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New African | Thursday, 22 November 2012 15:52

Security Is Key To Africa's Economic Rise

By Ivor Ichikowitz, chairman of Paramount Group, Africa’s biggest private defence company.

The most important single factor in boosting an emerging economy is a stable state. I believe that all things flow from this.

Capitalism is the most powerful driving force behind Africa’s economic development but businesses must be able to be run without the fear of suddenly losing all their assets in unexpected or undemocratic changes in government.

Criminals, terrorists and rebel groups further undermine economic activity across the continent and need to be effectively countered. It has been estimated, for example, that over 10% of Nigeria’s oil production is stolen between source and sale by criminal gangs, including groups who tap directly into long pipelines that are extremely vulnerable to theft in isolated areas.

Stability is crucial because the growing middle classes (up to a third of all Africans) will spend more money if they feel confident, they will feel more confident if they feel safe and this happy cycle will lift demand for countless goods and services. The boom is waiting to happen: Africans already spend more per head than Indians on goods and services.

The continent’s swelling youth, the consumers of the future, is not interested in the liberation rhetoric and anti-colonial slogans of the post-independence era. They are better educated than their parents and more exposed to the wider world, thanks to access to mobile phones and, increasingly, satellite television. I see proof of this on streets from Accra to Johannesburg every day.

Both of these factors drive demand for products which individuals might never before have dreamed of buying but they are fundamentally changing the relationship between governments and the people they govern. The old political elites are threatened by a youthful, growing middle class that has extensive aspirations and demands more of its leaders. I believe it is vital that these challenges are managed democratically and without a decent into insecurity.

Fruits of stability

The nuts and bolts of development are exponentially more difficult without stability. It is very hard to build a road when your workers are harassed by armed men, and the current emphasis of the African Union on a continent-wide programme to upgrade roads, rail, harbours and telecommunications will not be the boost it should be if instability and conflict intervene. Savers, a class of consumer many prejudiced eyes might think impossible in Africa, are keen to safeguard their futures, buoyed by the low levels of inflation brought about by peace and security. In Rwanda, a UN Capital Development Fund study found that half a million savers with an average account of just $57 added up to almost $40m in the country as a whole. 

Foreign investment in Africa is booming. China has recently extended $20bn in credit. Brazil, India and Russia have been investing heavily in sub-Saharan Africa. The next stage will be to convince private investors that no sudden, unexpected or violent shift in government will make their funds disappear overnight. Development of national, regional or pan-African stock exchanges would further boost the economy.

Tourism has huge potential to bring new revenue to dozens of African countries, whose climates, wildlife and geographies are such fascinating contrasts to the developed world of North America and Europe. The vast majority of big-spending tourists are not the types of people to enjoy taking a risk with their family’s safety, so establishing a reputation for security is vital.

The proof of the theory is in the figures. The countries where stability and democracy have been strongest are those which have grown fastest. Ghana was the fastest-growing economy in the world last year (14% GDP increase); by one measure, South African GDP now outranks that of Belgium and Sweden; Ethiopia expanded more quickly than China in the five years to 2009. Overall, Africa’s collective GDP, at $1.6 trillion in 2008, is now roughly equal to that of Brazil or Russia.

Even in ravaged countries like Mozambique, the green shoots of growth are emerging from the devastation of its long civil war as peace spreads. In the markets of the Somalian town of Ras Kamboni, among others, trade is once again beginning to flourish after African Union troops flushed out the insurgents of al-Shabaab.

African peacekeepers solving African problems that the West was unable to crack for 20 years is proof that the continent’s leaders can now deliver efficient forces, are willing to send them to foreign countries and can justify that commitment to their own people. Internal strife in their own countries would have made that very much harder.

Strife leads to stagnation

The pattern is borne out in reverse: economic stagnation has set in where strife has continued. Along the South Sudan border, disputes have slowed the ability to tap precious oil reserves; in Nigeria, despite its vast wealth, the nation’s economy continues to be dogged by insecurity and mismanagement; and in the Democratic Republic of Congo, the vast wealth of its untapped raw mineral deposits (estimated at $24 trillion – equivalent to the combined GDP of Europe and the US) will not benefit its people until conflict is over.

We at Paramount Group have had the privilege to work with many African countries to strengthen the capabilities and capacity of their defence, police and peacekeeping forces. We have witnessed first-hand the benefits on economic activity, inward investment, regional stability and long-term growth that stability can bring. Among the external factors that have driven Africa’s renewed economic growth is the Washington Consensus of the 1990s, which saw the IMF and World Bank encourage African countries to adopt programmes to boost democratic reforms, good governance and respect for human rights and the rule of law in return for debt relief and budgetary support.

It was controversial at the time, and its implementation patchy, but has led to greater stability, more regular elections, peaceful transfers of power, greater transparency, the emergence of more institutions of democracy and more competent states in many parts of the continent. It is still a work in progress, but Africans are better off as a consequence.

It might seem like one-way traffic towards a brighter future but there are various and enduring threats to Africa’s security. Growing populations create more competition for scarce resources like water and violence can ensue. Weak governments, which may be well-meaning, can be unable to exercise control of their sovereign territories, leaving a power vacuum rapidly filled by warlords, jihadists and criminal networks that can undermine entire industries. Weak governments also mean weak institutions, making corruption more difficult to resist.

Africa’s progress in recent years has seen some threats overcome, only for new ones to emerge. Overall, however, the continent has advanced and is on the verge of accelerating this process, and is now better positioned than ever before to consolidate its economic growth. There is still a long way to go and there will always be a need for peacekeeping forces to deal with conflicts as they arise. What is new is Africa’s increasing desire and ability to deal with its own conflicts rather than relying on outside help.

Paramount Group is proud to be at the forefront of providing this capacity, as well as creating an indigenous knowledge-base for innovative solutions to the continent’s challenges through its defence engineering.

Africa’s greatest asset is its unique and innovative people but people cannot thrive in fear or hunger. Innovators and entrepreneurs need to be given the space to work unmolested by battles for power and uncertain security. They need to be given a chance to operate like entrepreneurs in developed economies, who can dare to see their ideas fail where defeat does not mean them or their families going without food.

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