiversified. If public spending is mostly financedby resource rents rather than by citizens, theymight be less likely to control governmentaction.”This can in turn facilitate corruption andlead to inefficient allocation of governmentresources. A promising remedy consists ofe n h a n c i n g t r a n s p a r e n c y a n d t h e r e b ya c c o u n t a b i l i t y , ” t h e y s t a t e d .Similarly, a former Deputy Governor of theCentral Bank of Nigeria (CBN), ProfessorKingsley Chiedu Moghalu, described the declineof global oil prices and other commodities sincelast year as a blessing in disguise, adding that itpresents an opportunity for resource-richAfrican countries to restructure their economiesfor transformation and inclusive growth.Moghalu quoted the wealthy Americaninvestor Warren Buffett’s as saying that “it is onlywhen the tide goes out that we see who’s beenswimming naked.He noted that beyond the standard effects ofcurrency and fiscal distress experienced bycountries like Angola, Ghana and Nigeria, thecurrent oil price volatility was a recurring cyclefrom which Africa’s commodity-dependentcountries must device a permanent exit.”With the price crash, many more Africancountries will not receive the benefit of lower oilprices, but the world’s industrialised economies,which have been built on the basis of economicc o m p l e x i t y , w i l l . “Moghalu argued that the policy implication ofthe present crisis for the future is that Africancountries must migrate to “radically differentand new economic thinking” that shifts fromseeing raw commodities and minerals as a sourceof wealth.“The cold evidence before us is that in theabsence of strong and effective institutions andno value addition to these natural resourceshappening in our economies, we have beensystematically impoverished by a combinationof the global political economy of extraction,which has carried on for 500 years in one form oranother, and rent-seeking in our domesticeconomies.”Therefore, in order to ensure that Africa’seconomic challenges are effectively tackled andthe continent is properly positioned to attain itspotential, there is need for a genuine andsustained paradigm shift to forms of real wealthcreation such as industrial manufacturing,investments in localised, off-grid renewableenergy and electric power. In addition, the policymakers in the continent needs to continue topush for policies and strategies that supporthuman capital development, entrepreneurshipas well as the commercialisation of innovations.