Africa, obviously, is not only the cradle of humanity, but it is the home of much of the world’s biodiversity. That biodiversity, and Africa’s ecosystems, are under threat, and must be protected. The protection of ecosystems and biodiversity is itself an investment in natural capital, to prevent its degradation. Now, my view is that Africa can accomplish a high rate of investments of at least 40 per cent of GDP, and even higher, just like China has done, but requires a strategy and the strategy needs to be at the African Union level in my view. The African Continental Free Trade Area is an extremely important part of that, but as we all know, it’s only at the beginning. There are still massive barriers to trade within Africa, barriers that are regulatory, at border crossing, and infrastructural because the railways and highways simply aren’t there yet, and the fibre and power grids aren’t either.
This continental-scale infrastructure is critical because Africa will not achieve rapid growth one country at a time but will if Africa is unified on the continental scale. Africa is the third region of the world, together with China and India, with 1.5 billion people. Africa can achieve the kind of rapid growth achieved by China and India based on a well-trained population of more than 1.5 billion people, a large and growing internal market, and with the right investments, the realistic prospect of the fastest economic growth of any major region in the world. This, for me, is the agenda. Of course, success will require making the African Union far more consequential and effective than it has been in the past. The AU has in the past been, of course, a place for many important agreements and much progress, but it has not yet played its potential role in the African-wide economy that it needs to play. The projects of NEPAD (New Partnership for Africa’s Development) that are the trans-border projects now need to be implemented rapidly and effectively, and the implementation needs to be in line with the Africa Continental Free Trade Area that has been established. This also requires a financing strategy to achieve this rapid rate of growth based on high investment rates.
My own view is that Africa’s debt is not too high, but actually too low. Africa should be borrowing a lot more on International capital markets, but not the kind of borrowing it’s been doing. When Africa has borrowed on the international capital markets, it has typically been borrowing at maturities as short as 5-7 years, yet the growth and development will take place on horizons of 25-30 years. Africa is borrowing at short-term maturities to fund investments that pay off only on the scale of a generation or more. When the short-term debts come due, the governments can’t repay the debts and then often get in a refinancing crisis (or a “rollover” crisis). When this happens, the governments default and the national economy enters a downward financial spiral, an IMF programme, and a lost decade of development, or even longer. The IMF then says, “Don’t you dare try to have those high investments rate again. That’s too destabilizing.” And things come crashing down. But in my view the mistake is not the debt per se, but rather the short-term maturity of the debt. There is a fundamental maturity mismatch, trying to fund long-term development with a sequence of short-term loans. If the government borrows a seven-year bond to keep a child in school, seven years gets you from first grade to the eighth grade, but it can’t get you the economic growth and government revenues to repay the loan. And so, in my view, the biggest problem that Africa is facing is the underuse and so far, the under-availability, of long-term financing at reasonable interest rates that reflect Africa’s long-term high-growth potential.
My view is that if the capital markets behave properly, they would come to realise that Africa has the highest growth potential of any region of the whole world. Starting poor and accumulating capital, Africa can grow at astoundingly high rates for decades to come. For this reason, with the right fiscal, financial, and investment implementation, it would not be risky to lend long-term to Africa but it is risky to lend for just seven years! The lending should be 25, 30, or 40 years and this requires a financial strategy for Africa. One basic part of the strategy should be to increase the scale of the African Development Bank. The African Development Bank borrows on the international capital markets and then on-lends to the member states of the African Union on favourable terms, but the scale of the African Development Bank is far too small. AfDB lending is only around $5-10 billion per year but can and should be perhaps $100 billion of lending per year in the coming decade. There’ll be, I think, the opportunity for a major scale-up of the capital and lending flows of the African Development Bank in the coming years. Here’s my advice to the AfDB: Don’t wait for the United States and Europe to agree, do it yourself! The US and Europe are not going to scale up the African Development Bank to the extent needed. Perhaps the United States isn’t going to put much official financing into African development more generally. The US may try to grab some strategic minerals, but it’s not going to fund much of African development, through the AfDB or otherwise. Africa is going to have to do this by itself and with partners that are really committed to Africa’s long-term development. You will have partners in the Gulf region, you will have partners in the Government of India, and you have partners in the Government of the People’s Republic of China. And I could mention other parts of Asia as well. That’s where Africa’s long-term financing is going to come. Not from the United States, alas, and not from Europe. The African Development Bank is not the only multilateral bank of Africa. There are many African multilateral development banks. They should be scaled up significantly. And maybe some new ones should be invented, a West African Development Bank, an East African Development Bank, a Southern African Development Bank, and so forth. If well designed and managed, these multilateral banks tend to attract capital on better terms than their individual sovereign owners. I like the example in Latin America of what’s called the Latin American Development Fund, with the acronym CAF. Its owners, mainly governments in South America, are generally rated at sub-investment grade, yet these sub-investment grade sovereigns got together, pooled their capital, developed the CAF, and thereby gained access to low-cost bonds on the international markets on far better terms than their individual member states could attract. So, actually, there is leverage through unity. There is leverage through multilateralism.
I had the great pleasure and honour to work with the African Development Bank on a study that was just released on rapid growth for Africa to 2063. The study was led by the superb AfDB Chief Economist Kevin Urama. The study shows, on rigorous analytical basis, how the African Union can move forward on a high-growth agenda. Nigeria, obviously, has a major leadership role to play in all of this, as the most populous nation in Africa, with so many leaders in finance and in business. So, I really want Nigeria to help lead, not only for Nigeria itself, but for all of Africa. If Africa succeeds on a continental scale, Nigeria will boom as part of this overall continent-wide success. We will have a noisy global political scene for years to come. Donald Trump will pull the US out of the Paris Agreement. Yesterday, the United States vetoed a very standard UN General Assembly resolution because the resolution endorsed the Sustainable Development Goals that the US (wrongly) claims are not in the best interests of the United States. Nonetheless, don’t be perturbed, don’t be put off. This is Africa’s time for rapid development. Act in unison, and believe me, Africa’s success in the next 40 years will be the biggest success on the whole planet.