Why Has Africa Fallen the Rest of the World’s Economy?

Despite the numerous challenges that Africa has been facing in recent years, it is still one of the largest economies in the world. However, many experts have started to question the current state of the African economy and are asking what can be done to improve it.

Unavailability of electricity in Africa

Hundreds of millions of people in Africa are still without access to electricity. This phenomenon is known as energy poverty. To overcome this, the International Energy Agency estimates that the world’s clean energy investment needs to increase sevenfold over the next decade. By 2030, the UN’s Sustainable Development Goals (SDGs) want everyone to have access to electricity.

Sub-Saharan Africa (SSA) is home to nearly three-quarters of the world’s 760 million people without access to electricity. Its power sector is underdeveloped in all aspects. This includes overall consumption, installation capacity, and energy supply.

In the last two decades, SSA has seen positive trends in electrification. The region’s power generation capacity is estimated to reach only 32 gigawatts by 2030. This leaves more than 100 million urban Africans without power. Sometimes, their only option is to connect to an illegal source.

Over the last two decades, the electrification rate in sub-Saharan Africa has been increasing rapidly. This is primarily attributed to ambitious policy targets in a handful of countries. In Nigeria, the largest economy, the electrification rate is 54%. Despite these improvements, Nigeria’s energy sector remains underdeveloped. This situation has created a significant economic challenge.

Electrification in SSA has the potential to produce positive outcomes, including increased labor demand and improved gender equity. However, the extent of these effects may vary by country and region. 

There are four channels through which positive externalities can arise from electrification: extending operating hours, reducing time poverty, changing social norms, and expanding opportunities for women.

Several countries in SSA are taking action to address these challenges. In Nigeria, the government’s Solar Power Naija initiative aims to bring power to 25 million people by 2023. It’s National Energy Policy is gender-sensitive, calling attention to specific energy needs related to household tasks.

In Africa, energy poverty transcends rural-urban divides. Moreover, many urban dwellers cannot benefit from electricity due to frequent outages. 

This situation creates a unique challenge for expanding electricity access in Africa. Bringing electricity to the urban poor will be essential for universal access.

COVID-19 pandemic

Despite its slow start, the COVID-19 pandemic is going to a giddy end. While there are no official numbers, estimates place the number at about two and a half million patients in the US. The largest population is in the South, where half the patients are located. 

Fortunately, the medical community has the resources and the inclination to get it together. The US has many medical centers dedicated to COVID treatment, many of which are amongst the best in the world.

COVID is a complex disease that is highly contagious and carries a high risk of transmission to humans. This is exacerbated because the disease is more common in the United States than in other developed countries. 

The disease pandemic has been on the rise for over a decade and has been present in at least one country, the United Kingdom, since at least the 1990s. This is a significant concern for policymakers in the United States and other developed countries. In the US, the best approach to coping with the pandemic is to focus on treatment and prevention. 

Implementing a centralized system for collecting, analyzing, and reporting data about COVID cases—including tracking cases from the onset of the disease—is the most excellent strategy for lowering the number of cases. The federal government has several programs to help combat the disease, including a new center for COVID research at the National Institute of Health. 

These centers have the resources to help develop new treatments and therapies. While the US is the only country with COVID treatment in its health system, there is no shortage of organizations in other countries with similar problems. In short, COVID has become a global disease. The US is no longer the world’s leading COVID disease carrier.

Lack of bold economic policies

During the second quarter of 2020, South Africa’s real GDP dropped 17.1 percent from the previous year. Meanwhile, Nigeria’s economy declined by 6.1 percent, and Angola saw a 1.8 percent contraction. 

These trends point to the fact that Africa is facing a deep economic crisis. Moreover, COVID-19, a global pandemic, has thrown the region’s economy into a tailspin.

Despite these dire developments, the global community has a role in helping African policymakers reimagine a sustainable growth path. This can be accomplished by introducing innovative financing tools to achieve Sustainable Development Goals.

A key element in this initiative is establishing a Liquidity and Sustainability Facility, which lowers borrowing costs for governments and helps them meet short-term debt obligations. Some countries have already implemented such measures.

Several countries have also started long-needed energy and telecommunications reforms. The latest data indicates that 25 percent of African firms are accelerating their use of digital technology. This can translate into increased revenue and cost savings.

In addition, emerging opportunities in digitization and data analytics have made revenue collection more efficient. Moreover, policymakers should be taking steps to reduce fraud and fraud-related costs. In other words, they should use the latest technologies to ensure that their budgets are allocated to the highest-priority areas.

Another measure is the creation of green jobs. This can be done by introducing renewable energy, building green infrastructure, and establishing green industrial parks. It may not be the most obvious choice, but these steps are crucial in the face of rising energy costs and increasing pollution.

The best way to implement the measures above is through a sector-wide approach. Countries should designate strategic sectors and support them with support packages. These packages could include short-term loans, payroll support, and debt-to-equity swaps.

Finally, there is a need to improve health-system resources. As Africa’s population grows, more people will need access to quality healthcare. 

Policymakers should consider establishing a massive public works program to ensure people get the care they need. This could include a focus on supportive social welfare functions.

Capital flights from sub-Saharan countries

During the 1970s and 1980s, the net outflow of capital from sub-Saharan Africa exceeded US$600 billion. This has become a global concern. Sub-Saharan African countries must improve their living standards and strengthen their economic development processes. They require international assistance in controlling their external debt.

The World Bank estimates that the debt of low- and middle-income countries in Sub-Saharan Africa is at an all-time high. This is considered to be unsustainable.

Several African countries are following sound macroeconomic policies. These policies include lower fiscal deficits and appropriately valued exchange rates. This would reduce the reliance on foreign savings and improve their investment environment. This is essential if African countries are to combat capital flight. 

The United States, as part of the FACT Coalition, is looking forward to working with its allies in Africa to combat the problem.

Several factors contribute to capital flight from Africa. One important factor is tax evasion. This shifts the tax burden from capital to labor. This decreases the cost ratio of factors of production and affects equality.

Another critical factor is corruption. These factors are usually disguised among legitimate commercial transactions. For example, Anglo-Americans extract profits from South Africa’s gold mines. Other factors include the failure to maintain a sufficiently transparent financial system. These factors create a criminogenic environment.

The most recent report of the UN Economic Commission for Africa (UNECA) High-Level Panel on Illicit Financial Flows from Africa calls for global efforts. The report was a comprehensive review of the problem and its solutions. 

The Mbeki report recommended a global effort to stop the flow of illicit financial flows from Africa.

This includes a focus on financial crime-fighting units. These units need sufficient resources to ensure that they can implement critical new laws. 

The United States can play a significant role by establishing a Financial Crimes Enforcement Network. The Biden administration has pledged to close loopholes in the fight against kleptocracy.

Another important factor contributing to capital flight from Africa is trade mispricing. Trade mispricing is the under-invoicing of trade transactions. For example, a trade transaction might be valued at US$10 billion in a country with a GDP of US$100 billion, but the actual value of the exports is less than US$10 billion.