Africa has a huge and fast-growing young workforce. And those young workers need productive jobs.
We know what it takes to generate these jobs: entrepreneurship. No informal micro-enterprises, such as small farms. They are organizations with enough formal structure to attract funding for investment, and enough managerial competence to reap the productivity gains from scale and specialization.
Yet Africa has a dire shortage of such organizations. They exist in Europe, North America and China where the workforce is aging and shrinking. Meanwhile, the young workers with the energy and appetite to adapt to new technologies are in Africa.
For decades, African leaders kept their countries trapped in the slow lane and built networks around patronage. Many companies entering Africa under these conditions bribed into local monopolies and managed to extract the resulting high profits from the continent. Once expectations become anchored around patronage and privilege, they become self-fulfilling.
Paul Collier
It is a challenge to break free from these expectations. But recently a few governments have done that. There are influential models of successful transitions, such as Singapore’s transformation under its long-serving First Prime Minister Lee Kuan Yew, who jailed corrupt colleagues to make change credible.
But today’s Africa is different from the Singapore of the 1960s.
The government of landlocked Rwanda, for example, has mapped out an ingenious path around tourism: high-quality short breaks that are piggybacked on attending conferences. Rwanda is now the third most popular destination in Africa for conferences – and tourism is labour-intensive. An equivalent route for Ghana, on the coast and rich in resources, will seize different opportunities.
These transitions offer enormous long-term potential for international business. Their success is also existentially important to the West in deterring African governments from alternative options.
But transitions are precarious. When Covid-19 hit, Rwanda closed its borders. It stopped the spread of the virus and ensured that more than 60 percent of the population of 13 million people was vaccinated – the same level as in Europe. The country has since reopened and aims to double tourism revenues to $800 million by 2024. However, the shock illustrates that transitions must be supported.
Rwanda’s airline, hotels, wildlife parks and other businesses faced the same financial strains as those in advanced economies. Prosperous governments offered huge fiscal support to their companies. As Covid retreats, demand and cost patterns have changed so much that some businesses will close. But by preserving the organizational capability of the business, other businesses will be well positioned to grow, which will help offset the job losses.
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Transitions in Africa required fiscal support from the international community to enable governments to provide similar assistance. The need for such support remains acute: they are short of private sector organizational capital and can hardly afford Covid-induced bankruptcies. But during the pandemic, this capital was not sufficiently available.
In the wake of the Covid disruption, business opportunities around the world are becoming apparent: Some businesses should be able to close, but many need to be funded to survive, and others need to be flagged for rapid expansion.
Providing similar assistance to African transitions is a huge global public good: they need support to enable them to become the role models that will inspire other countries.
Fortunately, there is a way to tie the fiscal resources of wealthy governments to many of those businesses in Africa that, in the global public interest, they should be financing. The money involved would be both absolute and relative relative to the likely payout.
Together, the governments of wealthy countries own about 40 development finance institutions, most of which do business with African companies. If they pooled information, they could quickly estimate the total cost of the aid needed and report it publicly to the G20, the International Financial Institutions and the African Union. A coalition of willing states could commit to sharing the modest sums involved.
This would set a precedent: African transitions would be safeguarded from derailments beyond domestic control. This would make the continent more attractive to global investors and help prepare it for growth.
Paul Collier is Professor of Economics and Public Policy at the Blavatnik School of Government, Oxford University, and Director of the International Growth Center