The world’s poorest continent should embrace its least fashionable idea

[Deeq A.]

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: break with their own past and with the dismal statist orthodoxy that now grips much of the world. Africa’s leaders will have to embrace business, growth and free markets. They will need to unleash a capitalist revolution.

If you follow Africa from afar you will be aware of some of its troubles, such as the devastating civil war in Sudan; and some of its bright spots, such as the global hunger for Afrobeats—streams on Spotify rose by 34% in 2024. Less easy to make out is the shocking economic reality documented in our special report this week and which we call the “Africa gap”.

In the past decade, as America, Europe and Asia have been transformed by technology and politics, Africa has, largely unnoticed, slipped further behind. Income per person has fallen from a third of that in the rest of the world in 2000 to a quarter. Output per head may be no higher in 2026 than it was in 2015. Two giants, Nigeria and South Africa, have done atrociously. Only a few countries, such as Ivory Coast and Rwanda, have bucked the trend.

Behind those figures lies 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.

So African leaders should get serious about growth. They should embrace the self-confident spirit of modernisation seen in East Asia in the 20th century, and today in India and elsewhere. A few African countries such as Botswana, Ethiopia and Mauritius have at different times struck what Stefan Dercon, a scholar, calls “development bargains”: a tacit pact among the elite that politics is about increasing the size of the economy, not just a fight to divvy up who gets what. More of those elite deals are needed.

At the same time governments should build a political consensus in favour of growth. The good news is that powerful constituencies are keen on economic dynamism. A new generation of Africans, born several decades after independence, care a lot more about their careers than they do about colonialism.

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.

Free to get rich

The consequences for Africa of simply carrying on as usual would be dire. If the Africa gap gets bigger, Africans will make up nearly all of the world’s very poor, including the most vulnerable to climate change. That would be a moral disaster. It would also, through migration flows and political volatility, threaten the stability of the rest of the world.

But there is no reason to catastrophise or give up hope. If other continents can prosper, so can Africa. It is time its leaders discovered a sense of ambition and optimism. Africa does not require saving. It needs less paternalism, complacency and corruption—and more capitalism.

In 2017 Claudio Silva, who a few years earlier returned to Angola after growing up in America, was optimistic that the country of his birth was turning a corner. That year João Lourenço became president, replacing José Eduardodos Santos, the corrupt autocrat who ran sub-Saharan Africa’s second-largest oil producer for 38 years. The new president pledged to reform the economy and to cut graft.

Today Mr Silva is sceptical. His dream of setting up a restaurant showcasing local produce has been delayed by venal officials demanding bribes. “I realise the more you try not to be corrupt the more you get punished,” he says.

Mr Lourenço’s team insists the president is overhauling Angola. “You don’t change a political system overnight,” warns a cabinet minister. But business people all have stories of graft. Beyond Luanda, the capital, there is little sign of the tens of billions of dollars earned from oil. Most of the population lives in poverty. Public spending on health and education is around 3% of gdp, less than half the regional average. “We had the potential to accumulate generational wealth,” Mr Silva sighs, “just as the population was exploding. But we didn’t leave enough on the table.”

There is frustration with politics all across Africa. A decade ago the share of Africans telling Afrobarometer, a pollster, that their country was going in the wrong direction was roughly the same as the share who felt it was on the right track. These days twice as many Africans think things are going badly (see chart). Young people have recently taken to the streets in Kenya, Mozambique and elsewhere to protest against governments they see as corrupt and incompetent.

The bad and the ugly

African politics is subject to the same forces as elsewhere. When governments do a bad job, citizens want them out. Yet there are certain aspects of the political economy in many African countries that seem especially bad for growth, making it harder to close the Africa gap. The first is the weakness of the state. Most African countries are autocracies of one sort or another; the eiu, our sister outfit, classifies just six of the 54 countries as full or flawed democracies. That can bring to mind the idea of all-powerful, ever-present government. The reality is different. African states are often incapable of doing the things a state should do, while doing plenty of things that it should not.

Whether it is the provision of security and basic services or the collection of taxes, Africa is under-governed. Less than half of babies have their births registered in sub-Saharan Africa. Congo has not had a census in 40 years. The imf estimates that in sub-Saharan countries tax revenues make up 13% of gdp on average, against 18% in other emerging and developing countries and 27% in rich countries. The number of public-sector workers as a share of the population is lower in sub-Saharan Africa than in any other region. When Afrobarometer asks Africans to name the most important problems they face, the issues they mention are things taken for granted elsewhere: clean water, electricity, roads, food and security.

A capable state matters for economic growth. Ricardo Hausmann of the Growth Lab at Harvard University argues that African states struggle to ensure “complementarity between private and public goods”. In 2023 the Growth Lab estimated that failing utilities were responsible for 40% of the South Africa’s recent economic underperformance. State shortcomings put off investors. Sameh Shenoudah of the Africa Finance Corporation, a Lagos-based financial institution, says he tells his dealmakers they need to consider how any exporter they invest in is going to get its goods out. “Don’t bring me a project, bring me an evacuation plan,” is his message.

At the same time African policymakers have less margin for error than those in other parts of the world. Picking the wrong infrastructure project matters more if you have funding for only a few.  The margin of error is also narrow when it comes to adapting to a warming planet. Poor countries are more vulnerable to volatile weather because they are less resilient. They do not have paved roads, high building standards and ample cold storage. The World Meteorological Organisation, a un agency, estimates that in sub-Saharan Africa the cost of adaptation will be $30-50bn per year over the next decade, or 2-3% of gdp. This is money that most African countries do not have.

Yet it is also true that many African countries do not help themselves. There are more subtle ways in which African governments undermine development. A research project led by Nic Cheeseman of the University of Birmingham has mapped what it calls “Africa’s shadow states”. These are made up of parasitical networks through which businessmen get sweetheart deals in exchange for funding politicians or accepting kickbacks. This was the model on catastrophic display in South Africa under Jacob Zuma.

And there is a yet more subtle cost. If secure property rights depend on the whims of African leaders, they last only as long as the Big Man is in office. This discourages long-term investment. Ken Opalo, a Kenyan academic at Georgetown University, in Washington, DC, argues that when politicians and businessmen do not keep to their “lanes” it makes for the worst of both worlds. “The fusion of lanes makes it difficult for elites to specialise in either business or politics, resulting in a region full of mediocre politicians and politically dependent mediocre businesspeople.”

Looking for bargains

The closeness of business and politics also helps explain why there are so few African entrepreneurs of global standing, and so few globally competitive African firms. It is hard to become a legitimate billionaire when wealth depends on politics. It also encourages Africans with cash to stash it offshore. Perhaps 30% of African wealth is held outside the continent, compared with a global average of 8%, according to (somewhat old) estimates by Gabriel Zucman, an economist.

Stefan Dercon of Oxford University, a former chief economist at Britain’s Department for International Development, sees rebooting relationships and attitudes among elites as the key to progress. The shared characteristic of successful countries, he argues, is not a particular set of policies. “Successful countries appear to have pursued a relatively diverse set of economic and other policies”. It is that political and business elites have agreed on an implicit pact that prioritises increasing the size of the economic pie over simply gobbling it all up, as they did before. Mr Dercon calls this a “development bargain”, and argues that the agreement such bargains produce on the path forward matters more than what the path actually is.

Mr Dercon points to India, Bangladesh and Vietnam as examples of Asian countries that were as poor as many in Africa today, but found the right elite consensus. He argues that Ethiopia and Rwanda, both of which grew at 7% per year for much of the past three decades, are African examples of regimes that had such bargains. He suggests that Uganda, Kenya and Ghana may have the ingredients to forge deals, too.

You could add a few others. At independence, in 1968, Mauritius was a poor plantation economy. Its first government cut a deal with the sugar barons to invest in manufacturing. That provided the foundation for the island’s future success in tourism and services as well. The decent growth in the first 15 years after apartheid in South Africa can be seen partly as the result of a pact between the new black political elite and the mostly white capitalist class.

It is easy to quibble with the idea of development bargains. There is a risk of circular logic where any country that grows very fast ought to put its success down to an elite deal of some sorts. The bargain is an easier thing to describe after the fact than to outline ahead of time. In neither Ethiopia, which has recently had a civil war, nor Rwanda, where Paul Kagame rules with an iron fist, do the elite bargains seem durable.

Yet Mr Dercon’s insight ought to be galvanising for African policymakers. It suggests that African countries need not be defined by their histories; they could be defined by their futures. And it suggests that the African politicians can do more than just copy and paste the ideas they see abroad, whether in the West or in East Asia. Yuen Yuen Ang, a Singaporean academic who wrote “How China Escaped The Poverty Trap”, an influential book that emphasises the idiosyncratic interplay between government and market forces, argues that the lesson from China for Africa is about “using what you have”. “As someone coming from a post-colonial country, I know what it’s like when great powers tell you that you have nothing. Believing in yourself is a necessary first step to transformation.”

Whether African elites are willing and able to strike such bargains is unclear. The model of divvying up rents extracted by foreign firms has worked fine for many of them in the past. For this to change, African elites either need a new mindset—or a change of incentives, making it in their self-interest to gamble on development. The bargains Mr Dercon describes have often been struck when regimes face existential threats to their legitimacy. And there is no shortage of those on the continent, whether in the form of climate change or the 15m young people entering the workforce every year, the vast majority of whom will not get a formal job. African policymakers say that keeps them up at night. Yet many seem as if they are yet to truly wake up to it. 

Hedge funds are paid to anticipate the way the world is heading. So it was notable that a few months ago Nir Bar Dea, the boss of Bridgewater, the world’s largest hedge fund, was in Abidjan, the commercial capital of Ivory Coast, to co-host a summit calling for more money for the World Bank. For Mr Bar Dea, Africa’s population explosion is one of those “long term trends that people don’t pay attention to.”

By 2030 half of all new entrants into the global workforce will be from sub-Saharan Africa. By 2050 the region’s working-age population will still be rising when it will be falling everywhere else. At that point Africa will be home to approximately 2.5bn people, or around a quarter of humanity.  And unless Africa finds a way to boost its sagging productivity, it will continue to fall further behind the rest of the world, ensuring an ever greater share of the world’s population is left behind. “People aren’t looking at the problem,” he says.Hedgies visiting Abidjan reveal that capitalists are still Africa-curious

Heavyweight hedgies visiting Abidjan reveal a couple of things. The first is that capitalists, as well as do-gooders and donors, remain Africa-curious. Jamie Dimon, the boss of JPMorgan Chase, visited Nigeria, Kenya and South Africa in 2024 to build networks that can be “a gift to the next generation” of his bank’s leadership. The International Holding Corporation, the largest firm in the uae, is eyeing African assets. So are Saudi and Qatari investment funds.

The second is that, for all the curiosity, those paid to be unsentimental can see that the current trajectory is worrying. The danger is that, rather than driving global growth, its economies will continue to struggle.

The demographic divergence could be a boon. African emigrants will be needed to do jobs in the rest of the world. They will send home remittances, which are already worth almost double the continent’s total fdi. African economies will inevitably grow as their populations swell, adding to global demand. If sub-Saharan Africa can repeat Asia’s transformation, it “will become the next major engine of global growth”, argues a research note by Bridgewater. Today, it says, the region is home to 15% of global population, accounts for just 3% of global output and provides 5% of growth. If sub-Saharan Africa were to raise its productivity growth from around 1% per year to 4% (close to India’s recent rate), by 2050 its share of world output would be 10%—and it would account for a fifth of global growth.

The risk, however, is that Africa combines high population growth with low or stagnant productivity growth—and that the Africa gap only widens. If current trends continue unchecked, this is what will happen. The Institute for Security Studies (iss), a South African think-tank, has published scenarios for the future of the continent. These “African Futures” incorporate data on a variety of factors including demography, productivity, financial flows, infrastructure and measures of human capital. Its “current path” makes for sober reading. By 2043, the year its forecasts end, median African gdp per person, adjusted for purchasing-power parity (ppp), will be about a quarter of the rest of the world’s, essentially what it is today. And Africa will still have 400m people in extreme poverty, the vast majority of the world’s destitute.

This special report has tried to explain the reasons for this disappointing path. These include the scarce use of technology in agriculture, the rise of unproductive, low-end services and the absence of a manufacturing revolution. Productivity is further hampered by small firms and small markets. Africa has perhaps just half of the investment it needs to close the gap. “Something drastic is needed to change this rather dismal forecast,” write the authors from the iss.

Yet there is a better way forward. The iss also forecasts a “combined scenario”, where it projects what would happen if African countries did most things right. These include making a quicker demographic transition, expanding education, increasing investment in infrastructure, boosting agricultural productivity and manufacturing, encouraging greater financial flows and implementing the African Continental Free Trade Area (afcfta).  Under its most optimistic scenario the iss reckons the Africa gap would begin to close over the next 20 years. By 2043, gdp per person in ppp terms would be about a third of that in the rest of the world. Just 8% of Africans would live in poverty, rather than the 17% projected on the current path.

Viewed from 2025 that continent-wide tide seems unlikely to rise. More probably the gaps already visible between African countries will widen. Last year it had nine of the 20 fastest growing economies in the world, including Ethiopia, Rwanda and Ivory Coast. “Africa is becoming a split story,” argues Charlie Robertson, author of “The Time-Travelling Economist”. The countries that have seen fertility rates fall below three, as happened in Mauritius in 1979 and Morocco in 1999, have enjoyed demographic tailwinds, he argues, as families have been able to save more money, increasing the overall pool of investment and lowering interest rates. Kenya should pass this threshold in 2029, Mr Robertson points out.

Think bigger

“You need to discriminate between the different countries on the continent,” cautions Amit Jain, who spent many years in Africa and is now at the Centre for African Studies at ntu Singapore. He points to how Morocco is developing a commercial-agriculture sector and suggests that east African countries are doing better than their peers in west Africa in educating their children and expanding access to electricity. The likes of Kenya are well located to integrate into Asian firms’ supply chains, he adds. “Countries in the region might not hit $60,000 per capita but $15,000 is possible and would be a heck of an achievement.” Pan-African rapid growth will require co-operation, though. “Africa needs to morph itself into a bigger single market, something like what India is trying to do,” argues Mr Jain. If the afcfta were fully operational, the World Bank reckons it could lift overall gdp by 7% by 2035 and take 40m people out of extreme poverty.

Everyone with a stake in Africa must think big. Countries need development bargains that allow for the emergence of large firms and productive industries. Africa as a whole must make the afcfta a reality, giving it more bargaining power at international forums. Foreign countries need to face up to the reality that their current approach to development financing is nowhere near sufficient for Africa to transform its economies and respond to climate change.

Perhaps most important, Africa needs to recover a sense of ambition. In too many African countries the default approach is what Ken Opalo of Georgetown University calls “low-ambition/muddling-through developmentalism”, a “destination anywhere” approach which follows paths defined from outside without a clear sense of the paramount goal. There is an urgent need for African policymakers and business leaders to set their own far-reaching goals for economic transformation and rally their people behind them.

The stakes are high. Africa’s demographic boom has led to the idea that the 21st is the African century. It could yet be. But a quarter of the way into it, Africa had better hurry up.

Source: The Economist

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