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Africa's Economic Update

Panellists at the World Economic Forum (WEF) on Africa on Friday discussed how the Africa Continental Free Trade Agreement (AfCFTA) and the Fourth Industrial Revolution (4IR) can aid Africa in its quest to continue growing at a rate that outpaces the rest of the world.

South African Reserve Bank Governor Lesetja Kganyago made the point that Africa’s economic growth will outpace that of the rest of the world in 2019 and 2020, yet there are still risks. He explained that these risks are associated with rising debt levels, with debt largely being held by the private sector.

Kganyago said, however, that as long as growth prospects are improving, and deficits can be contained, the debt situation is not out of control.

World Bank Chief Economist for Africa, Albert G. Zeufack, added that economic recovery will remain fragile, and it is expected that non-commodity exporters will be where growth will come from. He said five of the world’s 10 fastest growing economies, countries such as Ethiopia, Ghana, and Rwanda, are still in Africa.

Those economies will continue to power ahead, said Zeufack. Kganyago pointed out that, if sub-Saharan Africa’s two largest economies - Nigeria and South Africa - are removed from the equation, the region is growing at about five percent.

However, Zeufack cautioned that there were downside risks to the outlook, which included growing trade tensions across the globe, volatility in commodity prices, debt, and the need for all Africans to be included in economic growth.

Boosting growth

This is where AfCFTA can be a game changer, said Olusola Adejoke David-Borha, Chief Executive of Africa Regions at Standard Bank Group. She said AfCFTA can be a game changer as it helps formalise the informal trade that already occurs among Africa’s 1.2 billion people.

Kganyago said Africa has to take advantage of the opportunities offered by globalisation, trade more with the rest of the world, and grow inter-African trade. Part of the reason countries within Africa have not been trading that much with each other is because of the barriers to trade: the logistical framework is a hinderance. However, he added, this is also an opportunity for growth.

While there are barriers to doubling inter-Africa trade, which is currently 18 percent, this is not impossible, said Zeufack. He says the desire to increase trade needs to be acknowledged and celebrated as the “rest of the world is raising barriers and building walls”.

We need to work hard, said Zeufack, and address issues such as building regional value chains, as this is where the jobs will come from. “To really achieve higher sustained growth, we need to get to an understanding of the sources of growth on our continent. Our growth is very volatile.”

The growth, Zeufack said, requires major structural change and a switch from commodities to services and manufacturing in economies where this is possible.

Regional integration

Kganyago said one aspect that will be needed is a continental payment system. However, there isn’t a Central Bank for Africa. To rapidly bypass this issue and get moving, Central Bank Governors are in talks about how they can connect regional payments systems in the East, West, and South, he added.

The next step Zeufack would like to see is for the African Union (AU) to implement the African passport to ensure free movement of people. He says we need to be serious about this issue as we move to a digital economy.

Challenges and Opportunities

While there are challenges, Kganyago said these could be figured out as the continent takes advantage of the opportunities AfCFTA offers. Getting to grips with the challenges will involve African countries trading with other African countries, he said.

However, there will be people with dubious intentions who try take advantage of the trade agreement for their own end, and ground rules will be the next important aspect to consider for the AU.

Another aspect that will help boost growth is 4IR, which is both an opportunity and a threat given the sizable young population, said Zeufack. He said the work of tomorrow will be driven by digital transformation, which should not be seen as a sector on its own, but rather an enhancement that can benefit all industries.

Zeufack added that, if Africa can close the digital infrastructure gap, it can add 2.5 percentage points to continental Gross Domestic Product. It is vital to invest in areas such as digital infrastructure, and digital skills (which also includes softer skills such as collaboration), he said.

Sola David-Borha said 4IR can disrupt all sectors, but is also an opportunity that Africa needs to take advantage of.

Kganyago added that the opportunities also include the ability to leapfrog technological developments, such as has been seen in the financial services sector, with the introduction of mobile money.

The important thing, the Governor said, is the conversations that will be held with organised labour, as many unions are in denial because they want to project jobs, when jobs will vanish. The important thing, Kganyago said, is to project people. “As a whole, there will be winners. There will be some losers, so how do we take care of the losers who will cause trouble?”

Zeufack said there is more light than shadow when it comes to the future of work, and 4IR will create more jobs than it will destroy. The question is whether it will benefit all Africans.