The African continent has faced significant exploitation throughout history, from European geographical exploration in the 15th century to colonialism and current inequitable investment and trade terms. This has hindered economic growth, despite independence movements in the 20th century. Mahmoud Mohieldin addressed these issues at the Alamein-Africa Business Forum, emphasizing the need for sustainable development and investment in Africa. The forum brought together heads of state, ministers, business leaders, and experts to discuss critical issues concerning African investment and economic development. Mohieldin's address examined the challenges and opportunities for growth in Africa. Africa's economic development remains far from being on track.
Africa's population stands at 1.5 billion, exceeding India's 1.45 billion and China's 1.42 billion. The continent's demographic profile is notably youthful, with a median age of 19. However, Africa's share of global output is only three percent, and its share of global industrial output is lower. Africans account for over 19 percent of the world's population but need to increase their output sixfold to secure a commensurate share of global output. Achieving this would require massive investment in human capital through education, training, and healthcare, alongside greater investment in infrastructure and technology. This investment is crucial for advancing Africa's prospects.
Economic growth in Africa averaged only five percent, compared with nine percent in China and seven percent in India, during the two decades preceding the Covid-19 pandemic. Some African governments cite the pandemic's aftershocks as a reason for their countries' deteriorating economic performance. However, the shortcomings cannot be attributed to such shocks alone or the long-term effects of colonialism. Instead, they are rooted in economies characterized by a lack of sophisticated management, coherent policies, robust institutions, and disciplined priorities. These underlying issues hinder Africa's economic growth and development.
Africa needs massive investment in infrastructure, including energy projects, of at least $155 billion annually to double its GDP by 2040. However, actual investment has amounted to only $83 billion, meaning it needs twice that amount. The "Africa's Development Dynamics 2025: Infrastructure, Growth and Transformation" report, jointly produced by the African Union Commission (AUC) and the Organisation for Economic Co-operation and Development (OECD), highlights this investment gap. The report emphasizes the need for increased investment to drive growth and transformation in Africa.
The cost of capital in Africa is over 13 percent, compared with eight percent in OECD countries. This is despite defaults on African infrastructure debt accounting for only two percent, and default rates in general being low and recovery prospects improving. Outdated perceptions and bleak assumptions continue to shape risk assessments, leading to higher costs for investors. These perceptions hinder Africa's ability to attract investment, as investors cling to outdated views and exploit them to their advantage.
To attract domestic, regional, and international investment, African governments must have convincing answers to seven key questions. These questions concern the barriers to entering and exiting the economy, the regulatory and supervisory framework, the cost of doing business, and the investment climate. Other questions relate to growth rates, inflation rates, economic stability, and diversification, as well as the protection of rights and the rule of law. African governments must address these questions to create a favorable investment environment.
Africa's ability to attract investment will be strengthened by expanding its markets and increasing intra-African trade, which currently accounts for only 15 percent of its total trade with the rest of the world. The African Continental Free Trade Area (AfCFTA) and other frameworks can enhance Africa's prospects for improvement. However, these frameworks will deliver results only if the cost of economic activity is reduced, competitiveness enhanced, and administrative complexity, corruption, and institutional weakness eliminated. Africa also needs to develop the capacity to lead through digital transformation and the establishment of a green economy.
Key points
- Africa needs to increase its output sixfold to secure a commensurate share of global output.
- The continent requires massive investment in infrastructure, including energy projects, of at least $155 billion annually.
- African governments must address seven key questions to attract domestic, regional, and international investment.
