“Africa has caught the imagination of the world in recent times as a [potentially] prosperous part of the world.” – Kingsley Moghalu
In the past five to ten years, Africa has begun to be conceptualized as the last frontier in the global economy. This idea gains momentum every year, however, the reality of this narrative should not be accepted without debate and close inspection of the facts. What does Africa need in order to realize its great economic potential? “[Africa] is often being called the new frontier. But how realistic is that? How sustainable is that? What other things need to go into the mix to make that actually happen? We know the potential. All of us who have worked in Africa for years know the great potential of Africa. But what do you need to do to really realize that?” posited Steve McDonald, director of the Africa Program and the Project on Leadership and Building State Capacity.
The Last Frontier
Kingsley Moghalu, Deputy Governor of the Central Bank of Nigeria, defined “the last frontier” as being a twofold vision of the continent characterizing both internal and international economic dynamics “from the perspective of the expansion of the world economy to new poles of economic growth and transformation.” Indeed, as a result of the rise of Brazil, Russia, India, China, and South Africa (BRICS) in recent years, analysts and observers have come to see Africa as the next potentially “prosperous part of the world.” BRICS countries are now wealthy enough to outsource production and manufacturing to less developed economies. This has catalyzed hope that the spheres of economic growth and prosperity will extend to more African nations. Optimism is pervasive as annual growth rates have ticked upward on the continent since the dawn of the new millennium. Foreign Direct Investment (FDI) has never been higher. In response to the rising costs of labor in Southeast Asia, Western investors have started pivoting to Africa. The fruits of economic globalization have come to the continent.
Moghalu nevertheless challenged policymakers to be prudent with regard to large capital inflows. “When you look at Africa as a new territory for conquest for business opportunities, the question then becomes: in whose interest?” Markets and investors driven by profit have proven risky if left unchecked, as experienced during the 2007-2008 global financial crisis. Africa has a growing consumer middle-class, but Africans have not yet become producers and may be deterred from doing so if FDI crowds out regional investments.
Africa in the Global Economy
The Deputy Governor of Nigeria’s Central Bank went on to give an account of what the role of Africa in the world economy is, and why it should matter. First, the continent has caught the attention of many as a resource-rich region where national governments and African firms produce little by themselves, hence leaving land and capital available to external actors. Moghalu expressed concern about this issue, which has the potential to turn the continent into “a place of extraction [that] fuels the prosperity of many nations, but not [into] a prosperous part of the world… It is structural transformation, which creates real prosperity.” The continent should move away from resource-fueled development.
Secondly, Africa should be a hub of activity in the global economy, but remains weak in terms of intraregional and international trade – only 3% of total goods are exchanged with the continent. Although the continent has experienced high growth rates since the early 2000s, this growth was mainly driven by cyclical increases in commodity prices which, Moghalu admonishes, will inevitably end.
Calling for a Paradigm Shift
In order for Africa to reach a competitive position in the global economy and to sustain the decade-long growth rates it has seen, Moghalu argued that paradigm shifts must occur. The first paradigm shift that has to take place is the way in which African countries adjust to globalization. One should not assume that globalization is a natural process. As it happens, Africa is merely a consumer and this will not lead to prosperity. “Globalization is driven by technology,” but Africa cannot take for granted that all economies will benefit as a result of it. Africa needs to undergo a fundamental change orienting itself toward industrialization and development of its manufacturing sector. As a matter of fact, agriculture and resource extraction do not improve the lives of people and are unsustainable for development over the long haul. According to Moghalu, value-added production is what the continent should focus upon.
Another part of Africa’s necessary paradigm shift concerns the way the world view’s Africa and how Africa understands the world. “World views are a driver of transformation and driver of economic prosperity… You must have a view of the world and an understanding of human beings, reality, and the relationship between the two.” Genuine development must be undertaken and it cannot be assumed that Africa’s rise towards prosperity will be automatic. Capitalism has produced results, but it is necessary to question which type of capitalism is most relevant for Africa. Conventional wisdoms need to be vetted as they relate to the continent.
The Need for Diversification
“When the global economic crisis began unfolding in 2009-2010, the weak integration of Africa into the global economy in many ways insulated it, ironically, [from] the global economic crash,” Carl LeVan, Assistant Professor in the School of International Service at American University, remarked. As a consequence, Africa now has a strategic position wherein its economy continues to grow rapidly while the developed world limps into recovery. For the continent to take advantage of these new opportunities, it needs to undergo a structural transformation to engender economic diversification. The prevalence of the agricultural sector weakens the African economy, because the profits are dependent on commodity price fluctuations. LeVan seconded Moghalu’s call for a paradigm shift, adding that this must not be an incremental change, but a revolutionary act that would profoundly modify Africa’s economic landscape.
Africa may well be the last frontier in the global economy. This matters because as the West continues its slow recovery, Africa is positioned to catch up. The development of the BRICS has allowed for investment on the continent, however, if progress is to be made, Africans have to undergo a paradigm shift. Moghalu charges that African economies must move away from agriculture and toward industrialization and manufacturing. Furthermore, the continent must not blindly follow the trends of capitalism and democracy, but seek out what is, in fact, in its own best political and economic interests.
This event was co-sponsored by AllAfrica.com.
- Global Fellow