Africa: The Continent of Good Hope? Is it Real This Time?

Senior Associate Dean Bhaskar Chakravorti interviews Professor Jenny Aker, Fellow at the Center for Emerging Markets and Assistant Professor of Development Economics

Jenny Aker:  I’ve been thinking about whether Africa is the next big emerging market.  Every time we talk about Africa as one unit -- all fifty two or fifty three countries -- I think it’s useful to break it down between North Africa, Sub-Saharan Africa, West, East, Central and South Africa. You obviously see very different trends in terms of what’s happening in each one of those countries that we might consider emerging markets. Economies that have been doing quite well over the past fifteen to twenty years include South Africa, Congo, Senegal, Kenya, and potentially Tanzania. Additionally, any of these countries that are coming out of horrible devastation and destruction from the civil wars of 1990s -- like Rwanda, Burundi, Liberia, Sierra Leone -- are really overcoming the difficulties of the past and moving forward.

Overall, though, it seems as the context is much better suited to a potential for greater investment from the outside, whether that’s going to be Europe, China, the United States, or other countries within Africa. This is due to a couple of reasons. Number one, things seem to be much more stable than they were previously. Even when we have had regime changes, such as in Niger in 2010, it wasn’t a violent regime change.  There was a coup and about six or seven months later they were replaced.  The same thing happened in Togo. It’s very encouraging.  Number two, some of these places, like Rwanda, Liberia, and Sierra Leone, that underwent horrible destruction have decided to engage with the outside world and with the private sector to make investments in order to make their environments hospitable.

That is what Paul Kagame has done in Rwanda: by encouraging investment in telecommunications, he’s basically said: We’re going to be the telecommunications and internet hub of East Africa. That’s the commodity that they are becoming known for. They have invested in it, and I think that over the course of the next few years they will provide a service that is not only going to be useful for Rwandans, but also for other people within East and, potentially, Central Africa.  We’ve seen the same thing happening in Ghana and Senegal as well. Ghana has recently found oil and, they’ve been thinking  in advance what they can actually do with these oil revenues, how they can make investments, how they can make payments back to their citizens. It is similar to what has been done in Alaska to ensure the oil revenues are used well, and this actually improves people’s level of well-being. 

All of this just gives us evidence of positive signs, and I think that the big indicator is what we’ve seen happening in terms of telecommunications infrastructure. The fact that you have had the private sector come in and provide service where no one thought that the growth and adoption was going to be at the level that it is today. Now, seven or eight years later, you not only have almost four billion mobile phones world-wide, but you almost have five hundred million mobile phones in the African continent, one of the poorest continents in the world. I think this is quite astounding.  There’s a strong demand for this service, but there’s also a lot of private sector investment, and I feel that the two of those things together can lead to positive spill-over effects for other business opportunities. 

For example, if farmers in Burkina Faso are selling strawberries, of course they have a lot to do to make sure that they meet all of the EU requirements, and they can package them and sell them and get them to market. But having a mobile phone and being able to follow the prices and being able to call your supplier is really important. It was the same thing with Kenyan flowers after the election. This is not only about connecting Africans with each other, but connecting them with the outside world and specifically, their suppliers and their buyers. I think that’s really promising.     

Bhaskar Chakravorti: I’ll go back to the larger question in a moment, but I’d like to speak to this point of telecom as a growth platform on top of which a whole bunch of applications can ride and create economic opportunity. In principle, mobile phone services like price discovery, closing transactions quickly, and having access to financial services make total sense. But if you think about mobile money, in principle it should be universally available and universally adoptable, right? However, it has taken off in a meaningful way in one only country in the world, in Kenya. So the question is, is there a gap between reality and the concept? Will the availability of this incredible penetration of mobile infrastructure really lead to all the promises of new economic activity?

JA:  I think that there are two parts here. I think of mobile money as being related to, but distinct from, mobile phones.  When mobile phones came in, in many cases there were no other telecommunication services. You had no land lines and in many cases you didn’t have road infrastructure. So as soon as you got that mobile phone, it allowed you to do things that previously weren’t possible, and it was so much less expensive and there were high rates of adoption.  We’ve seen a lot of evidence, some of it anecdotal, some rigorous quantitative evidence, suggesting that within these certain contexts, using a mobile phone to get price information and migration information allows these markets to work better and allows people to increase their incomes.  Not always the poorest of the poor; sometimes the richer populations, and that’s okay. It doesn’t say anything about equity, it just says that it’s going to make these markets more efficient. We have seen that in terms of access to information, labor markets, and migration. It has also allowed people to deal with shocks, because now they can call home after the difficulties in Libya, for example, and they can send money when they want to, whether or not it’s via mobile money.

I think that mobile money, while it was built on a mobile phone platform, is a completely different service. We want to think about what mobile money is competing with. It is competing with Western Union, the post office, the bus, or just having a friend bring it home. While mobile money could be potentially less expensive as compared to these other services, there are two issues preventing adoption. Number one, in many cases is that it is only available domestically. If we look at migration in the case of Niger, about 40% of households have one seasonal migrant, and over 50% go outside of Niger. So mobile money is not going to help in this situation. It might help you within Niger, but if you have a friend who is going back to the village, you know that the friend is actually going make sure the money gets there, or they might buy goods and services along the way. I think that the infrastructure has already been set in some of these cases, that there aren’t a lot of agents and many questions still exist: is it really cheaper than these other ways of sending money? Even if it is, do people trust the system right now? Communicating information is one thing -- it’s fairly riskless -- but sending money is different. People send money through very long, established, trusted relationships. I’m in Libya and I call the guy in Tahoua (Niger) and I tell him to put fifty dollars in my account, and he knows I’m good for it. That’s been in existence for thirty or forty years, and all of sudden you change that completely by introducing a mobile money platform. It’s going to take time.  Hopefully we’ll see an S curve, where the low adoption rate will accelerate. But again, this is only if the service is useful for people and it’s less costly compared to what they are currently doing. 

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The many Africas

BC:  So let’s take a step back. I want to get a sense of how you visualize the different Africas. Within the continent there are many Africas, and historically there has been Africa and then Sub-Saharan Africa. There are some further divisions there.  There are the big economies - South Africa and Nigeria -- and then the rest.  How do you see the different segments or archetypes within Africa today?

JA:  Beyond those, I would think a few different classifications. There is coastal versus landlocked, which is extremely important because if you have any access to a coast or a port, it’s much cheaper to export or import goods. If you are landlocked, you are dependent upon the goodwill and the infrastructure of your neighbors. That’s a big issue, especially in West and Central Africa where very few kilometers of roads in these areas are actually paved.  The second classification is whether or not the rainfall distribution is bi-modal or uni-modal, meaning are they stuck with one rainfall per year, or do they have multiple, which allows them to grow a higher diversity of crops? That’s partially related to being landlocked or not, but it gives different types of diversification opportunities, in terms of what can grow and the markets you can go after. The diversity of having multiple crops or agricultural seasons per year gives more flexibility as compared to being dependent upon one crop per year. It diversifies your income-generating opportunities, and allows you to tap into those regional and external markets.  You could argue that there are advantages and disadvantages to each one. Maybe having just one rainy season a year allows you to specialize more. That being said, it can be highly risky if things fail. If you have two rainy seasons a year, you can look at the second one if the first one fails.

A third category is the governance structure and how much the government has invested in and supported the people and their businesses over the course of the past forty or fifty years. I would argue that having a democratic government has not always ensured success. We all know that Blaise Compaore of Burkina Faso is, by no stretch of the imagination, a democratic leader even though he has been elected.  That being said, and despite this, he has invested in agriculture, health, and education since he has been in power. He has tried to ensure that some of these productive agricultural areas are really being supported and that they are able to tap into European markets, which is something that hasn’t happened so much with Niger, which is right next door and is arguably poorer. It hasn’t happened so much with Mali either. I think it is useful to define these governance structures not on a scale of democracy, but by how much they invest in their people for stability and future investments.

BCWhere would you put a country like the Democratic Republic of the Congo in this?

JA:  Eastern DRC is landlocked, so they are completely dependent in this sense. But they have abundant resources in terms of diamonds, cobalt and other things, and they have an abundance of agricultural diversity. But they have very little infrastructure in terms of roads, land lines and cell phones, and they have very poor governance. Unfortunately, the spillover of the situation in Rwanda and Burundi has been a factor since the mid-1990s.

That’s a case where one country has been functioning almost as two separate countries. What’s happening in the west of the country is pretty separate from the east, and you could see a case where part of the country would grow, but the other part wouldn’t. Despite their abundant resources, the fact that they are a land locked country and so underdeveloped in terms of their infrastructure really makes cohesion in the entire country difficult.

BCAre they a microcosm or are they an outlier or are they their own archetype? 

JA:  I feel like the DRC is a little bit of an outlier because I can’t think of another similar example. Another factor is that it’s so big. Sudan before the separation could be analogous, but I can’t think of another example where you have such diversity, such size, and functioning as two separate parts.  DRC, perhaps, is unique given its history, size, lack of investment, instability, and poor governance. All of those things together have led to the situation that they have today.  Maybe with better governments, things would work a little better, but they need to improve the infrastructure to let people feel as though they are a part of cohesive whole.

Does resource richness correlate to instability

BC:  Think about the DRC or any other resource-rich parts of Africa, which is a large part of the continent. There have been all of these studies that argue that there’s an inverse correlation between resource richness and governance, including political stability, the availability of basic institutions such as political and educational institutions, and so on. Is that valid across most of Africa?

JA:  This debate came up when we were considering the question: “What will happen to Ghana when Ghana gets oil money?” Partly it seems to be dependent upon the type of resource. If you look at gold, it seems as if access and the way in which that resource has been managed is quite different from oil. A lot of people would say that the way that gold has been managed in Ghana and Mali, for example, has been quite good. There has been limited conflict associated with the extraction of gold. It was set up such that the resources were provided to the state and the state then used those resources to make investments in health and education in turn. I can’t speak in terms of diamonds in South Africa and other places.  Obviously diamonds in Sierra Leone were fuel for the war.

But if you look at oil in countries like Angola, Mozambique, Equatorial Guinea, Nigeria, and Gabon, you see a negative correlation between oil revenues and governance. The concern is now in Niger and Ghana, where they have found oil. Is it a necessary path, or is it a spillover from the colonial era? Many of these oil relationships were established before these countries became independent, while they were still colonies. I think that that will be interesting to follow what happens in these three or four countries who have recently discovered oil and who were able to negotiate agreements with the oil companies on their own terms.  Ghana seems to be thinking about this ahead of time and trying to avoid that situation, but Niger is using a very different model.

Chinese companies have also become a new player in this space, and so it will be interesting to see whether you can draw any relationships in terms of the types of oil companies and how those funds are being used and governance. I don’t think it has to be a foregone conclusion, because I think that this situation under which the previous contracts were developed was quite different.

The race for land

BCTalk a bit more about your last point about the Chinese. As you know, it’s not just the Chinese, but the Saudis and the Indians and then some of the former colonial powers. In Africa, there is an ongoing race for access to land, minerals, and so on.  How is that going to shape up in the coming years, and how is that going to help or hurt the cause of development and improve the well being of the local populations? 

JA:  I know I keep coming back to governance, but I really think that it’s going to depend upon the strength of the government institutions.

First, take the example of Niger, which I know best. They have uranium mines in the north, which have always been bought by French companies. Then they were prospecting for oil all the way to the east. It’s possible, if you have a government that is strong and knows how to negotiate these contracts, they can ensure that you have the best interests of your people at heart and they can think very carefully about what this means for the country’s resources. But contrast that to a government that is just looking to get an oil refinery built at the cheapest cost with the highest revenues over the shortest time frame. This is the same government that is saying, “who cares about what this means for the future population, and who cares how they build these refineries and whether they destroy the environment in the process?” Contrasting Ghana with Niger in this respect has been very interesting.

My understanding of what has happened in Ghana is that a lot of people, both internally and externally, were interested in a stronger government. There were problems in the 2008 election, but Ghana really thought quite carefully about who they were going to choose to build out the infrastructure, why they were going to choose them, and what other investments they were bringing. In Niger, the president at the time was involved in some internal political struggles, and did not seem to be interested in listening to public donors anymore: “Who cares about public funds? I can get private sector investment, and that’s all I need.” So far, the results in Niger have been environmental degradation and displacing of populations.  What I have seen so far is not too promising, and that’s disconcerting.

All of these players obviously have something to gain, and they want to get the best profits out of it.  You would like a government to say, “You can extract your rents, but I also want to ensure that there are certain protections for my people and for my environment as well.” The only way that they are going to be able to do that by negotiating these contracts on their terms rather than going to the highest bidder or lowest bidder, depending on who it is. That will be easier if they have some type of power, or at least political support for the people.

The model for African governance

BCSo you keep coming back to this notion of governance, and if you think about Kagame in Rwanda, and the Kagame story is a bit of a mixed one. 

JA:  Right.

BC: I’m trying to frame the question: Is this a model that you think should or will be followed in other parts of Africa? Are we going to have this iron fist?

JA:  I think that in the situation of Rwanda, during the Genocide where people would say that in order for Rwanda to move forward, they couldn’t risk going remotely back to where they were. They couldn’t risk having any type of dispersions passed on any type of ethnic group. They had to ensure that the problems of the past didn’t erupt, no matter how slight. Perhaps that’s not so different from the U.S. experience after World War II with Germany. Even for fifty or sixty years afterwards, Germany has been much more sensitive to any type of hints of racial discrimination. Whereas in the U.S., we might say that is freedom of speech, because we don’t have the same history as Germany. The same is true about Rwanda, which doesn’t have the same history as Ghana, so maybe in Rwanda that model really works. 

I’m always hesitant to say that democracy is what’s going to work best. I think it very much depends upon the shared history, the context, the resources that are available, and what people choose. I have had many Nigerian colleagues say to me, “I wish we had kept the military government because we trusted them and we felt like they were running things with an iron fist, and for right now, that’s what we need.” If a country chooses a different type of government or they are okay with a president that rules with an iron fist, or semi-elected president like Blaise Compoare, who also rules with an iron fist, then I don’t think that we can necessarily fault them for that and force them to do otherwise. 

The question is, though, how do you know that something else wouldn’t have worked better? That’s for the lawyers and human rights experts to say, and obviously there is a threshold you know that you can’t pass.

BCWhen you are talking about kinds of governments, one big question is what are the viable alternatives? If the alternative is another civil war or anarchy. How do you weigh one against the other?

JA:  When I’m in Burkina Faso, my friends will often say to me that the devil you know is better than the devil you don’t know. They’ll say, “We may not be super happy with Blaise. No, we can’t demonstrate in the street, and we can’t necessarily write whatever we want to, but generally we are civil, our human rights are respected. If he leaves, who comes into power?” I think we’re seeing that right now with Gadaffi, who we know violated all these human rights and by any stretch of the imagination would not be an acceptable leader. But the question is, is the next government better, worse, or the same as Gaddafi? That will be interesting to see for all of Arab countries.

BCSo you mentioned Gaddafi, let us turn to the major disruptions in North Africa.  Do you see any continent-wide impact from these explosions at the top of the continent? Will they have a ripple effect?

JA:  I think that’s is actually going to be huge, at least for West and Central Africa, and this is for a few reasons. One, Gaddafi, for better or for worse, invested a lot of money in West Africa. In many cases people would argue it was because he wanted to take over West Africa and acquire more of the land along the border.

BCHe called himself the king of Africa.

JA:  Oh yes, and he would drive from Libya down to Accra, Ghana every few years. Many people loved him in West Africa; people were a little bit fearful of him too, but he invested a lot in terms of mosques and roads, and he supported a lot of these African leaders. So that’s impact number one. Number two – and the bigger thing - is that there are so many West African migrants in Libya, and that’s a major income earner for many of these households. About 20% of households in certain areas of Niger have at least one migrant in Libya. To get them out of Libya, they not only had to spend about four hundred dollars, which is twice the annual per capita income in Niger, they also had all that lost revenue since the migrant wasn’t sitting in Libya. They were brought home and are now another mouth to feed. They could potentially find another destination, but the money isn’t going to be the same as it was in Libya. We don’t know how long that is going to last, but it’s been a very tenuous situation looking at all of those countries -- Mali, Burkina Faso, Niger, Chad, I would argue some of Senegal as well.  They send migrants to North Africa in general, but Libya was a big place where they could earn a significant amount of money.  Now you’re talking about 200,000 to 300,000 people that went back to Niger out of a population of fourteen million.  You’re talking about between 2 to 5% of the population. That’s quite significant. 

So, I think that the instability in Libya and these other north African countries is not trivial and will definitely have huge short-term effects. That’s what we are trying to measure: a concrete measure of how this effect people. It could potentially have longer-term effects as well if things don’t stabilize and people don’t feel comfortable going back. And when people don’t invest in Libya in general, you don’t have work like in hotels and oil to be done, then the job opportunities disappear and they will have to start going elsewhere. But countries like Gabon and Equatorial Guinea and Nigeria and Ivory Coast can only absorb so many people.

Africa as a single entity

BC: When people compare Africa the continent with individual countries like India or China, they often draw the comparison that there about a billion people in each of these three places. It’s often a false comparison, but a billion is an impressive number to work with. But In the trajectories of India and China have been different, there have been different histories, and there’s been a different narrative for each one of those.  Do you think it’s a false comparison, or can you actually see Africa as somewhat of a single political institution?

JA: There are a few issues to consider. For example, you can’t just look at population, but at population density, which is really important for infrastructure and growth. Populations are quite dense in China and in India, and that’s not the case in a lot of countries in Africa, though it is in certain ones.

BCIsn’t about 40% percent of the population in cities?

JA:  Yes, if you think over all in Sub-Saharan Africa, but if you’re looking in particular countries that’s going to vary substantially by the type of country. In the countries that I’m researching --  with the exception of maybe Mozambique, Rwanda, or Burundi-- land pressure and population density isn’t significant, and that’s huge because you’re talking about infrastructure and investment that might have been a little bit easier, given a population density in India and China and is much more difficult in Africa. 

Secondly, and related, is that when you have one political institution, for better or for worse, you have one government functioning as a whole, making these decisions. You are trying to say, “How can I maximize the well-fare of my citizens?” That’s not happening in Africa, despite the fact that you had these trading unions in east, west and central. Those are very loose relationships that by no means function as one cohesive whole.

The third thing is that in you have had these very important disruptive, horrible conflicts of the 1990’s in Africa that I don’t think you can forget about when you talk about the growth trajectory. When you’re looking at China and India, there has obviously been conflict, but it’s different. In Africa, you are talking about the complete decimation of a population, or a decade of war in Liberia, Sierra Leone, Angola, Mozambique. In many of these cases, seven to eight years later things are looking up. The case of Rwanda I think is quite remarkable and extraordinary, but that doesn’t mean that you can rebuild people’s trust and psyches.  I could be wrong, but it seems like China and India haven’t experienced that recently or in the same degree. 

I’m always hesitant to kind of draw those comparisons because I do think that those three differences are quite important. 

The chance for Africa

BC:  Final question.  Many of the challenges you cited in Africa were these cataclysmic events in the ‘90s. It’s not new; it has happened before. Has there been any kind of a structural change since then in Africa that suggests that we might be on the threshold of a different future.  In comparison to, say, Brazil, where every few years people come back and say, “This is it. Now Brazil is ready …” And now there is sort of a post-Lula glow to Brazil and people say, “Now. This is the real time for Brazil.”  So is there such a momentum for Africa?  And what would need to be true for that to happen if this is not the moment?

JA:  That is a very good question. I really don’t know if I have a good answer to that. It’s hard to say, because you can look at the past and see what the growth trends have been and then forecast the future. You can say that so much has changed, which gives us reason for optimism. This is in terms of the political landscape, the infrastructure, people’s awareness of the atrocities that have happened, the closeness of Africa to other markets.  This change could potentially happen, but I also feel that there are a lot more hurdles that need to be overcome. For example, very simple things like access to credit, which is really important in order for people to invest in and grow businesses, still remains quite low for many of these countries. Informal credit is fine, but formal credit is still quite lacking, and that’s necessary for both businesses and agriculture to grow. The fact that in these countries you often have quite large climatic shocks that can wipe out an entire year of GDP. If we aren’t addressing credit constraints and governance constraints and our ability to withstand the climate shocks, I think it will be difficult for Africa to move forward.

That is, unless you’re talking about completely changing your growth strategy. That means potentially investing in firms and investing in plants and having those plants source goods from rural farmers and have multi-year contracts that allow farmers to deal with some of this risk and produce things locally and then export those things locally. That type of model I think could work, but that needs a combination of the public and the private sector together and significant additional work in terms of the infrastructure.

BCIt’s a tough question.

JA: Thanks for asking.

BC: Thank you, Jenny

 

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