Financing Africa’s Development and Transformation: Options Well Beyond Foreign Aid

I could not hold back the tears that flowed from my eyes as I read the headline of the Economist magazine published in 2000 which read: Africa- The Hopeless Continent. After being silent in thought for a moment, like Tarzan bursting with one of his famous yells, I screamed: “This narrative must change!” After posting a record growth rate of 5% in the first decade of the twenty-first century, the same Magazine changed her description of Africa to “Africa on the move: The Rising Lion”. This new narrative notwithstanding, the thought on how to further finance Africa’s development grows in my mind as Africa continues to creep and crunch up the development ladder.

Africa is reputed to be blessed with abundant natural resources; the magisterial stillness of her virgin forests, mineral resources, youthful population, cultural diversity and so on. Despite tremendous amounts of mineral and human resources, she still struggles to make appreciable advancement on the rungs of development. Hurtling deeper into the reason why Africa is still lagging behind, I realize that two major problems stand out among others: Poor Political Will and Leadership, and Lack of Access to Finance.

The venality and deepening corruption that has enveloped Africa’s political scene has contributed in no small measure to the challenges Africa is presently faced with. With African politicians putting away millions of stolen funds in Western banks who share their laissez-faire sensibility, Africa was being destroyed by its own hand and hubris. The dearth of qualitative leadership has forced many African professionals to get involved with the political process which has led to the resurgence in Africa’s political landscape. Africans have continued to thrive despite the challenges arrayed on our path. Like Tennyson’s Ulysses, much has been taken from Africa, but much more still remains. (Peel, 2010) Africa is much more than a source of laughably unsophisticated fraud and extreme violence, Africa is proving to be the next investment frontier of the world.

Financing Africa’s Rise: Options Beyond Foreign Aid

The debate about the impact of Foreign Aid on Africa’s development is one that has flooded the African development discourse for several decades. Some researchers believe that Foreign Aid is to blame for Africa’s under-development. Others, however, believe foreign aid can serve as the panacea for underdevelopment if effectively utilized. With much of Africa dependent on foreign aid and drastic foreign aid cuts from one of Africa’s largest donor nation- The United States of America, African leaders must begin to creatively devise alternative avenues to source Africa’s development and transformation.

As a frontiersman and a leader in Africa standing at the edge of the world of finance, I can galvanize alternative avenues to finance Africa’s transformation. Vast amounts of capital are flowing across the global finance space looking for higher yields than those being offered in OECD countries. Currently, over $100 trillion is being managed by institutional investors and commercial banks globally. (African Development Bank, 2018) African countries seeking for resources to fund their development agenda now have a wide variety of options. The global financial architecture has more savings that are searching for yield than there are obvious profitable investment opportunities. These funds are what I refer to as Wealth for Development (WFD). This Wealth for Development (WFD) is trapped in household savings in extremely low real interest rate (close to zero) in developed countries. Thus, African countries must innovatively focus on how best to attract and use these scarce resources to achieve the highest economic and social returns. This would involve ensuring that adequate capital flow management policies are put in place to ensure the marriage between excess savings and investment opportunities.

As a leader in Africa, I would initiate several meetings with other African leaders as well leaders from other developed countries of the world in a quest to develop and execute a global pact to finance growth and development in Africa. This pact will unveil the commitment of world leaders to facilitate the movement of funds for finance Africa’s development.

Finance for the development and transformation of Africa will be executed through the following avenues:

1. Taxes: Tax revenue in Africa is currently put at about $500billion. However, many African countries still have very low collection levels as tax to GDP ratio in many African countries is very minimal. With effective tax collection strategies, tax evasion will be history and as such realizing more funds for the development and transformation of Africa.

2. Sovereign Wealth Funds: Sovereign Wealth Funds presently operate in about 60 countries and globally manage about $7.2 trillion. African Sovereign Wealth Funds represent a small but growing share. The figure for Sovereign Wealth Funds in Africa is put above 20 amounting to about $1.6 billion. As a leader in Africa, I will be exploring the added finance mechanism Sovereign Wealth Funds bring on board so as to facilitate the development of Africa.

3. Pension Funds: These are potentially a highly valuable but largely untapped source of finance for the transformation and development of Africa. With a huge amount of these fund lying dormant in many African countries, as a leader in Africa, I will harness this large pool of funds for the financing development in Africa. These funds are known to enjoy high liquidity which would facilitate short-term development goals.

4. Foreign Direct Investment: Currently accounting for about 70% of private capital flows to Africa, Foreign Direct Investments are the least volatile form of investment. Most Foreign Direct Investments are channeled towards the solid minerals industry. However, the funds from Foreign Direct Investment can be further used to develop other critical areas.

5. International Bond Market: Africa’s entry into the Eurobond market as signaled by the Ghana Bond Issue in 2007 has remained very successful. More bonds issued after the Ghanaian Success story has seen the oversubscription of bonds issued by various African countries. This oversubscription is caused by low international interest rates, low public debts and rapid domestic growth in the various African countries.  (African Development Bank, 2018)

6. Efficient Public Spending: Prior to this decade, Africa was known for wastage and large leakages. However, as a leader in Africa, I would block all leakages and ensure efficient public spending. This would be achieved by ensuring private participation in government projects. This will lead to increased efficiency in operations, maintenance, and long-term asset lifecycle management.

In the words of Africa’s most reputable leader, Nelson Mandela, “I dream of the realization of the unity of Africa, whereby its leaders combine in their efforts to solve the problems of this continent.” The vision of developing and transforming Africa cannot be done in isolation. All Africans leaders must be willing to work together to ensure that the Wakanda story told by Marvel studios in her movie- Black Panther is not just a fictional image of Africa but Africa’s reality. 

References

African Development Bank. (2018). African Economic Outlook 2018. Abidjan: African Development Bank.

Peel, M. (2010). A Swamp Full of Dollars. Chicago: Lawrence Hill Books.