Расцвет молодого континента: почему Африка становится эпицентром демографического роста? (продолжение)

IA «FACT», referring to the actual report from The Economist magazine, wrote about the huge demographic potential and deep economic challenges of the youngest continent of the planet. Thus, urbanization and African population growth are outpacing productivity and infrastructure development, holding back economic progress. The main problems of the black continent are a weak private sector, low agricultural productivity, limited access to education and finance. Without radical reforms and strategic investments, Africa risks remaining trapped in underdevelopment despite its potential to become a global economic driver.

Why lack of capital, electricity and weak management hold back business development

According to the World Bank, the main obstacles lack of capital and electricity are most often cited by African companies for development. Only 20% of businesses in the region have access to bank financing, the lowest figure in the world. Interest rates on loans here are extremely high — an average of 25%, while even in India and Vietnam they are only 9%. In some countries — in particular, in Ghana — rates reach 35% and higher.

One of the reasons for such rates is weak competition between banks. The net interest margin in the region’s financial institutions is the highest among all emerging markets. The lack of competition allows banks to dictate terms and hinders the development of new financial players.

Another factor is the low level of domestic savings, which is only 19% in sub-Saharan Africa compared to 37% in East Asia. The region’s high birth rates reduce savings opportunities, but even in countries where demographics are improving, savings rates remain low. This indicates that other economic factors also create the problem.

Economic growth in Africa is held back not only by a lack of capital or electricity, but also by a general weakness of infrastructure. The lack of reliable financing, high interest rates and low savings rates force many businesses to rely on private loans or personal funds. For example, in Ghana, the average lending rate is over 30%, making bank loans inaccessible to most entrepreneurs.

Energy problems also paralyze business. Persistent power outages lead to lost productivity — companies in Africa lose an average of 25 working days a year due to supply disruptions. Crises such as the energy collapse in Ghana from 2013 to 2016 exacerbated unemployment and inhibited the start-up of new businesses.

The unsatisfactory condition of roads and the high cost of transportation further complicate the integration of domestic and regional markets. For example, in Ethiopia and Nigeria, the cost of transporting goods is many times higher than in developed countries.

Nevertheless, businesses such as Kenya’s Vertical Agro show how good infrastructure and stable electricity supply can stimulate exports and create new jobs. Their success in the frozen avocado trade with China was made possible by their proximity to farms, roads, the airport and their use of renewable energy.

In 2017, I hope for changes brought the coming of Joao Lawrence to power in Angola after 38 years of the corrupt Jose Eduardo dos Santos rule. The new president promised to fight corruption and reform the economy. However, optimism quickly faded. Businessman Claudio Silva, who dreamed of opening a restaurant with local products, faced bribery from officials, which ruined his plans. «The more you try not to compromise, the more you suffer», he says.

Despite the government’s announcement of reforms, corruption remains ubiquitous and the majority of the population continues to live in poverty. Angola spends only 3% of GDP on health and education — less than half the regional average. A similar disillusionment is felt across Africa. According to the data Afrobarometer, the proportion of Africans who believe their countries are headed in the wrong direction has doubled in the past ten years. Protests against corruption and government inefficiency have swept from Kenya to Mozambique.

Political weakness is one of the main obstacles to development. Although many African countries remain autocracies, their governments are often unable to perform the basic functions of the state, instead engaging in activities that only exacerbate stagnation. This creates particularly unfavorable conditions for growth and deepens Africa’s gap with other regions.

Whether it is security and basic services or tax collection, Africa is under-governed. Less than half of babies are registered as born in sub-Saharan Africa. Congo has not had a census for 40 years. According to IMF estimates, tax revenues in sub-Saharan Africa account for an average of 13% of GDP, compared to 18% in other developing countries and 27% in rich countries. The number of public sector workers as a proportion of the population is lower in sub-Saharan Africa than in any other region. When Afrobarometer asks Africans to name the most important issues they face, the issues they cite are things that are taken for granted elsewhere: clean water, electricity, roads, food and security.

Don’t bring me a project, bring me an evacuation plan

It is important for economic growth capable state. An expert from Harvard University’s Development Laboratory claims that African states are trying to ensure «complementarity between private and public goods». In 2023, Growth Lab estimates that failing utilities will caused 40% of South Africa’s recent economic decline. The shortcomings of the state scare off investors. An expert at the African Finance Corporation in Lagos tells his deal participants that they need to consider how any exporter they invest in is going to export their goods. «Don’t bring me a project, bring me an evacuation plan”, — this is his message.

At the same time, African policymakers have less margin for error than policymakers in other parts of the world. Choosing the wrong infrastructure project matters more if you only have funding for a few. The margin of error is also small when it comes to adaptation to global warming. Poor countries are more vulnerable to changing weather conditions because they are less resilient.

They don’t have paved roads, high construction standards, and adequate cold storage. The World Meteorological Organization, a UN agency, estimates that in sub-Saharan Africa adaptation cost will be $30-50 billion per year over the next decade, or 2-3% of GDP. This is money that most African countries do not have.

It is easy to argue with the idea of ​​development agreements. There is a risk of a circular logic, where any country that develops very quickly must rely on some sort of deal with the elite for its success. It is easier to describe an agreement after the fact than to outline it in advance. Neither in Ethiopia, where there was a recent civil war, nor in Rwanda, where Paul Kagame rules with an iron fist, the deals of the elite do not seem to last.

Stefan Derkon’s ideas can be an inspiration for African politicians. They show that the past does not determine the future, and a real breakthrough is possible with a creative approach, and not blindly copying other people’s models. Yuen Yuen Ang, the author of a book about China’s economic rise, emphasizes that the lesson for Africa is the ability to use what is at hand. Belief in one’s own strength is the first step to change.

The question, however, is whether African elites are ready to think differently. Many of them are satisfied with the distribution of profits from foreign companies, not interested in long-term development strategies. A breakthrough is possible only under the conditions of a radical change in incentives or in the face of serious threats, first of all, climate change or the rapid growth of the young population, which every year replenishes the labor market without the prospect of formal employment.

Politicians say these challenges are of greatest concern to them, but many still don’t realize the scale of the problem. To deal with it, decisive actions are needed, not just declarations.

Challenges and prospects of financial development in conditions of global instability

Ethiopia has been actively engaging for decades support from various sources — from the West and China to developing countries. More than $3 billion in debt was written off in 2004, and since 2000 China has given it more loans than almost any other African country. Thanks to duty-free access to Western markets, industrial parks are opening in the country, and in recent years it has received significant investment from the UAE. Despite the civil war, in 2024 the IMF and the World Bank resumed financial support.

However, as the head of the central bank of Ethiopia notes, the financial situation on the continent is alarming. In many countries, net financial flows have become negative: the amount of debt payments exceeds new revenues. Africa needs a significant increase in investment — almost double the current 16% of GDP — to replicate East Asia’s economic success. The African Development Bank estimates that the continent needs $400 billion in additional investment annually to accelerate economic transformation.

The 21st century used to be seen as auspicious for Africa: the rise of China stimulated demand for resources, globalization attracted investors, and debt relief allowed governments to borrow heavily. Between 2007 and 2020, 21 African countries entered global capital markets, often for the first time. China became the largest official creditor, providing more than 180 billion dollars. However, today the growth of debts and difficulties in attracting capital threaten the further development of the black continent.

Today, Africa faces increasingly complex challenges in financing and economic development. Geopolitical tensions between the West and China threaten to drive the countries of the region into an economic trap. Any division of world trade into separate blocs could cause serious losses to Africa, including a 4% drop in GDP — more than in any other region, the IMF warns.

Attracting capital is becoming increasingly difficult. Africa’s debt burden has doubled over the past 15 years, and debt growth is outpacing productivity. Many governments spend more revenue on debt service than on health or education. In 2025, this pressure will only intensify. Some countries, like Côte d’Ivoire, have managed to refinance their debts, but high interest rates, like Kenya’s (10% in early 2024), are exacerbating the problem.

Other sources of funding are also being depleted. Chinese credit has fallen significantly from peak levels in 2016, and foreign direct investment in the region in 2023 will account for just 4% of global volume, even less than a decade ago. Aid from developed countries also fell to its lowest level in two decades.

In addition, half of African countries have macroeconomic imbalances, and a lack of investment in education, infrastructure and innovation increases the risk of falling further behind. Without significant capital inflows, it will be difficult for Africa to make a breakthrough and ensure sustainable economic growth.

The African continent has a significant potential for attracting private capital, even a small increase in the share of investment can have a significant impact on the economy. However, Africa faces persistent high-risk stereotypes that do not always match reality. For example, infrastructure projects in Africa have a lower risk of default than in Latin America or Asia. However, factors such as financial opacity, political instability and difficulties with repatriation of profits reduce investor confidence.

In addition to the risks, Africa is seen as an overly fragmented market with insufficient opportunities for large players. Investors often choose other regions where the market scale and potential returns are higher.

As for China, its investment promises are less impressive than they appear: most of the allocated funds go to Chinese companies or credit lines with blurred terms. Nevertheless, middle power countries such as Turkey and the UAE are beginning to fill the gaps. For example, the UAE has become one of the largest sources of foreign investment in Africa after China, the EU and the US.

Despite new sources of capital, Africa needs big investments, not small projects, to really change economic dynamics. The potential is there, but it can be realized only under conditions of significant strengthening of markets and reduction of barriers for international business.

African leaders have sought to increase international aid, but the results have been disappointing. In 2024, they called on donors to increase World Bank funding for poor countries to $120 billion, but the actual amount turned out to be $20 billion less. Despite the promise of new funds, many are crowding out traditional aid, such as in education or health, and climate finance is largely focused on mitigation rather than adaptation, which is more relevant to Africa.

In addition, such projects often force African countries to take on new debt for initiatives that divert resources from key development needs. As expert Vijaya Ramachandran points out, the West’s approach to Africa often resembles the creation of barriers to access what is needed under the guise of aid.

Instead of relying on aid, Africa could benefit from improved terms of trade. For example, China promises to facilitate the export of agricultural products, but farmers face excessive bureaucracy. The US also has the ability to expand programs such as the African Growth and Opportunity Act or provide additional support through the Inter-American Development Finance Corporation.

Despite the potential benefits of geopolitical competition between great powers, rising nationalism and protectionism complicate the outlook. Africa will have to rely heavily on its own efforts if it is to close the gap with the rest of the world.

The demographic boom as a chance for a global breakthrough or a trap of stagnation

Demographic explosion in sub-Saharan Africa attracts attention not only donors, but also large investors. By 2030, half of the new workers in the world will be from Africa, and by 2050, the continent’s population will reach 2.5 billion people — a quarter of humanity. This potential could turn Africa into a global engine of growth if it can improve its productivity, which is currently growing at just 1% a year. At rates similar to India’s (4%), Africa could account for 20% of global growth by mid-century.

However, the threat of stagnation is more than real. Without structural changes, the continent may remain on the periphery of the world economy. Scenarios from the Institute for Security Studies warn that by 2043, GDP per capita in Africa will remain just a quarter of the global average, and 400 million people will continue to live in extreme poverty.

Despite the challenges, Africa has significant potential. Remittances from emigrants are already almost double foreign direct investment, and population growth will increase global demand. However, without investment in infrastructure, education and productivity, the continent risks remaining trapped in underdevelopment. Africa can become the next engine of global growth, but this requires determination and strategic change.

Africa faces a difficult choice: to continue on its current path of stagnation or to seize the opportunity for transformation. Low productivity, insufficient investment and weak integration of markets remain the main challenges. However, there is a scenario of positive changes. If countries accelerate the demographic transition, invest in agriculture, education, infrastructure, and implement the African Continental Free Trade Area (AfCFTA), by 2043 the poverty rate could be halved and GDP per capita could increase significantly.

However, the outlook varies by region. Countries with lower birth rates, such as Morocco or Kenya, are already performing better thanks to increased savings and investment. Integration into global supply chains can be an important driver for East African economies. At the same time, Africa must become a single economic space in order to strengthen its influence on world markets.

The global community also needs to change its approach. Current models of aid and development financing are insufficient to address the massive challenges. Africa needs to create the conditions for big business and productive sectors, with ambitious goals of economic transformation.

With a demographic boom that could turn the continent into a major growth hub, the stakes are incredibly high. But to realize this potential, Africa needs decisive action today.

Tetyana Viktorova