Africa’s Economic Update

Africa’s Economic Update

>>Good morning.>>O K.>>Good morning,
everybody, and welcome to the world economic
Forum in Cape Town . My name is Chris Bishop and I have been
reporting for CNBC Africa for more
than 25 years. Africa for more
than 25 years. Today, we look at the
story of African growth and the continental
free trade area and the Fourth
Industrial Revolution as we pick up on our team that
we carried two years ago which is Africa’s Economic
Update. To start off, I will
introduce my esteemed panel. I have the governor of
the South African reserve bank on my left . Next, the CEO of
Standard Bank in Nigeria. Then we have Albert
G Zeufack, the chief economist
for the World Bank. I would like to
ask the panel for a short statement
on where they think the continent is going.>>I think that what
we have seen for this year
and next year, the outlook is that this
continent will continue to grow faster than
the world average. That is the good news. At the same time, there
are still risks. The risks have
been associated with deteriorating
public finances and rising debt levels. Some of the countries that have received
debt relief seem to have
piled up that once again. The difference this
time, though, is that the debt is not official debt, it is held by the
private sector. That poses a challenge. For as long as you have
got improving growth prospects and for as long prospects and for as long as you are able to contain deficits, the debt situation
can be contained.>>How does it look from
a banking perspective?>>We are positive. I moved out of
my Nigerian role two years ago
and I have been covering West, East and Central
Africa. The one thing
we have seen , despite all
the headwinds, there is still growth on the continent. The convergence
of technology , innovation and various sectors is enabling us to find financing solutions to address client
problems. That is helping to drive
growth on the continent.>>How do you see it?>>How do you see it?>>Thank you, Chris.>>Thank you, Chris. From our perspective, a recovery on the
continent would remain fragile. We still see recovery in non-commodity
exporters on the continent. We still have , in the year ahead,
five of the 10 fastest-growing
economies on the continent . These include
Ghana, for sure. These include Ethiopia, Senegal, the
Ivory Coast and Rwanda. These economies are
powering ahead. The risk to the
macro outlook is mostly on
the downside. The risks include three
important factors. One is the growing trade
tensions across the world that are
threatening to lower global growth. The second is volatility in commodity prices that will continue to
undermine growth in the largest economies. The third important
risk that I can see is certainly debt, as the governor
has mentioned. More importantly, I would add the
challenge of inclusion. When I say inclusion, I mean jobs, opportunities , sound fiscal policies.>>Let’s check in
on the growth story . In sub-Saharan Africa, we
are talking about 3.5%. 2.5%, 2018. Expected to grow
4% in 2020. For most economists, that is not enough. How can we get the
elusive growth that every country seems
to be searching for.>>We can look
at the figures and see that, by the way, if you remove Nigeria
and South Africa , Sub-Saharan Africa is
growing by an excess of 5%. What is dragging
the ratings down are the two largest economies on
the continent. The rest of the continent
is growing very well. How do we get the
elusive growth ? I have got three
propositions. They are all now-brain e rs . First of all,
the continent must take advantage of the
opportunities presented by globalisation. That means Africa should
be creating more with the rest
of the world. Of course, it raises the issues of what this would mean for
global demand. We must engage with that. Secondly, the Africa free
trade agreement is a big issue for us. African countries have not quite
been trading with each other. Part of it has to do with what I would call behind-the- border barriers to trade. border barriers to trade. Trading is one thing but how is our logistical system within the system – – within the continent
to move across the continent? It is everything from how long it takes to move
from one part of the continent to the other. Those are the issues. There are infrastructure
bottlenecks. There are infrastructure
bottlenecks. That offers opportunity. Dealing with those and
rolling out infrastructure can be
a source of growth. Taking advantage of the
opportunities offered by globalisation, trading
more with each other and dealing with the
infrastructure and dealing with the
infrastructure bottlenecks for trade between African nations.>>This continental
free-trade area has been described by the
finance minister in South Africa is one
of the biggest things that will ever affect
this continent in the century to come. How much do you think it
could change the game?>>I think it is
a game changer. We are talking about 1.2
billion people on the continent, a combined
GDP of $3.4 trillion. The reality is that
trade has been occurring informally. What the continental
free trade agreement does is, first of all,
it helps to formalise a lot of what
is going on that is not recorded. It also helps to provide standards
by which of the countries
can be measured on. Moving the percentage
of intra-Africa trade, no matter how small, will
be huge process. The governor said that obviously there
are lots of challenges ahead. Infrastructure
is one of them. The exciting thing
is if you think about the availability
today of digital infrastructure,
we have got AWS and Microsoft investing
in the cloud on the continent. The ability to deploy innovative
digital solutions, you know, I think that will enable intra-African trade. Africa is talking about
putting in place a payments platform
to enable trade. A combination of
infrastructure , having the right
payment platforms, being able to ride on the digital
infrastructure that is being put in place , , telecoms infrastructure is fairly well advanced
in Africa. I think it would help to enable growth . Obviously, the financiers are here. Standard Bank is
well-positioned to drive trade on the continent.>>At the moment, European trade is 69%, Africa and the 59%. The World Economic Forum
helps that by 2040, with the help of the
continental free trade area, that this will
double by 2040. How ambitious is that?>>That is clearly
ambitious but not impossible. I think we all need to
acknowledge and celebrate the fact that, as the rest
of the world is raising barriers
and building walls, Africa has decided
to embrace trade. I think this is a
great achievement. It is the right decision. It is the right move
from our leaders. I agree with the minister, it
is certainly one of the biggest achievements
of our African Union since its inception. For it to really
become a force of economic
transformation , we still need to
work extremely hard. There are issues of nontariff barriers , as the governor
mentioned. We need to build
infrastructure and we needed for trade to take place. There is another
important dimension . I see two important
dimensions we must work hard on. The first is building intra-African value change. – – Chains. We need regional
value chains. That is where the jobs
will come from. We need to work extremely
hard in allowing distribution across the continent and
acknowledging that not a single country will be
able to produce all the goods that they need. The second very important
element that we have to work hard on is the free
movement of people. What has happened in
the past week is not very reassuring. This is one of the most
important agenda s moving forward. The free trade agreement
needs to lead to an increase
in intra-Africa trade. Let me just add one
thing, please, on your question on how
we can ignite higher sustained
growth. I think to really solve
that question we have to get to a
deeper understanding of sources of growth
on the continent. A number of African
countries are growing very fast. It is clear that
our growth is very volatile. The reason our growth is
volatile is because our largest economies are all dependent
on commodities. We need serious
structural change. We need transformation
in our economies and we need to switch
sources of growth from agriculture and
mining and oil towards more service
and manufacturing for countries that
can still do it. That sort of
transformation is needed.>>One of the questions
people have about this continental free-trade
area is how it will work,
particularly when it comes to payments for
goods across borders. You already have an idea of how it could work within existing
infrastructure.>>Yes. I think that is all well to talk of a continental
payment system. Payment systems are
run by central banks. We do not have a central
bank yet for the continent. We must make do
with what we have. There are three big
payment systems , original payment
systems, on the continent. There is the East Africa
payment system, the West Africa payment system and then there is the RG D T S which had cleared over 700,000
transactions and had more than
88 participating banks . That is a basis. Whilst we are
still dreaming of a continent-wide
payment system, let’s do with what we have. The conversation amongst
us as central bankers is that we can get the
three platforms to actually connect and
link with each other and we can build that as a basis for the settlement
of trades. The infrastructure
is there, working, proven, and all you need to do is make sure it
is connected. We can connect to the system, and we
will be commencing with the pilots at the
end of the year, because it is a
race to the top. It is which two will
connect faster than trying to wait and
getting them connected at the same time.>>I have a question
for you. How long will it take for this continental
free-trade area to be born? It? Half a century and and it is still not the
training area they hoped for. There was a lot of
paperwork to be done. Some of the reports are
saying maybe decades but what do you think?>>I think it
is a journey. It took 13 months for the agreement to be signed off
by 54 countries. They have crossed
the 22 country Mark for ratification . July 2020 is the
effective date. So, it is a journey and you will find that
different countries are at different states
of readiness in terms of making sure they begin
to phase out tariffs, improve the ability
to get visas. In East Africa, you don’t need a visa
to move around. It is going to be a race . Those who prepare early will be the winners,
I believe. It is a journey that we
would continue to try. I am hopeful that the EU will have
clear metrics by which they can track progress. They can hold themselves
accountable for this.>>One of the promises of
this free trade area is free movement of
goods and skills and services. Laudable, surely. Is there a problem
that the best people can be sucked
into the biggest countries? Is that the danger
for the continent?>>My sense is that free movement of skills comes with
free movement of people. The first thing
or the next agenda for the EU is to implement the passports they have
been talking about. That is the first step
if we are serious in implementing
this agenda. As we move to the
digital economy, as we move to implementing this disagreement, we cannot think
of an economy based in services that
does not allow free movement of people. This is the most
important point. Will that lead to people moving
and concentrating to different countries? Very likely. But if we are thinking
Africa instead of thinking countries , which is the principal
under which we have embarked on this journey, that this shouldn’t
be such a worry. The worry would be a week claiming trade , yes or no? The actually treating
more within the continent? We actually creating the kind of value chains
within the continents that will generate the
millions and millions of jobs needed by our
youth and women? These are the questions. These are the questions. I will come back
to you quickly. A lot of people say this
isn’t the time for nationalism. This is no time for
economic nationalism. That is the hope of the
world but I don’t know. You can maybe this joint
political will to see through this important
move for the economy?>>We have seen the
political will to actually get the agreement ratified. What we need to see more
on the continent is better economic
governance. I am hoping that, as the governments
come together , as they understand
the implications of bringing down barriers
and driving trade, that our ability
to improve economic governance , we will have the will
to put this in place.>>What will be the
greatest challenge, do you think, for this
continental free trade area?>>I am yet to think
of challenges. I would like to think
of opportunities, and as we take advantage
of the opportunities, we will figure out what
the challenges are. The one thing that we
need to bring to the fore is that there
is a lot of talk about countries trading
with each other. That is the problem
you would have with planning. But it is private
countries that are trading with each other. They just happen to be
coming from different countries, so coming to grips with what the challenges
are going to be means that there has got
to be a conversation that involves African
companies that are doing trade
with other companies on the African continent . “Tell us, what are the
barriers you are facing and what is it that
you would like cleared? ” That is one thing. The second thing is that there is a lot that we
are going to have to deal with here. African continental
trade agreement . How do we deal with trade? Never going to be
people with not such cruel intentions. So, setting out the ground
rules is going to be the next important thing
to look at. The person who sets the rules is elected by the public.>>Again, from
a finance side, one of the big gaps that
needs to be filled is this transport
infrastructure. Too many countries in the past had a
railway to the port and that is it. We need infrastructure
across all African countries. countries. Private, public
partnerships are being seen as the way out.>>Absolutely. SDGs 17 is partnerships to achieve the goals, and the reality is that
the public sector does not have sufficient
capital to deliver the
infrastructure required on the continent. We know where
debt levels are. This means there has to
be collaboration with commercial banks , export credit agencies, philanthropic organisations, venture
capitalist, equity providers. The only way you can get
all the stakeholders working together is when you have a clear regulation and
legal framework. You must have governance
that is transparent. One of the best
examples. I like to refer to this. The South African
renewable power procurement process . They publicly stated
their renewable plan over the next five
to 10 years. There was transparency
in terms of the licensing bid and
therefore the private sector had the confidence to invest in renewable
energy . About $14 billion has
come in through that program . That is a model that
can be replicated. So, clear rules,
governance structures, and bringing in all the
different parties together. together. That is how we will be
able to attract the much-needed capital. The point about having
conversations, private or public sector,
it is so critical. Because the concerns
of each of the stakeholders, how the
risks are going to be shared, is important. It has to be a
sustainable project. Tariffs have to be
cost reflective. These are the
conversations that have to be had. You then put in
place a platform by which these things
can come in.>>How do you see the
flow of investment? One of the fascinating
promises is that you can invest in one country
and have access to 50 others. Can that reignite
capital flows in this continent?>>I believe the agreement
will certainly boost investment on the continent. I believe it is going to be really helpful in boosting public/private
partnerships. public/private
partnerships. I think it is
so important . By some estimations,
Africa needs more than $90 billion a year for investment. If you factor in
public investment and provisions of resources,
we are still left with $48 billion In infrastructure. And just to give you an
order of magnitude, the whole World Bank window which is the
concessional window for the poorest countries
has mobilised $45 billion for Africa for three years. That has been a record. If we invested the
whole resources , in one year, it
wouldn’t even be enough to close the financial
For infrastructure. So, it is crucial
for us to work extremely
hard to bring in those public/private
partnerships. But what is also important is that we are still
a very small market in Africa. We have four countries
in Africa that present more than
48% of all the PPPs. South Africa,
Nigeria, Uganda. 48% of all PPPs. So, the market is still
extremely small and it is my belief
that the implantation will boost those private sectors in infrastructure. I know the gap is .>>It is something
you have studied. I think the answer
is public/private partnerships.>>That is not one answer. You are going to need
a commitment of public resources. But you might also want
to open for the private sector to come and
play in that space. The point here is that we will take advantage
of the resources. That is not going to be the big
game changer. The big resources are
in the private sector and what we should be
thinking about is how do we mobilise resources, not just
from the continent, but you have to be
asking ourselves the question of what
is our opposition that we can actually be
attracting the capital into our projects? For me, if you change the
conversation and start framing that . “Look, we understand,
but there are these gaps. The answer will not come from official resources. They can go this far but
we actually need to mobilise private-sector capital. Not just local
but global.>>One of the other things
that have been raised by the organisations is that
this will help attract investment. How do you see that working out?>>Africa is primarily
driven by small and medium enterprises. Traders, small
businesses. Right now, you find
they are constrained , very constrained. Access to affordable
finance, logistics, moving
money around, moving resources around. We recently partnered with thin tech thin tech . What they do is provide financing to these
small small informal trader. They allow that
to stock up , to access credit,
to get financing using mobile payment. He doesn’t have to leave
his shop or outlet. What all the regulators should be focused on , especially on the back
of the free trade agreement, is how we enabled these
small entrepreneurs? How do we give them the
financing they need? Had we make it easier
for them to run their businesses? How do we enable
the unemployed , the largest population
that we have , to be able to
start businesses? And to run with it? With digital
infrastructure in place, we are seeing it is
easier for the small businesses to grow
on the back of telecommunications and
access to financing that can be given digitally. The convergence of all
of this will certainly help. It will help to drive
growth in Africa and enable small and medium
entrepreneurs to grow their businesses.>>I will put that question
to you as an economist. This massive useful population is a great asset and if hands are left idle it could be a threat
to stability. How do you get the
continent to work through this free
trade area?>>My office
just produced a book on the
future of work in Africa. I think it is important I think it is important to highlight that having a youthful
continent is a huge opportunity but a huge threat
as well. It is a threat if we
don’t get that population to start
really working. The future of work will have a digital
content in Africa. I think it’s important
to emphasise the fact that the work of tomorrow is going to be driven by
digital transformation . First, we need to invest in
digital infrastructure that is lacking
on the continent. We estimate that
Africa could close its digital
infrastructure its digital
infrastructure gap, we could boost GDP by 2.5%. It is important to invest in digital
infrastructure on the to invest in digital
infrastructure on the continent. That is one. The second is investing
in digital skills as well. Digital skills are not
just engineering and coding. This starts from the
education system at the low level. It is about teaching
the soft skills like collaboration,
teamwork skills. These are not
necessarily present in our education system. These digital skills
will be critical. The other important
element in making the youth more
productive in Africa is to think
of structural transformation and moving out of subsistence agriculture. We have a report from
the World Bank showing that poverty is essentially a subsistence
agriculture problem. If you 3% of our poor – – 83 % lift from subsistence
agriculture. If we were to solve the problem , we have to transform
agriculture. We have to move away
from subsistence agriculture towards agriculture that is more a gre – business and
subsistence. I can see the potential
to allow Africa to feed itself. Most of the subsistence
farmers can grow if they
have larger markets and they can have the
right infrastructure to access was markets across
the continent. That is what I hope
will happen.>>That brings us
to the next team, the Fourth Industrial
Revolution. That is one of the
big themes here. I want to talk about
exactly how it could change the game again. The other day, I
interviewed the gentleman from Angola
and he was telling me a story . I could not believe it when I first got
there in 1994 to report on the war. The country had been
obliterated. He was talking about
undersea cables so farmers in Brazil can control their crops in Angola. I thought it was amazing. How do you think this
will come more into the world of economics
and business?>>The Fourth Industrial
Revolution will disrupt all sectors. That is clear. It is also an
opportunity. I think Africa needs to
take advantage of that opportunity. We raised financing for a solar upgrade company that this relative
can you. They have been able to
connect 500,000 homes with off grid
solar panels. The consumers
pay as they go. We raise $55 million
for them. The intent to increase
that to 1 million homes . They will add 1 million
homes to that. That is a combination
of finance, technology, renewable energy. They are achieving it very easily . These are large energy infrastructure projects. They have not been able
to achieve the same. The technology is good. Hopefully, it will help
us to better address and find solutions to the many problems
that we have on the continent.>>The Fourth Industrial
Revolution is upon us. What changes do you see for good or ill? Amina Mohammed was here
and she said the picture has shadow as well as
light when it comes to the fourth industrial
revolution. How do you see it?>>I see a lot of light. Every big revolution can look at the
previous ones and say that the
elements of the next one are always seen in the
previous one. It will be a matter of
time before we start thinking about the fifth
industrial revolution. There might be elements
of it already. One sees a lot
of opportunities. The continent has actually leapfrogged financial services
in many respects. Afrika became a leader Afrika became a leader in mobile payments and
all of that stuff. In both respects,
examples were given earlier, you are
going to see that kind of
leapfrogging taking place. I think that the
important thing for me is the conversations
we are going to have with organised labour. Many of them
are in denial. They think you can find
the Fourth Industrial Revolution instead
of asking how we can embrace
it and engage with it differently. For me, the way in which
governments have got to think about it is
to think about it like when you are doing
a major structural reform programme. On the whole, we will be
winners, but there are going to be some
letters. When there are
some litters, — losers , how do you take
care of them? It could cause trouble. The logic says that you must
protect jobs. We are facing high
unemployment. Let’s protect jobs. You cannot protect jobs. It is the wrong approach. We can protect people. That is what we should
be focusing on. We should be saying that as the Fourth
Industrial Revolution kicks in, there
are skills that are disappearing because they are
no longer relevant. What interventions do
governments put in place to transition people from the old jobs
to the new skills in the Fourth Industrial
Revolution? If our focus is going
to be protecting jobs, we will feel. We can protect people
and that is what we need in order to make
the transition.>>I think that the labour movement
is not likely to be very kind when
it comes to the Fourth Industrial Revolution. I was looking at some World Economic Forum
research yesterday and for every job loss, 1.79
jobs will be created. I do not know what 0.79 of a job is. How do you see this
playing out? It is strong in
this continent.>>The research we have completed is pointing to the fact
that there is more light than dark. In fact, we find the Fourth
Industrial Revolution will create more jobs
than it will destroy on the continent
of Africa. There are many
reasons for that. I cannot get into
all the details. You should read the
book, for sure. There are a couple
of myths to dispel. The first is to think
of that revolution of something that will
come in the future. It is already here. Africa is already
leapfrogging. If you don’t believe me, I see people
in finance and can you, the health sector in
Rwanda and Canada, ask them how digital is
disrupting the way people work and
deliver services. Then, think of
it as a sector as opposed to existing ones like manufacturing or agriculture. In fact, the key is that digital transformation
is a cross-cutting phenomenon that will raise
productivity across sectors. If you are in agriculture or even if you
are illiterate, digital transformation
can increase your productivity. That is what
we are finding. We are doing research
and work that will be published
in the next year. We are finding a lot of hope. Digital transformation
will create more jobs than it will destroy. That is one concern,
Chris. My biggest concern
about the digital transformation and the Fourth
Industrial Revolution is, is it going to be done
without Africans? What role will African companies , African start-ups,
African inventors play? That is the biggest
challenge.>>>>We have mentioned the
financial sector growing. Give is your take on it. How was it changing
our world?>>The disruption. Everybody is trying to
get into the financial services sector. Is a huge opportunity. We are collaborating with our competitors. We are also competing
with them. We recently invested in Founders
Factory Africa which is an incubator and accelerator on the continent. The are working in F int ech and the are devising
solutions in Uganda, can you, across
the health sector and education. — Can you . You go there and
the whole ecosystem , it is called the
Silicon Savannah, it enables growth of innovation and
technology. We think it
is exciting. There will be winners
and losers. Efficiency is up and
costs are lower. People are experiencing
greater value. It is a momentum
that is building. The important thing
is to make sure that as the convergence
continues, the whole world is going
to be operating on platforms. You have to get
on the platform.>>Unfortunately, we
have run out of time. One last quick comment from yourself,
please.>>One of the things
that is understated is the impact it would
have on the efficiency with which governments
can deliver public services. For me, that
is a big issue. We had a pilot project
in South Africa where we use blockchain
technology in payment systems space. The South African
payment systems clears a couple
of trillion a day. clears a couple
of trillion a day. We were able to clear the amount of
transactions that be clear for the whole
day in 90 minutes. Think of those
efficiency gains. Think of what
it would mean. This was in the
wholesale market. If we rolled that out
across the country, think of these people
could move money. Think of the reduced risk
of settlement in the payments space.>>On that hopeful
note, we will close. Thank you very much
to my esteemed guests. Thank you to Albert
G Zeufack, the chief economist for Africa
from the World Bank. From me, thank you very
much for working and goodbye.

One thought on “Africa’s Economic Update

  1. Formalization of intra-African Deals in very important, because I think we discuss African Economy from a very few parameters.

    Another Step is Integration of the African economy.

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