Ekpe: Africa needs a new development model - African Business Magazine
Ekpe: Africa needs a new development model

Ekpe: Africa needs a new development model

If it is truly to rise, Africa must rely less on foreign funding and pay its own way, explains Arnold Ekpe, Honorary President of the Business Council for Africa and Chair of Atlas Mara.  

The current externally focused model of African economic development is not working. If there any doubts about this, one only has to look at the huge numbers of African men, women and children risking their lives to cross the Mediterranean to Europe; or at the inadequate response to the Ebola crisis; or at the soaring levels of unemployment among Africa’s youth, a situation that is likely to get worse as Africa’s population continues to grow.

By continuing to be overly reliant on developed market models of economic development, Africa is behaving like the proverbial poor man who thinks that he can get rich by doing what the rich man does rather than copying what the rich man did to get rich.

The single-digit GDP growth rate of Africa over the last decade has been lauded as a transformation – almost a miracle. But lost in that narrative is the fact that Africa’s growth only looks good in relation to its abysmal past performance and against the backdrop of a recession in the developed world and a slowdown in Asian economies. Tellingly, China’s slowdown from double-digit growth to 7% is a cited a huge source for concern, whilst Africa’s 5% growth is considered excellent.

The fact is that China sustained annual growth of double digits for three decades before it started to catch up with the developed world. This is the challenge for Africa: how does it move from its modest growth of single digits to double digits?

To accelerate Africa’s growth to support its rising population and the aspirations of its citizens requires a change in mindset. The continent needs to understand that no country or continent ever developed by relying on foreign aid and funding. Foreign investment and support are important and necessary but they cannot replace domestic savings and financing. The challenge is of how to significantly increase domestic investments in industry, infrastructure and production.

One issue is that financing Africa’s transformation requires bigger banks. Small banks and microfinance institutions are useful, but they are incapable of financing the roads, power stations, factories and large commercial operations necessary for economic development. Only big banks and governments can make such investments.

African countries therefore need to encourage the creation of bigger banks, and many states have the capacity to sustain banking sectors with larger domestic banks able to finance accelerated economic development.

However, it is clear that not all countries are in the same position. This is where African banking champions and regional banks can play a role. Through their pan-African and regional networks, they can be a substitute for the absence of large local banks in those smaller countries where these are absent or not feasible.

Emergence of African champions

At the commercial and industrial level, we have to encourage the emergence of African champions such as MTN, Shoprite, Dangote Cement, Protea and others which are capable of making large, potentially transformational investments. There is no doubt that the emergence of these Africa-based champions has energised their sectors, and in many cases has been a catalyst for increased foreign investments. At the governmental level, there needs to be a Marshall Plan for financing economic transformation. An important cornerstone of such an approach is a more aggressive approach to mobilising domestic financing and savings.

This is beginning to happen with the emergence of large long-term domestic savings pools in some African countries, such as the privately managed pension schemes in Nigeria and the Public Investment Corporation in South Africa. However, many of these domestic funding pools are not sufficient or are hampered by rules and regulations, which impede their ability to invest in developmental projects.

These initiatives also need to be supplemented by other targeted measures. One such proposal, which has the potential to garner significant funding capital, could be a levy on large revenue pools such as imports, exports, natural resources and mobile telecommunication revenues. The proceeds from this would be earmarked for designated economic transformation projects.

These financing options are possible but would need to be supported by other programmes designed to make Africa a larger and more attractive market. Continuing the theme of increased self-reliance and domestic integration, this should include measures such as an African Union passport scheme (similar schemes currently operate successfully in Western and Eastern Africa) to facilitate the free movement of people, an Africa Free Trade Area for the free movement of goods and services, and an Africa Monetary Union to allow for free convertibility of African currencies.

If Africa is to accelerate its economic development and begin to catch up with the rest of the world, it needs to move away from its current model of modest, low-level economic growth and adopt a more aggressive and creative approach to financing its development.

Essentially, Africa needs a new model for economic development. 

Arnold Ekpe is the Honorary President of the Business Council for Africa and Chairman of Atlas Mara. He writes in his personal capacity


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Written by African Business Magazine

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  • musaba chailunga

    Great Article, very precise. Easy for me, may be because I am the author of Object Oriented Development in Africa. Ekpe’s points on Aid, relativity on GDP growth and mainly African champions mirror my own. Africans are ‘afraid’ of big banks and wealth creation itself. They are against the real incentive for economic growth opting to ensuring we are all equally poor. What about the poor they say.

  • Curtis Smith

    Africa needs true unification. Africa needs a true single market, single currency, the removal of borders to facilitate movements of goods, people, and ideas. Africa needs unity to pool its resources, and to provide for a common business and tax policy throughout the unified territory. Africa needs restructuring in the way it views finance. Micro finance is wonderful, particularly when it is combined with macro finance. Micro finance in the form of small business loans, and agricultural loans to small rural farms and villages is what is needed. Comprehensive farm packages which involve seedlings, irrigation, small scale local solar power generation, and small tractors and the necessary attachments, are what is needed. African imports 30 bn US in food. The elimination of that import cost will free up capital to assist in the larger developmental needs. Africa needs intercontinental highway systems, and farm to market roads that connect the rural areas to those highways, in order to allow goods to reach their market before spoilage, and to allow small farms and villages to participate in the emerging economy. Africa needs 18 wheelers with refrigeration trailers, sent out in circuitous routes, to collect the harvest from the small farms and villages within their assigned areas, to help get those goods to market in a timely manner. The fundamental structure of the African economy needs to be built upon a base of food security. Africa also needs a Marshall Plan. The emergence of Europe was a result of the Marshall Plan, and its direct injection of capital to rebuild industry, roads, infrastructure, and to put people to work. Massive public works and infrastructure projects throughout history have provided the catalyst for industrial development and economic resurgence. Examples can be found in the US when President Roosevelt initiated his public works projects, to put people to work and end the Great Depression. The result, was a country with a national highway system, which promoted the mobility of goods and services and propelled the US economy forward. New roads, railroads, bridges, ports, dams, etc… that were built under this project/program, vaulted America forward. When the Nazi’s came to power, the German Chancellor put people to work and ended hyper inflation, economic stagnation, and unemployment by initiating a massive public works program. The result of this can be seem in the Autobahn, and Germany’s resurgence in Post WWI Europe. When Chairman Mao came to power, he initiated a massive public works program which came to be known as Mao’s Great Leap Forward. Financing of a massive public works program for infrastructure development has a long successful track record, and Africa must follow this path. Public/Private partnership in resource extraction and development would provide all of the capital necessary for such an undertaking. So, in essence, what Africa must reform, is the way in which its governments participate in the resource extraction and development projects within their territories. The resources belong to the people, so the people should benefit from them. The auctioning off of oil blocks and subsequent taxation of the extracted material should not be the only revenue derived from those business venture. It should be a split, with the company managing the exploration and extraction, and downstream development and sale onto the international market, and then paying the government its share from the sale of the extracted material. The extraction deal should be viewed as a just that, an extraction and development deal, not an exchange of ownership of the resource away from the African people. Africa must step away from purely European prescriptions for development, and follow a intrinsically developed model that takes into consideration Africa’s unique set of challenges.

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