A new Path Forward for Sub-Saharan Africa

A new Path Forward for Sub-Saharan Africa

A new Path Forward for Sub-Saharan Africa 1024 574 Trendsformative

News in late May that Rwanda’s government is sponsoring the English football club Arsenal provoked sharp and divided reactions. Rwanda will get to put its name on Arsenal shirt sleeves in return for £30 million over three years, and Arsenal players will visit the country to hold training camps. So, is this a case of a dictator, Paul Kagame – a self-confessed Arsenal fan – indulging a personal whim in the face of the poverty of his population?

Some questioned whether this is why the West has been sending aid each year since Rwanda’s genocide in 1994. Others asked whether, given the ever-increasing visibility provided by English Premiership television rights, with Amazon now entering the arena as a broadcaster for the first time, this could be a smart, far-sighted piece of business.

The question gives clues as to the long-term prospects for growth and development in sub-Saharan Africa. The stakes are huge. The World Economic Forum projects that by 2050, more than half the people in the world, 54%, will live in Africa. Unlike in Europe or China, the Africa population will be young, with over 30% of Africans projected to be aged between 10 and 24 in 2050. The spectre of ageing populations is largely non-existent: the share of the population aged 65 and older in Africa will only have grown from 3% to 6%.

The demographics are alluring, but a sobering corrective to the idea that Africa is bound to win in the end is provided by the World Bank, according to which The Central African Republic, the Democratic Republic of Congo, Niger, Liberia, Cote d’Ivoire, Liberia, Zambia, Zimbabwe and Senegal are all now poorer than they were in 1960 – around the time that many of them became independent. One reason is that the bullish emerging markets story which claims a recent reduction in dependence on commodity exports simply does not hold in many parts of sub-Saharan Africa. For example, Namibia remains heavily dependent on uranium exports, Zambia on copper and Angola on oil. Falling prices for any of those cause instant pain, both locally and for international investors.

Overall, the picture may in fact be getting worse rather than better. More than half the countries in the world that depend on agricultural commodities are African, and roughly two-thirds of Africans depend on agriculture to make ends meet. According to The State of Commodity Dependence Report, published in October 2017 by the United Nations Conference on Trade and Development (UNCTAD), a new commodity dependence has developed in Africa, where seven new countries fell under the definition in 2014-2015. This status has serious implications across the board. About two-thirds of developing countries classed as commodity-dependent have low or medium human-development ratings, according to UNCTAD.

Greater diversification of exports needs to come from somewhere, but, in Africa, manufacturing is unlikely to supply it. The manufacturing industry share of employment stands below 8%, and the share in GDP is around 10%, down from almost 15% in 19751. There are structural reasons for this. Countries have been shown to make the transition more easily to products that require capabilities similar to those that exist in a country’s productive structure2. It’s easier to move from iron ore to steel production than to pharmaceuticals. Getting to higher added-value manufacturing niches may be impossible.

That doesn’t mean that sub-Saharan Africa can’t jump ahead in some areas. Services exports, it has been argued, are too often overlooked by emerging economies in search of diversification3. Tourism breaks down many of the barriers that prevent entry by emerging market countries into new markets. It creates an economic rationale for improved natural conservation efforts. “Wildlife pays, so wildlife stays”, goes a saying in east Africa. All right, so Arsenal owner Stan Kroenke, who signed the sponsorship deal with Kagame, and was forced to abandon plans for a planned television channel dedicated to big game hunting exploits in Africa is kind of an exception, but you get the idea.

More generally, there is a “tourism multiplier” at work: the tourist spends his euros or dollars, but local hotels need to purchase inputs from a range of businesses to meet the demand. The multiplier effect has been shown to be higher in rural than in urban areas, and it has been estimated that the indirect impact of tourism on an economy may fully match that of direct tourist spending4.

This multiplier effect extends to the process of diversification. Information about international demand that might otherwise be unavailable is generated; local businesses get this information at little or no cost. In what other context would a range of affluent potential clients pay to come and meet a small business? The entrepreneur can try out his products on tourists without the heavy investment needed for immediate export. Hospitality providers have an incentive to replace imports with local produce to offer tourists fresh and distinctive food. Foreign demand for local goods is generated, and production standards can be raised, leading to export breakthroughs. Wooden furniture from Egypt is an example of successful tourist-driven export product development5. Many of these benefits accrue directly to local businesses, unlike, for example, oil revenues, or even aid, which are often shared around inside a narrow government elite.

Africa is in the front line when it comes to the challenges posed by environmental change. Much of sub-Saharan Africa has been grappling with lower rainfall levels for well over a century. Rapid urbanisation and population growth will only increase the strain on already insufficient water resources. Cape Town this year has experienced the worst water shortage in its history. The idea of sub-Saharan Africa as a thriving emerging market of the future has to contend with the prospect of increasingly frequent conflicts over access to water.

In this context, tourism is both a predator and a possible saviour. In some places in Africa, water consumption per guest can be more than 70 times local population use6. On the plus side, clean, accessible water is crucial for tourism, and creates economic incentives for hotels, restaurants and leisure facilities to provide it. With over one billion people traveling internationally each year, tourism can raise awareness of the politics of water. Tourism has the economic clout to move the question of water supply up from the agendas of environmentalists and onto the desks of ministers of finance, planning and infrastructure.

Any country where people might want to go has the chance to enter the tourism market. Tourism is driven by attractions, and attractions are created by the distinctiveness and diversity of geographical features. Rwanda certainly qualifies on this score: it is safe, clean and has mountain gorillas, wildlife parks, tropical forests and Lake Kivu, all in area about the size of Maryland. Rwanda has in the past been a classic example of commodity dependence, with 48% of its exports accounted for by commodities such as gold, tin, tantalum, tungsten, tea and coffee in 2016. Yet it has leveraged these assets to get ahead of other sub-Saharan destinations. Foreign exchange receipts from tourism have been growing at around 30% annually.

But tourism is not driven by the dictates of comparative and first-mover advantage. Other sub-Saharan destinations can still catch up. Of course, the picture is more complex than a simple dichotomy between manufacturing and services. Being able to meet compete in tourism or any other kind of service still depends on a manufacturing capability. Yet the fact is that formal manufacturing industries are not the main beneficiary of African urbanisation. Like it or not, African urban migrants are mostly being absorbed largely into the informal economy and into services. A desperate struggle to survive is the result for many; one simple, proven way to help is to get cash into as many hands as possible7.

Tourism is one way to do this. Arsenal fans were more likely to disapprove of the new shirt design rather than raise concerns about it economic impact, or Rwanda’s human rights record. But tourism offers a clear path to export diversification that can improve the long-term investment case for sub-Saharan Africa. Rwanda says that tourism revenue, not foreign aid, was used to fund the deal. Given the long-term difficulties that many African countries have experienced in breaking into product export markets, alternative strategies may be hard to find.

Notes —
1. Dani Rodrik, An African Growth Miracle? Journal of African Economies, 2016.
2. Cesar Hidalgo, B. Klinger, A. L. Barabasi and Ricardo Hausmann, (2007) The Product Space Conditions the Development of Nations. https://arxiv.org/ftp/arxiv/papers/0708/0708.2090.pdf
3. Richard Newfarmer, William Shaw, Peter Walkenhorst (eds) Breaking Into New Markets: Emerging Lessons for Export Diversification, (The World Bank, 2009) pxxii.
4. Olivier Cattaneo, Tourism as a Strategy to Diversify Exports: Lessons From the Mauritius in Newfarmer et al op. cit. p190.
5. Iza Lejárraga, Peter Walkenhorst, Fostering Productive Diversification Through Tourism, in Newfarmer et al op. cit. p198.
6. African Natural Resources Center   Maximising Benefits From Water for Tourism, 2015, p19.
7. For example James Ferguson, Give a Man a Fish, Reflections on the New Politics of Distribution, (Duke University Press Books, 2015)

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