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OPINION PIECE
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Scaling up financing is key to accelerating Africa’s structural transformation (By Adamon Mukasa and Anthony Simpasa)
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Financing Africa’s transformation is a multi-layered overarching challenge that demands special attention and a pragmatic approach to move from billions to trillions
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ABIDJAN, Ivory Coast, August 27, 2024/ —Â By Adamon Mukasa and Anthony Simpasa, African Development Bank Group (www.AfDB.org).
Document 1: http://apo-opa.co/4g3EVzM The calls for structural economic transformation in Africa date back to the 1960s when newly independent nations aimed to eliminate poverty through economic diversification, sustained growth, and job creation. This agenda persists today, as Africa continues to face significant developmental challenges. Pursuing post-independence economic agendas was particularly important because, behind the euphoria (http://apo-opa.co/ Africa’s Economic Development Paradox More than sixty years after independence (http://apo-opa. As a result, Africa was the only region of the world where the average real GDP per capita contracted in the 1980s and 1990s, the so-called lost decades (http://apo-opa.co/ Africa is off-track in achieving almost all SDG targets by 2030, consistently showing the lowest SDG performance globally since the 2000s (Figure 1). Without intervention, it is predicted that by 2030, nearly 9 out of 10 of the world’s extremely poor will be in Africa (http://apo-opa.co/ [1] This scenario assumes that real GDP per capita of each African country will grow according to its post-COVID-19 (2022–25) average growth rate as computed by the African Development Bank’s Statistics Department.
But Africa is a very large, diverse, heterogeneous, region. Some countries have, over the past four decades preceding the COVID-19 pandemic, experienced episodes of growth accelerations, growth spikes and failed take-offs (http://apo-opa.co/ Importantly, over the past quarter century, thanks to strong economic reforms and macroeconomic stability, enhanced governance, relative peace and improved political environment and, public investments in soft and hard infrastructure, some African countries[2] have managed to transform their economies and recorded economic growth rates above the global average. The role of finance in fast-tracking Africa’s structural transformation Many factors, both internal and external, could explain the relatively slow progress in structurally transforming African economies. Among them: over-reliance on commodity-led growth (http://apo-opa.co/ While all these factors are equally important and call for urgent actions from policymakers, financing Africa’s transformation (http://apo- Insufficient domestic resources (http://apo-opa.co/ Even more concerning, debt service payments now account for about 11% of the continent’s total revenues. High debt service is diverting resources from crucial investments in infrastructure, education, and health – all critical for economic transformation and long-term growth. As of April 2024, 20 African countries[3] (http://apo-opa.co/47361TE) were either in external debt distress or at high risk of external debt distress. The AEO 2024 report estimates that to accelerate Africa’s structural transformation, the continent needs to close an annual financing gap of $402.2 billion (about 13.7% of its projected 2024 GDP) by 2030. Figure 2 shows that transport[4] infrastructure accounts for the largest share of the gap (72.9%), followed by education (10.4%), energy (9.9%), and productivity-enhancing technologies (6.8%). These figures reflect decades of underinvestment in critical areas for development. The level of financing gap in transport infrastructure reflects the continent’s shortfall explained by decades of public underinvestment to upgrade existing road infrastructure or open new roadways, to match the growing population and economic dynamism across the continent. For instance, Africa’s median road density is about 12 km per 100 km2, compared with 42.5 km in high-performing developing countries and 136 km in high-income countries. Only about 27% of African roads are paved, far behind the rest of the world (about 49%) and other developing countries (35.4%). [1] Niger, Senegal, Libya, Côte d’Ivoire, Ethiopia, Rwanda, Benin, Djibouti, Gambia, and Uganda
[2] Algeria, Comoros, Djibouti, Egypt, eSwatini, Lesotho, Libya, Mauritius, Sao Tome and Principe, Senegal, Seychelles, and Tunisia
[3] Burundi, Cameroon, Central African Republic, Chad, Comoros, Congo, Djibouti, Ethiopia, Gambia, Ghana, Guinea-Bissau, Kenya, Malawi, Mozambique, São Tomé and PrÃncipe, Sierra Leone, South Sudan, Sudan, Zambia, and Zimbabwe
[4] Proxied by roads as road transport is the most frequently used means of transporting goods and people across the continent, carrying at least 80 percent of goods and 90 percent of passengers.
On education, vital for equipping the current and future workforce with the required skillset for structural transformation, African countries’ median SDG index score was only 51.5 (out of a maximum of 100) in 2022, while other low-income developing countries reached a median score of 87. In addition, according to World Bank’s World Development Indicators (http://apo-opa.co/ The financing gap varies significantly across countries. The cross-country heterogeneity is mainly explained by differences in current SDG performance related to structural transformation as well as differences in demographics (current and projected population size and composition, land size, and the like) and socioeconomic characteristics (current and projected GDP per capita, and spending on education, infrastructure, and so on). As shown in Figure 3, the estimated annual financing gap represents at least 10 % of 2024’s projected GDP in 36 African countries, and in nine of these, at least 50 % of GDP. For such countries, closing the financing gap by 2030 is, therefore, realistically impossible. [1] For instance, the average share of people with access to electricity increased from about 38 percent in 2000 to about 59 percent in 2022. In 28 African countries, the percent of people with access to electricity has more than doubled between 2000 and 2022, out of which it has increased at least fivefold in 8 countries (Kenya, Lesotho, Mali, Mozambique, Rwanda, Somalia, Tanzania, and Uganda).
Note: COG: Congo; CPV: Cabo Verde; GHA: Ghana; CIV: Cote d’Ivoire; GAB: Gabon; GNQ: Equatorial Guinea; MUS: Mauritius; SYC: Seychelles; ZAF: South Africa. Source: Authors’ computation based on the African Economic Outlook (AEO) 2024 database A more realistic approach would be to allow for a gradual but steady transformation process over a longer period, aligning with the African Union’s Agenda 2063. This would enable countries to mobilize more resources domestically and externally, without jeopardizing debt sustainability. What next? Scaling up finance to accelerate Africa’s structural transformation should be a key priority for policymakers. While implementing structural reforms is crucial for sustainable growth, success depends on the availability, timeliness, and scale of long-term development financing and enhancing spending efficiency. African countries should therefore, inter alia, focus on: i) scaling up investment to build requisite human capital suited to local realities, circumstances, and development priorities; ii) boosting domestic resource mobilization and improving efficiency of public finance management; iii) creating targeted and streamlined incentives to attract private capital for key transformation sectors; and iv) launching ambitious national infrastructure programs with assured positive returns to attract affordable financing. The international community should reform the global financial architecture (http://apo-opa. By addressing these financing challenges and implementing targeted reforms, Africa can accelerate its structural transformation and move closer to achieving its development goals as espouses in Agenda 2063. Distributed by APO Group on behalf of African Development Bank Group (AfDB).
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