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Growth in Africa can’t disguise long-term risks

Ian Bremmer, Ph.D

By Ian Bremmer

Africa is back in the news this month with both good and bad news stories. Nigeria has carried off an historic election that saw a defeated incumbent gracefully concede defeat to his challenger. Kenya has seen another deadly terrorist attack from the Somalia-based al-Shabaab terrorist group and has responded with military force. The broader story of Africa’s rise likewise comes with both promise and risks.

Without question, Sub-Saharan Africa, home to the world’s fastest growing middle class, is an underappreciated good news story for the global economy. Many more of the region’s citizens live in fast-growing cities than outsiders realize. Many countries are resource-rich, but most of their economies are increasingly well diversified. Nigeria, for example, is Africa’s leading oil exporter, yet services account for more than half the country’s GDP.

Across the continent, consumer demand is on the rise, and a growing number of governments now benefits from investment competition among Europe, China, the United States and other players. In fact, global foreign direct investment to Africa now exceeds Western aid. That’s crucial for the development of infrastructure, retail, consumer goods and services, and improved healthcare across the continent. The cost to government of aging populations in Europe, China, and Japan highlight Africa’s demographic advantages.

Ironically, some of the region’s greatest challenges have given rise to important commercial opportunities. Just as poor infrastructure helped the region skip the development of landline telephones and brought mobile phones to hundreds of millions of African consumers, so African businesses have led the way, globally, in mobile banking for customers who have never held bank accounts. Africa has become an incubator for other private sector solutions to developing world problems. Bloated bureaucracies and chronic corruption will frustrate middle class demands for better governance, but Africa has many advantages that will boost both growth and quality of life.

That said, there are longer-term risks that deserve attention. As long as lower commodity prices continue, they will weigh on growth even in well diversified economies. More importantly, it’s not clear that, over the longer term, there will be enough jobs for an increasingly well-educated African labor force. Poor governance, local radicalism, and even climate change will pose serious challenges, as well.

First, on jobs. Africa’s newly skilled, less expensive labor will be well positioned in coming years to benefit from companies in Asia and the Middle East willing to outsource work to lower their production costs. Chinese companies are already beginning to outsource light manufacturing to markets like Ethiopia, and Western technology firms are looking more closely at Kenya and South Africa for jobs that once went almost automatically to India.

But what if, over time, the need to create jobs at home forces Chinese and Middle Eastern companies to invest domestically to satisfy the demands of their governments? As more African countries industrialize and service sectors develop, will these economies create enough jobs to meet rising demand for work? That will depend on the ability and willingness of governments to invest in the infrastructure needed to, for example, generate much more electricity and to connect their economies through deeper investment in communications technologies. It’s an important question, because high unemployment might well feed rising militancy in North Africa and chronic conflicts further south, transforming favorable demographics from blessing to curse.

Then there are the challenges posed by climate change. Many climate scientists warn that early impacts won’t be felt in the temperate zones of the developed world but in regions like Africa that face temperature extremes. A surge of flooding in some areas and drought in others will inflict greater damage in regions with still underdeveloped infrastructure and emergency response capacity.

Africa’s vulnerability to disasters, both natural and man-made, could also highlight the relative lack of coordination among governments. The African Union isn’t simply a talk shop, but nor does it offer anything like the coordination of the European Union. Regional integration in the Americas and in Asia still run far ahead of coordination in sub-Saharan Africa. South Africa and Nigeria, the natural leaders, are still too focused on managing domestic challenges and too often compete with one another for regional influence to offer the quality of leadership that the region needs.

Given its importance for the future of global economic dynamism, its promise as the emerging world’s final frontier, and the complexity of the problems that lie ahead, the development of sub-Saharan Africa will continue to demand our attention.

*Ian Bremmer is the president of Eurasia Group and author of the forthcoming book, Superpower: Three Choices for America’s Role in the World. (Portfolio, May 2015) You can find him on Twitter @ianbremmer.

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