Africa needs a lot more private investment

Progress in Africa continues slowly, in spite of political instability, the pressure of other concerns, corruption, and natural disasters. Some companies have been active in manufacturing for more than a century, and improvements in infrastructure education and telecommunications have allowed new entrepreneurial development. The problem is that the pressure of other concerns (health and food, for instance), has not relaxed.

In 2020, Africa had 17 per cent of the world’s population, having risen from 13 per cent in 2000. But its share of world GDP was just 3.1 per cent, having risen from 2.5 per cent in 2000. And the position of manufacturing is even worse, at just 2.1 per cent, having risen very slightly from 1.9 over the twenty-year period.

Only a few African countries are globally significant in terms of manufacturing. In UNIDO’s Industrial Competitiveness Index, there is no African country in the top quintile.  The highest-ranked African country is South Africa, in the second quintile, at position 52 worldwide (and that represents a fall from 2010, when South Africa was in position 40). Then come just three African countries in the third (middle) quintile, with Egypt at position 64, Eswatini at position 84, and Mauritius at position 90.

Investment is a key issue. In practice, the big need in Africa is for greater business activity. How much investment is needed? One rough indication is given by comparing investment levels in Africa with those in developing Asia, using UNCTAD’s database. Africa invests 25 per cent of GDP, while developing Asia invests 36 per cent. If Africa were to reach Asian levels, it would need to invest 274 billion US dollars extra per year. And it would need to do so for a long time: fast-developing Asian countries managed to keep the investment share at high levels for many decades.  Of course, this is total investment, not just for industrialisation, though most investment actually helps industrialisation. And some of the Asian investment is replacement investment, with a much bigger stock.

To give a sense of the numbers, there is a target of 100 billion dollars annually for aid to combat climate change, but this has not been met. And this target is to cover the entire developing world. If the governments of rich countries are so casual about an existential threat to human life on the planet, they are not going to provide multiples of that for African development. Also, even if Africa had an extra 275 billion available annually, it could not all be spent at once. But the figure nevertheless shows the scale of the problem. Development assistance alone could not address this investment gap, even if it were to be greatly increased and become incredibly effective. Africa has huge resources for growth in the future: mineral wealth, arable land, renewable energy and human resources are there in abundance, although they’re unevenly distributed. Climate change has increased the urgency of action, and also increased the opportunities. Private investment will be the key. But to mobilise the capital required needs new approaches.