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A marshall plan for Africa

Feb 15,2024 - Last updated at Feb 15,2024

NEW YORK — Africa could be the largest source of global economic growth over the next half-century. But during the same period, the continent could also trigger the next great European war.

Goldman Sachs projects that Africa’s GDP will grow from roughly $3 trillion today to $44 trillion in 2075, with its share of global GDP rising from 3 per cent to 11 per cent.

This increase would make the continent one of the world’s main growth engines, surpassed only by India, which is predicted to add $46 trillion in GDP over the same period.

To put this in perspective, between 2030 and 2075, Goldman Sachs’ model predicts that Chinese GDP will rise by $8.5 trillion less, and the United States’ GDP by $16.5 trillion less, than Africa’s.

In fact, by 2075, Nigeria is forecast to become the world’s fifth-largest economy, with a GDP of $13 trillion, and Egypt the seventh-largest, with a GDP of more than $10 trillion. Meanwhile, Ethiopia is expected to rank 17th, while South Africa remains around 25th, with GDPs of more than $6 trillion and $3 trillion, respectively.

At the same time, Africa’s population is set to rise from 1.4 billion today to 3.3 billion in 2075, accounting for 32 per cent of the world population, up from 18 per cent today, according to the United Nations’ 2022 World Population Prospects report.

Two conclusions can be drawn from all this. First, by 2075, nearly one-third of the world’s population will have to share 11 per cent of global GDP. While this represents an improvement on the current situation, it implies that African countries will still struggle to feed, clothe, and provide income to all their inhabitants, likely triggering an explosion of migration to Europe.

Second, a small section of African society will benefit disproportionately from this period of wealth creation, while large segments of the population will most likely remain in poverty, implying a rise in inequality and an increasing risk of social unrest.

To be sure, Africa’s demographic dividend represents an immense opportunity for investors, especially in technology, consumer, clean-energy, agriculture, infrastructure and fintech industries.

But the risk of a humanitarian disaster grows with each passing day, as more people contend with poverty, joblessness, and violent conflict.

The continent is, in fact, a ticking time bomb. Global post-pandemic economic conditions, including the rising cost of capital, surging inflation and interest-rate hikes, have hit African countries hard, closing capital markets to most African issuers.

The defaults of Zambia, Ghana, and, most recently, Ethiopia are warning signs of a sovereign-debt crisis, offset only by Côte d’Ivoire’s successful bond issue in January.

Equally worrying are spiking yields and the wall of debt coming due in countries like Kenya and Angola. As a result, these countries have been forced to cut public spending to the bone and raise taxes, worsening social and business conditions.

Moreover, exchange-rate fluctuations, which contributed to the dramatic collapse of Nigeria’s naira, have tightened financial conditions, reduced the supply of dollars, and made it difficult for corporates to service foreign-currency debts and repatriate their dollar revenues. 

As humanitarian and sovereign-debt crises build, and business conditions deteriorate, multiparty democracy on the continent has begun to break down, reflected in the recent string of military coups in West and Central Africa.

The current situation has already fueled a sharp rise in migration. Last September, the UN High Commissioner for Refugees reported that more than 2,500 people had died or gone missing while trying to cross the Mediterranean to Europe in the first nine months of 2023, with many more perishing before they reached the coast. During that same period, 130,000 migrants, many departing from Tunisia or Libya, landed in Italy.

These numbers will increase sharply if Africa’s population growth is not coupled with improving economic conditions. Worryingly, the International Monetary Fund’s current forecasts suggest GDP growth of around 4 per cent in Sub-Saharan Africa for the next two years — well below long-term trends. 

The current influx of mass migration to European countries such as Italy, Spain, and Greece may be only the beginning.

The impact of African migration on European countries’ domestic politics can already be seen in the increasing popularity of right-wing, anti-immigration parties across the continent.

The political tremors that massive African migration would trigger throughout Europe in the coming decades could even lead to the rise of fascism.

To avert this nightmare scenario, policymakers must act now.

Sending asylum-seekers back to the continent, as envisioned by the United Kingdom’s controversial deportation deal with Rwanda,  will not stop migration (and, importantly, does not comply with human-rights standards).

The only answer is to fix the structural problems that plague Africa. That means supporting various homegrown African initiatives, including the Africa Continental Free Trade Agreement, innovative infrastructure-financing tools, and peace and security missions.

The international community should consider implementing a comprehensive Marshall Plan for Africa, led by the G-20. By mobilising large-scale financing, boosting trade, investing in capacity-building initiatives, and providing military and security support, the G20 could collaborate with the African Union and leading African countries to accelerate economic growth, promote human development and ensure social stability on the continent.

For such a plan to work, the United States, European countries, and China must come together to design, negotiate, and implement this initiative.

A joint effort is needed to deliver structural transformation, as the best intentions of individual countries will not be enough to tackle Africa’s economic, social, and political problems. Failing that, the continent’s problems will eventually ignite a global conflagration that burns brightest in Europe.

A G-20-led Marshall Plan for Africa could help produce sustainable solutions to the continent’s biggest challenges. When combined with homegrown initiatives and the nearly $1 trillion annual GDP growth that Goldman Sachs forecasts, it could provide the incentive required to mobilize the massive private-sector investment the continent needs.

 

Colin Coleman, a former partner at Goldman Sachs, is an adjunct professor at Columbia Business School. Copyright: Project Syndicate, 2024.

www.project-syndicate.org

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