In Africa, Corruption Remains a Barrier to Investment
By Herman Cohen - August 8, 2024
A
much-heralded demographic boom in Africa has the potential to make the
continent a manufacturing powerhouse by 2050. But to take advantage of
this rising tide and attract foreign investors, African leaders must
confront deep-seated issues of corruption and bureaucratic bloat within
their economic systems.
When I first put my shoes on African
soil, the year was 1962. African nations, like Uganda where my plane
from London had landed on an asphalt road, were just beginning to emerge
from colonial rule. The country would soon declare its independence,
and I’d be tasked with helping convert the US consulate into an embassy.
Even
62 years later, I remember my first impressions, being surprised at the
chilly mountain air of Kampala and impressed by the friendly and
hard-working people. Over the following decades spent on the continent, I
witnessed sub-Saharan African nations like Uganda working to assert
themselves and secure economic prosperity.
But today, I am troubled by the lack of economic development in some quarters of the continent, with approximately
40 percent of the African population at or below the poverty line, according to World Bank data.
Potential Powerful Labor ForceHowever,
change is brewing below the Sahara. The continent’s soaring birth rates
have the potential to alter the face of the global economy.
By
2050, Africans are projected to make up a quarter of all of the people
on Earth. The lion’s share of that population is young. By the same
year, and with
birth rates now tumbling in aging Europe and East Asia, more than a third of the world’s population will live in Africa.
This
presents an opportunity. A large young population means the potential
for a powerful labor force, meaning that Africa will be well-positioned
to draw in much-needed foreign investment as a manufacturing base for
the world economy. For countries like China, this has led to the
creation of affluent and vibrant middle classes.
However, to take
advantage of this upswing, many African leaders will need to overcome
major internal barriers to draw investment that can build the critical
infrastructure and skill up their workforces, positioning Africans as
the manufacturing workforce of 2050’s global economy.
The private
funds that have historically flown into Africa have often fueled
extractive industries like mining and plantation agriculture, where
these countries trade their resources for financial gains often diverted
by kleptocrats while providing little in the way of useful
infrastructure, workforce training, or basic economic prosperity for the
people who live there. In Angola, a country rich in diamonds and oil,
around 40 percent of the population still lives below the poverty line.
Direct Investment
What
Africa needs is direct investment in manufacturing. But despite the
headline advantages of free trade agreements like the Africa Continental
Free Trade Agreement or regional compacts like the Economic Community
of West African States, the reality on the ground is challenging to
investors.
To get anything done in many of these nations, whether
building a factory or timely offloading a container ship, I learned
that it was necessary to “grease the wheels” with bribes, usually to
local officials.
I learned this lesson shortly after my arrival.
As I searched Kampala for an appropriate building for our new embassy, a
promising property was yanked from beneath us and taken over by another
embassy. I’d later learn that they’d done so by providing a bribe.
Such
corruption synergizes with cumbersome bureaucratic structures that form
additional obstacles. Those seeking to do business in Africa often
encounter a veritable thicket of regulation and permitting. Bribes offer
a handy machete through this brush, allowing one to cut the line to
offload their ship quickly or secure the necessary permits for building a
factory.
To position their countries to attract foreign
investment, incentives must be provided to African leaders to work to
cut down such procedures radically.
Africa’s Wealth
Lastly, one of the biggest potential movers here is money held by rich Africans themselves.
In a
2014 article
in the Journal of Economic Perspective by the London School of
Economics, professor Gabriel Zucman projected that as much as 30 percent
of the continent’s wealth, to the tune of $500 billion, was positioned
in tax havens.
Not only does this deprive their respective
governments of significant revenue, but definitionally, money being held
in these accounts is not being invested into African economies.
Africans must lead the way on investment in their own countries.
The
coming population boom is an incredible opportunity for African nations
to secure their place in the global economy and obtain the stability
and prosperity their citizens deserve. These African leaders are about
to strike oil but must move quickly and decisively to capitalize on it.
A significant challenge lies ahead, but with the right leadership, it can be done.