The global credit crisis poses stark challenges for our continent, but it could also open up fresh opportunities.
Africa’s economic fortunes have historically been tied to the wealth and prosperity of the northern hemisphere, mainly through aid dependency. As a result of this and of the increased globalization of the world economy, the current downturn in the northern hemisphere can easily have serious spill-over effects on our continent.
Yet, during the G20 Washington summit it was predicted that over 80 percent of future global economic growth will depend on emerging market countries, many of which are in Africa. Our continent’s rich natural resources and its demographics - one in four young people under the age of 24 worldwide will, by 2025, be from sub-Saharan Africa – highlight our collective growth potential.
While many in our continent might believe that we are immune from the immediate effects of the global crisis, this isn’t entirely true. With few exceptions, the poor integration of Africa’s financial structures in the global financial system appears to have shielded the continent against the shock.
Nevertheless, the effects of the financial crisis on Africa could be significant and persistent
In the short- to medium-term, no outcome would have more dire consequences for African development than a continued steep decline in commodities prices on which recent African economic growth has been built. But there is some good news.
For the vast majority of Africans living in energy-scarce countries the decline in oil prices could be a welcome development.
The recent drop in food prices is also good news. Three-quarters of African countries are net food importers. It is, however, tragic that the continent finds itself in this situation in the first place. The lack of or insufficient food production represents a lost opportunity for African exports.
Another potential impact on our continent of the current crisis is a substantial decline in international funding, both private and donor flows. A decade ago, during the Asian financial crisis, aid for Africa dropped by nearly one-third, even though donor countries were not directly affected.
Moreover, there is a real danger, over the long-term, of a reduction in remittances from Africans living abroad, currently estimated at more than $10 billion annually.
This is an increasingly vital source of investment in African economies and provides relief to families that rely on the financial support from relatives working abroad.
How can we unlock our untapped potential and avoid the worst effects of this crisis?
First, the ratings’ agencies should be impressed upon to revise African investment risk. In the aftermath of what has happened recently, to countries and financial institutions alike, can investors still confidently assert that doing business in Africa carries a comparatively unacceptable level of risk?
The encouraging recent performance in several African countries should be seen in a more favourable light.
Second, realising Africa’s enormous potential requires an ever greater commitment to good governance. This means entrenching internationally accepted standards in the management of public institutions.
The concept of good governance needs to be broadened to cover such practices as greater transparency and better oversight and an unrelenting fight against corruption, particularly by further strengthening judicial systems, so critical for promoting an attractive business environment.
One way to help entrench a culture of continental competitiveness would be to establish an Enterprise Development Goal, a comparative benchmark aimed at improving economic efficiencies and freedoms.
By identifying where the costs and constraints to business exist, the benchmark would aim to make African economies less expensive, less risky and more profitable - where the country and investor can prosper together.
The impetus for such a benchmark is to enable Africans to ‘trade their way out of poverty’. Shifting a greater share of donor funds towards the constraints identified by this Enterprise Goal will also improve the likelihood of meeting other development objectives.
For Africa can no longer afford to shirk from the challenges of globalization. The world crisis will not be resolved in Africa, but Africans can turn it to their advantage, mindful of the long-term movement of capital to emerging market countries.
To move away from aid-dependency and towards development, Africans require greater access to the vast markets outside our continent, at the same time assuming greater responsibility for the continent’s development.
For keeping development on the agenda requires not just trade. It requires instilling self-esteem in our people, investing in technical education, health and other basic needs.
Now is the time for Africa to seize the moment and further press on with reforms aimed at ensuring greater competitiveness of our continent. We have the people, the resources and the will to translate the current crisis into an opportunity for Africa’s development.
Guebuza is President of Mozambique. Oppenheimer is with De Beers, and a member of President Guebuza’s Presidential International Advisory Board.