The capitalist revolution Africa needs

In the coming years Africa will become more important than at any time in the modern era. Over the next decade its share of the world’s population is expected to reach 21%, up from 13% in 2000, 9% in 1950 and 11% in 1800. As the rest of the world ages, Africa will become a crucial source of labour: more than half the young people entering the global workforce in 2030 will be African.  This is a great opportunity for the poorest continent. But if its 54 countries are to seize it, they will have to do something exceptional.  

Africa is defined by a depressing record of stagnant productivity. African countries are experiencing disruption without development. They are going through social upheavals as people move from farms to cities but without accompanying agricultural or industrial revolutions. Services, where ever more Africans find work, are less productive than in any other region—and barely more productive than in 2010. Poor infrastructure does not help. For all the talk of using digital technology and clean energy to leapfrog ahead, Africa lacks the 20th-century kit needed to thrive in the 21st. Its road density has probably fallen. Less than 4% of farmland is irrigated and almost half of sub-Saharan Africans lack electricity.

The problem also has another, under-appreciated, dimension. Africa is a corporate desert. In the past 20 years Brazil has spawned fintech giants and Indonesia e-commerce stars, while India has incubated one of the world’s most vibrant corporate ecosystems. But not Africa. It has fewer firms with at least $1bn in revenues than any other region and since 2015 the number looks to have declined. The problem is not risk so much as the fragmented and complex markets created by all the continent’s borders. For investors, Africa’s balkanised stock exchanges are an afterthought. Africa accounts for 3% of world GDP, but attracts less than 1% of its private capital.

What should Africa’s leaders do? A starting-point is to ditch decades of bad ideas. These range from mimicking the worst of Chinese state capitalism, whose shortcomings are on full display, to defeatism over the future of manufacturing in the age of automation, to copying and pasting proposals by World Bank technocrats. The earnest advice of American billionaires on micro-policies, from deploying mosquito nets to designing solar panels, is welcome but no substitute for creating the conditions that would allow African businesses to thrive and expand. There is a dangerous strand of development thinking that suggests growth cannot alleviate poverty or does not matter at all, so long as there are efforts to curb disease, feed children and mitigate extreme weather. In fact in almost all circumstances faster growth is the best way to cut poverty and ensure that countries have the resources to deal with climate change.  At the same time governments should build a political consensus in favour of growth. 

Narrowing the Africa gap calls for new social attitudes towards business, similar to those that unleashed growth in China and India. Instead of fetishising government jobs or small enterprises, Africans could do with more risk-taking tycoons. Individual countries need much more infrastructure, from ports to power, more free-wheeling competition and vastly better schools.

Another essential task is to integrate African markets so that firms can achieve greater economies of scale and attain an absolute size big enough to attract global investors. That means advancing plans for visa-free travel areas, integrating capital markets, plugging together data networks and finally realising the dream of a pan-African free-trade area.