How big is Africa’s economy? (1)

REGIONAL INTEGRATION on a continental scale is now a reality in Africa as the African Continental Free Trade Agreement (AfCFTA) has come into force, legally speaking. Economically speaking, however, AfCFTA still has many hurdles ahead. Surmounting these hurdles would require more than the efforts that brought AfCFTA into existence in the first instance. The first known successful and coordinated efforts towards a continent-wide trade platform will require the need to identify and follow clearly defined directions without succumbing to political and diplomatic headwinds that would be encountered during the voyage to the realisation of the raison d’etre, the very essence of its establishment.

Africa needs to grow its economy, diversify its economic base and create wealth across the board. But the prospects seem limited if the same old practices are still prevalent. Much of the wealth attributed to the African economy has been from commodities export in the main – whether agricultural or mineral. With the ascendancy of the services sector encompassing the tech industry, healthcare, finance, construction, transportation, insurance, education, entertainment, tourism and hospitality, the wealth creation prospects of Africa seem limitless. But Africa still lingers, lags behind and its growth is severely hampered by a number of factors, many of which are intrinsic and some others extrinsic to the continent.

The political fragmentation of the continent has been a major constraint to industrial growth as it created numerous small markets. This fragmentation also created virtual distance between spatially contiguous countries and virtual proximity between spatially distant countries. Take the case of West African Economic and Monetary Union (WAEMU) made up of eight Francophone West African countries of Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, Togo. These all are bound together by common colonial history and official language. In this case, the organisation of groups of states into a regional economic bloc in order to create internal markets large enough to sustain growth has been restricted to the member countries, and by the size of each, with possible minimal spill over to neighbouring Anglophone countries.

A recent WTO publication asserted that, with the exception of Côte d’Ivoire, which is a developing country, the seven other member States of the WAEMU “are all least developed countries (LDCs).” It estimated that the eight member States as a whole have a GDP of around €97 billion and figured out that the informal sector accounts for between one to two thirds of real GDP of member States. Proportions and scales may differ, but WAEMU countries typify most of Africa’s economy, which can be characterised as underdeveloped. Few exceptions, however, are South Africa and the countries of North Africa, all of which have diversified production systems. The abundant natural resources in the continent remain at the lower levels, especially with much of its economy still predominantly agricultural. Nearly 60 per cent of the population still embark on subsistence farming for survival and livelihoods while 27 countries – about half the total number of countries – have their GDP growth higher than the Sub-Saharan Africa average. South Africa, the acclaimed financial services capital of Africa, a country with 57.7 million people, has a nominal GDP $371.29 billion by 2019 estimate.

Africa is presumed to have approximately 30 per cent of the earth’s remaining mineral resources. Botswana, Democratic Republic of Congo (DRC), Ghana, Guinea, Mozambique, Namibia, Niger, South Africa, Tanzania and Zambia are among countries reputed to have one or more of any of these: uranium, diamond, coal, copper, gold, silver, petroleum, bauxite, cobalt, tin or lead. While those countries are reckoned as wealthy in relative terms, non-resource-intensive economies such as Kenya, Rwanda, Uganda, and several in the WAEMU fold, including Benin and Côte d’Ivoire, depend largely on agrarian economy and exportation of agricultural commodities, particularly to destinations outside Africa, with all the exigencies and vagaries of international markets on which such countries either have no control or adequate competence to transact from position of strength and compete favourably. Cocoa export market is an example.

Going by a 2017 estimate, Africa’s economy in nominal Gross Domestic Products (GDP) is $2.19 trillion, with a GDP per capital of $1,720, in a continent with a population of approximately $1.307 billion people. South Korea, with a population of 51.6 million people in 2018, has a nominal GDP of $1.619 trillion, 73.9 per cent – or nearly three-quarters – of Africa’s GDP. Nigeria – deemed Africa’s largest economy – and with a population of nearly 200 million (four times the size of South Korea) recorded $397.270 billion nominal GDP, based on 2018 estimate. Nigeria’s GDP is therefore 24.5 per cent, or nearly a quarter, of South Korean economy by GDP size. The neighbouring North Korea has a population of 25.4 million, nearly the same as Ghana. Although North Korea is ranked last among the 43 countries in the Asia–Pacific region, its 2016 nominal GDP per capita‎ was $1,300. Despite the shrinking of its economy recently by 4.1 per cent, the nominal GDP, by 2018 estimate, is $32.1 billion. Ghana’s economy, ranked eleventh in Africa after Tanzania, moved from $47 billion, according to IMF estimates for 2017, to $52.5 billion after the rebasing of its economy. Despite its frivolities, Stalinist totalitarianism, centrally planned economy and regional aggression, all of which slow down its economy, it still recorded a comparative 61 per cent of a democratic Ghana’s GDP.

The economy of Africa remains small, informal, fractured and dependent on external supports from development and humanitarian actors, particularly in the circumstances of wars, hostilities, droughts, mass migrations and flashpoints of insecurity. Private financial institutions are not adequate and competent enough to support economic growth. Development finance has not been adequate either. The contributions of multilateral finance institutions are like drops of water in mighty oceans. The World Bank, IMF and other global multilateral agencies have been, and are still, supporting many projects. Mismanagement of financial assistance by beneficiary countries has also become rampant.  Development finance institutions within the continent are hamstrung in many ways.

Afreximbank’s funds, though growing, are yet to be seen as big enough. The Cairo-based Bank’s total assets grew by 13 per cent from $11.91 billion as at 31 December 2017 to $13.42 billion as at 31 December 2018, and grew further to $15 billion according to the report in May 2019. The Bank, established in Abuja in 1993 by African Governments, African private and institutional investors as well as non-African financial institutions and private investors was to support the financing, promoting and expanding intra-African and extra-African trade. Its size reflects the size of the economy of the continent at present. A much older African Development Bank (AfDB), by a 2015 estimate, had a “total assets of just $33 billion,” which was a “little bigger than the Bank of Oklahoma, America’s 38th-largest,” disclosed The Economist magazine, in its Middle East and Africa section of the May 21st 2015 edition.

“By the standards of global banks this one is a tiddler,” noted The Economist, as it compared AfDB with the Asian Infrastructure Bank that was to start then with authorised capital of $50 billion. “Yet the AfDB, a multilateral bank owned mainly by African countries, is the biggest financier of infrastructure on a continent that is desperately short of roads, rails and power plants. And since it is African, it has licence to criticise governments and suggest policies that may otherwise be shrugged off if they came from institutions such as the World Bank or IMF,” The Economist pointed out. These are quite instructive for a continent that struggles economically.

The GDP of Brazil was worth $1.869 trillion in 2018. São Paulo is reckoned as the business centre of the Mercosur economy, the 10th richest city in the world and is expected to be the sixth richest in 2025. The economy of the city of São Paulo would be the size of the 47th country in the world economy, bigger than Egypt and Kuwait, for example, about the same size as Hungary, New Zealand or Israel. The economy of the city of São Paulo, it was estimated, would also be bigger than 22 U.S. states, such as Hawaii and New Hampshire. Where then is Abuja, Accra, Addis Ababa, Cairo, Cape Town, Casablanca, Dakar, Johannesburg, Lagos, Nairobi or Tripoli? How will African cities contribute to wealth creation and prosperity of Africa? And how will the emerging free trade agreement boost the formal economy, transform the informal economy and unlock the potential of the private sector across the continent? With rapid urbanisation all over the continent, the time has come for African cities to begin to create wealth and prosperity.