The team had passed the deadline to print a one-day document, but I was determined to do so as I wandered the streets of Hargeisa, Somaliland. The sun was scorching the streets, the dust rose at my feet, and in my colorful shirt and my pants covered with brown dust, I stuck out like a sore thumb, a stranger on the loose.
I finally found my print shop, but got a glimpse of the intense street commerce that thrills Hargeisa. Here in Somaliland’s capital – which has seen a succession of democratic elections after declaring independence from dysfunctional Somalia – traders haggle for goods in open-air markets. To the casual viewer, it seems like, like David killullen recalls, “like throwbacks to a simpler time, but they are truly intentional businessmen who navigate complex multi-party agreements, in a global market, with a floating exchange rate”.
Hargeisa Market is a hive of commercial activity. Traders strut to close deals as the occasional donkey cart trots. Amid the men gathered around a table, sipping tea and chewing khat indulgently, complex transactions follow one another, between business partners and extended relatives, from downtown Hargeisa to Rotterdam, Oslo or still Minneapolis. The word that comes to mind is “access”.
Somalilanders have a global interconnectivity to thank for the financial inclusion opportunity. International money transfers are a staple of Somaliland’s economy and represent an innovation in inclusive banking in a city without a modern convention (i.e. non-Islamic) banking system, in an unrecognized country and therefore only weakly connected to global banks. This feature of Somaliland’s economy is a daily reminder of its relentless drive to prosper and the ingenuity of its people.
Access to the opportunity is – or should be – the African priority. When people engage in productive and economically rewarding activities, they create better outcomes for themselves and their families. “Alleviating poverty and creating prosperity are fundamentally two different things,” recalls Efosa Ojomo, Principal Investigator at the Clayton Christensen Institute for Disruptive Innovation.
Moreover, he adds, “the road to prosperity is through poverty reduction, but poverty reduction, unfortunately, leaves everyone in poverty.” We need only take the $ 1.2 trillion (a conservative figure) in development assistance to the continent over the past 30 years as evidence of the flaws in our current poverty reduction project.
The time to be bored is long gone. Instead, we need to make better choices rooted in today’s global realities.
Over the next generation, the continent’s population is expected to double to 2.5 billion, more than half of which will live in cities. In 1960, this figure was only 10%. The continent’s contemporary cohort, made up of some 420 million young people between the ages of 15 and 35, already faces a daunting future. Only one in six holds a stable salaried job and 77% of the population is literate – the lowest of any region in the world. With a booming population, especially young people, growth is imperative for economic, social and political well-being. However, the way it all turns out – joy or sorrow – is not predestined. The results will depend on the decisions taken today.
It is no exaggeration to say that global stability over the next half century depends on the choices Africa makes for itself and the initiatives it takes.
It will therefore be imperative to align with a mindset of development through growth. This involves creating systems that generate growth for its constituents, focusing on macroeconomic stability, including developing alternative financing models for infrastructure and securing, through partnerships, the resources needed to reform its constituents. bureaucracies and its nonsense. And of course, be aware of the comparative advantages and constraints – at global, regional and national levels – of private sector investments and the long-term time horizons of investors.
Foreign direct investment (FDI) in Africa fell by $ 47 billion in 2019 in 16% to $ 40 billion in 2020 – a downward trend that has only gotten worse by Covid-19, according to UNCTAD’s 2019 World Investment Report. The continent’s FDI inflows represented only 4% of the world total of $ 1 billion; its share of the world’s population is almost 17%. On the other hand, developing Asia received $ 535 billion in FDI in 2020, more than half of the total and closer to its share of the world population of 58%. Given the dominance of extractive industries in the allocation of FDI, this may not be the perfect metaphor for growth or development.
A more promising indicator is Africa’s venture capital (VC) finance. In 2021, the continent capital risk the numbers are tantalizing: Nigeria got about $ 1.37 billion, South Africa – $ 838 million, Egypt – $ 588 million, Kenya – $ 375 million, Senegal – $ 222 million , Tanzania – $ 96 million, Ghana – $ 48 million, Morocco – $ 29 million, Tunisia – $ 23 million, Uganda – $ 18 million, Rwanda – $ 16 million and DRC – $ 12 million
Source: Africa: the big deal | Max Cuvellier | Sub stack
Between July and mid-November alone, Africa saw on on average a deal over $ 1 million announced every day, according to Max Cuvellier, Head of Mobile for Development (M4D) at the GSMA. In 2019, it was every three days, then every other day in 2020, then every 1.6 days in the first half of 2021. Nigeria, South Africa, Egypt and Kenya dominate the capital- risk, claiming 80% of the total capital raised on the continent so far this year, Nigeria alone accounts for some 35% of the total capital raised.
Why is this important? Venture capital is a critical source of funding for start-ups, enabling entrepreneurs and encouraging innovations that promote economic growth and job creation. South African Venture Capital Association (SAVCA) CEO Tanya van Lill revealed from the 2018 venture capital survey that 77% of companies financed by venture capital surveyed in South Africa have increased the capacity of their company in terms of the number of full-time employee positions. In 2020 there was a 22% average increase in jobs per year by companies with venture capital investments.
The rapidly evolving digital economy, which largely fuels and is itself fueled by venture capital, is a defining factor in the reality of Africa. While traditional physical markets still exist, such as in Hargeisa, a digital market is vibrating across the mainland’s trade channels. Over the next four years, the digital economy is expected to contribute up to 5% of the continent’s GDP by 2025, contributing nearly $ 180 billion to its economy.
Despite this, even today, for many investors, the problems remain the same: it is difficult and expensive to do business on the continent.
To reap the full benefits of digitization, Africa will need to find ways to discover and exploit specific advantages, including democratizing access by lowering the cost of smartphones (in part by eliminating import taxes) and reducing the cost of internet connection (enabling faster and more affordable connectivity), by not taxing not the movement of money and facilitating the growth of digital economies through digital governance.
Over the next 25 years, some 86% of the world’s extremely poor will live in sub-Saharan Africa. This is and will be the result of poor policy choices and decisions that have failed to generate pro-poor growth, as in places like China, South Korea, Japan, Indonesia and elsewhere.
Today, enormous entrepreneurial energy is waiting to be unleashed. However, to create world-class businesses with good jobs, a favorable political environment must exist – one that helps them overcome the challenges posed by the history, location and perception of the continent. Africa is teeming with old and new entrepreneurs eager to build world-class businesses that tackle the social, political and environmental issues facing the continent with beneficial implications for economic growth.
African leaders must show a sense of urgency, crisis really, to build a business as usual offramp. Maybe a little anomaly – like inclusive growth and development – will be beneficial.
Madness is often said to be “doing the same thing over and over and expecting different results” – a cliché often repeated in a world that seems slow to learn from its mistakes. Yet when it comes to political machinations to spur economic growth, African leaders seem to be doing the same things over and over again in the hope that somehow things will get better – or worse. less will improve. less bad. This approach (bogus, in fact) speaks of a leadership comfortable with the bare minimum and a population that feels in part powerless to make a difference. The poverty reduction project did not work; it’s time to demand opportunities that create prosperity.
If we look at the past six decades, it is difficult to make progress in the transformation of African economies given the legacy of its heavy past and the complexity of the political economy of the countries. But the option of not doing more will be more detrimental to its stability. Africa, its leaders and its people must therefore improve to change course and try other options. There is, after all, a varied and comprehensive menu of lessons on what success might look like. DM
Marie-Noëlle Nwokolo is a researcher at the Brenthurst Foundation, where she directs her podcast channel.