The African Century
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- Authors: ABEBE AEMRO SELASSIE
- Published: December 2, 2021
Overview and vision
- Fast-forward to 2081: demographic boom in most sub-Saharan African countries could transform many of the region’s economies into the largest and most dynamic in the world.
- Three influential factors for this vision:
- The demographic transition that is underway: By 2050, many sub-Saharan African countries will be among the few with a rising working-age population.
- The ongoing digital revolution—which offers much scope for the diffusion of know-how, new business opportunities, and more efficient service delivery.
- How effectively the region’s economies deal with the transition to a low-carbon economy and the adverse consequences that climate change is set to unleash.
- Near-term constraints: vaccination rates averaging about 2½ percent of the population across sub-Saharan Africa by early October 2021; most countries have limited fiscal space; near-term growth prospects remain below pre-pandemic projections.
- Strategic priority: balance addressing immediate pandemic-related challenges with transformative economic and structural reforms and significant external concessional financing to recover and maximize long-term potential.
Demographic transition and human capital
- Key statistics and projections:
- Population of sub-Saharan Africa projected to double from 1 billion to 2 billion by about 2050.
- This will account for half of global population growth, with the working-age population growing faster than any other age group.
- Reference point: "30 to 40 years ago" many would not have predicted the rise of China, India, Indonesia, or Turkey.
- Findings:
- The demographic trend is potentially the region’s single greatest opportunity—growing pool of human talent and large market size.
- Realizing the demographic dividend is not automatic and requires astute policy choices.
- Policy and investment priorities:
- Invest in high-quality educational opportunities at primary, secondary, and tertiary levels to meet demands of growth sectors.
- Expand investment in health care, including broader access to a variety of vaccines (potentially through regional production hubs), ensure widespread access to at least a minimum level of health services, and family planning.
- Implement multiyear plans to build infrastructure, train teachers and health professionals, and balance ramping up services to capacity against near-term provision.
- Close gender gaps in access to education and job opportunities to help lower fertility and boost productivity.
- Promote private sector development: cultivate a growth-friendly business climate and promote private sector investment to create jobs and catalyze capital accumulation.
Jobs, private sector, and structural change
- Findings:
- Training the next generation must be matched with the creation of good jobs; job growth must keep up with a relentless increase in new job seekers.
- Digitalization and services may alter traditional development paths; light manufacturing-led paths may be less viable.
- Policy recommendations:
- Unleash private sector potential through reforms that improve the business climate and incentivize investment.
- Support sectors such as business process outsourcing, e-commerce, and fintech while balancing fintech benefits against risks to financial stability.
- Prepare for potential downward pressure on the labor share of income from automation and artificial intelligence; focus on policies that enhance labor rather than replace it.
Digitalization in Africa
- Opportunities and impacts:
- Digital reforms and infrastructure can help the region leapfrog—boost resilience, efficiency, access to global markets, public service delivery, transparency and accountability, and job creation.
- Government efficiency examples: online tax filing and business creation, computer systems in customs administration, social assistance through mobile money.
- Transparency improvements: publishing information online, e-participation, automation of service delivery to reduce in-person contact that could generate corruption.
- Digitalization promotes entrepreneurship by allowing firms to grow rapidly with less physical capital and a limited geographic footprint.
- Risks and trade-offs:
- Automation and artificial intelligence could reduce labor demand and pressure the labor share of income if they replace rather than enhance labor.
- Fintech should be balanced against risks to financial stability.
Managing climate change risks and the low-carbon transition
- Findings:
- Climate change poses a great threat; impacts vary (droughts, rising sea levels, cyclones, floods, rising temperatures, rainfall anomalies).
- Sub-Saharan African countries share limited climate resilience, reliance on rain-fed agriculture, and greater economic weight of climate change relative to elsewhere.
- Adaptation and mitigation priorities:
- Accelerate adaptation through targeted investment in infrastructure, people, and coping mechanisms to raise resilience, boost productivity, and reduce inequality.
- Examples: better and more widespread irrigation, more robust buildings and drainage, investments in health care and education, social assistance, and access to finance.
- Good macroeconomic policies: increase fiscal space, enhance economic diversification, and pursue exchange rate flexibility to limit climate shock impacts.
- For oil and gas exporters: pursue rapid economic diversification to offset lower revenues and less related investment.
- Transition the region toward greener industrial activity and energy generation—policies ranging from financial regulations to large-scale investment in renewable energy such as solar and wind power.
- Facilitate technology transfers from more advanced economies and manage pressures to preserve carbon sinks and reservoirs against logging and mining opportunities.
Financing the transformation and IMF engagement
- Recent IMF engagement:
- 60th anniversary of the IMF’s African Department (founded in 1961, 17 years after the Bretton Woods conference).
- During the COVID-19 crisis, nearly $27 billion in financial assistance provided to 39 African countries.
- Three-quarters of this lending came from the Poverty Reduction and Growth Trust—the IMF’s vehicle for zero-interest loans to low-income countries.
- Financing challenges:
- COVID-19 has left many sub-Saharan African countries with limited fiscal space and higher debt burdens.
- Increase in debt across the continent during the past two years raises concern about uptake of new debt.
- Policy and financing recommendations:
- Intensify efforts to develop fiscal revenues through efficient tax policy, comprehensive public financial management, and transparency and good governance.
- Multilateral development banks and development partners should step up financing efforts with grants and concessional loans where possible.
- Rechanneling Special Drawing Rights from advanced economies with strong balance of payments positions may provide longer-maturity loans.
- Ensure new debt finances projects with good returns: target high-quality projects backed with comprehensive feasibility studies and robust and transparent public procurement.
ABE SELASSIE, "The African Century," F&D Magazine, December 2021.
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