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Most African countries will be middle income by 2040

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Most African countries will be middle income by 2040

Interview with Carlos Lopes, executive secretary, Economic Commission for Africa
Africa Renewal
From Africa Renewal: 

It’s been a year since Carlos Lopes was appointed UN under-secretary-general and executive secretary of the Economic Commission for Africa (ECA), based in Addis Ababa, Ethiopia. As the head of ECA, he is in charge of promoting the economic and social development of Africa and fostering regional integration. In an interview with Africa Renewal’s Kingsley Ighobor, Mr. Lopes shared his thoughts on Africa’s current economic situation and his hopes for the future. The following are excerpts from the interview.

Africa Renewal: The 2013 Economic Report on Africa appears to mirror the 2012 report. What has changed over the past year?

Carlos Lopes: Not necessarily on the economy, but in terms of the mentality and the priorities, there is a sea change taking place. We are working with the African Development Bank and the African Union Commission on something called Vision 2063—50 years from now. We got African ministers of finance to approve the idea of transforming African economies and shift from agriculture into industrial and service sectors. This has to be done now for three reasons. First, it’s because you do your big transformation when you are on a growth path, not when you are in recession. Second, you transform when you actually have an increasing urban population, which is what is happening now in Africa. And third, you do it when there is a good macroeconomic environment, which we do have. Our reserves are now at an all-time high—half a trillion dollars. We have inflation around 7% on average. We have managed to get the regulatory system right, particularly on the financial sector. Budget deficits are under control. We are saying that industrialization is the key driver of this transformation.

At the macroeconomic level, a lot of progress has been made. But there is still joblessness.

First of all, what is the value of labour statistics in Africa? The definition of employment as applied in other regions has very little currency in understanding the current reality in Africa. Right now we have a major statistical problem on the continent. So you are talking about not knowing, apart from guessing games, the real characteristics of the composition of GDP in African countries. Demographics—same problems. You have only about 12 African countries that have done a census in the last 10 years. The quality of methodological development in terms of checking the trends in census has not been followed in many countries, even those with the means to do so. For example, Nigeria is now revising its base years for national accounting.

Is that a reasonable thing to do in Nigeria? It seems like statistical manipulation—an arbitrary upward GDP revision.

We will come to that, let me address jobs. One of the areas where we have a weakness is precisely employment and labour statistics. We don’t know exactly how many people are really employed. If you take the statistics of South Africa you can be almost sure they are on the mark because they have more sophisticated machinery. For the rest, we have a guessing game. So to say it’s a jobless growth or a growth that is losing a lot of jobs—both are wild guesses. What we know for sure is that the population is increasing too fast and there is no historical precedent in the world where you have this kind of curve. This means we have to create 10 million jobs a year. 

Most investments in Africa are in the extractive sector, which does not produce many jobs. Is it not possible we are experiencing a jobless growth?

Jobless growth? I don’t believe it! I think we are not creating as many jobs as required by the economy, but it’s not a jobless growth. Right now there are people that are occupied, not employed, and we don’t know the dynamics of the situation because we have not adapted labour statistics to capture the types of activities that typically an urban young African has. People are occupied but don’t have jobs. We don’t have a way of capturing these types of activities because it’s informal. Labour statistics are very scanty and static; they were designed for a reality that is not the African reality.

Is there therefore a need to have special parameters for measuring labour statistics in Africa?

We need to do that. This is something that ECA is definitely going to do. There is a tremendous poverty of numbers. One of the contributions ECA has to make is to address gaps of information that capture the exact economic activities taking place in Africa and give a better picture that allows planners to do their job. And that starts with statistics. 

Your report calls for value addition to Africa’s commodities. This should be a commonsense approach. 

The conventional wisdom is that when you have a commodity boom you also have a commodity curse, and therefore it is very rare for commodity-rich countries to move into industrialization. But historical facts demonstrate the opposite. A number of regions in the world, including this country [the United States], have developed their industries on the basis of commodities. So we have to be much more sophisticated in the way we deal with commodity-based industrialization than in the past. First step, you assess what has happened; we have nine case studies [in the ECA report]. We look into what happened and then try to understand the mistakes made and the positives as well. Second, we say this is not just about regulation, but regulation plays a very important role, including sophisticated protectionism. 

What is sophisticated protectionism?

Protection is not a bad word. But we should do it with sophistication, which means you have to have the right balance. Then we come to regional integration. You are not going to industrialize if each country tries to survive on its own little thing. For example, Togo wants to survive on toothpaste produced in Togo and Benin wants to produce its own. Some markets are big enough—certainly Nigeria. But the majority of the countries would not be in a position to take advantage of industrialization if they don’t integrate regionally. We have been talking about regional integration for 50 years. Is it happening? Well, there has been progress but that progress is timid.

Sophisticated protectionism sounds like regulation. The World Trade Organization is likely to oppose that.

But we are talking about the African agenda. The WTO is a negotiating platform.

The African economy is integrated in the world’s economy. 

Integrated to a point. What you need is to make the case for an Africa agenda.

Can that case be successfully made? 

Well, the EPA [Economic Partnership Agreements] discussion is still ongoing—so why not? There is no country in the world that has industrialized without sophisticated protectionism.

What about the argument that formulating new policies to regulate trade is anti–free market?

It’s not a matter of choosing between state and market as if these were two opposites. That discussion is over. Everybody agrees now that there is a role for the state and there is a role for the market. There are regulations that are necessary. This country [the US], Europe, Japan have done it. The moment they get in crisis, what do they do? They intervene in the banks and so on. So that discussion is over.

What about subsidies for farmers in the West, which tend to affect African farmers who cannot compete on the international market? 

Africa will continue to fight. Maybe they will never succeed in that fight. They should not put their eggs into that basket too much.

Why not?

Because Africa has many other opportunities. It doesn’t need to focus on the export of soft commodities as its primary goal.

Are you suggesting that Africa can downplay commodities like cocoa, cotton and others and concentrate on other opportunities?

Yes. First, there are commodities that Africa, because of its monopoly position, should be able to get better deals from, like cocoa. Second, it’s a lost battle because Europe will not give up. And third, the future of Africa is not in soft commodities; the future of Africa is in industrialization. Yes, we need to produce agricultural products big-time—but for Africa.

But can you separate industrialization from a focus on soft commodities?

No, I don’t separate the two. If we are saying industrialization in Africa is necessary, it will be commodity-based. That includes soft commodities, but a few, not many. Like cocoa and cotton. You can even think of sugar. There is a market for it. But for the rest, the agricultural production of Africa should turn into Africa consumption. I hate to use the term world food security because it carries a lot of baggage. It immediately connotes we are taking care of people affected by drought. It’s much more than that. It’s about creating a market for consumption of agricultural products in Africa. 

Back to integration. It appears that there is more activity at the regional level than at the continental level.

Well, African Free TradeZoneinitiative says it very clearly that the future will be through regional blocs, the regional economic communities. The problem we are facing right now is that the regional economic communities are in different speeds. From the most exciting East African Community to the Maghreb Union, you have very different dynamics going on. What investors would like to know is that whatever I invest in Country A is going to have the possibility of flowing in whatever direction it flows. They will say, OK, this is a key port, a key city, a key industrial hub, a key IT innovation centre—that is very powerful. And if you sell it as part of an Africa-wide approach, that’s very attractive.

There appears to be a lot of emphasis on foreign direct investment in Africa. But intra-Africa trade is only about 12% and…

Well, again, 12% measured how? Which statistics?

That’s coming from your institution.

The majority of the intra-Africa trade is informal. Everybody knows that. You just go to any important border crossing. See what is going on there and you know that 80% of the transactions are informal. This is the border post, and what about those that don’t even go through the border post?

So you believe that intra-Africa trade is more than 12%?

I think it’s officially 12%. But this has to be qualified with two footnotes: firstly, it doesn’t include the informal transactions, and secondly, the statistics are old. This is the reality. But there is no doubt whatsoever that it’s way below what it should be.

The Continental Free Trade Area by 2017—is that expected to help intra-Africa trade?

It’s a political tag. For me it expresses ambition. In these days, any expression of ambition on the part of African leaders has to be taken as a good sign of self-confidence. But technically, it’s very difficult.

Currently, China is Africa’s biggest trading partner. Many believe the Chinese are taking more than they are investing.

The African Union has taken a decision. They have put a brake on new partnerships and called for a review of the existing partnerships. When I talk about China’s relations, I like to throw one number which tells the story: the totality of Chinese investment in Africa is 5% of Chinese investment in the world.

That’s quite small.

It’s very small; but we make a big fuss of it. If you compare the last 10 years—the increase in Chinese investments in Africa with Chinese investments in Latin America, Asia, Europe, even in the US—which one comes last? Africa. So we need to stop the easygoing bashing. The Chinese economy is occupying a much different size in the world economy and Africa is part of that trend.

Since your appointment last year as ECA executive secretary you have started to implement reforms. What’s your goal?

I would put it in simple terms. We are not going to make a difference if we don’t really become specialized on the knowledge of Africa’s economic activities. That means huge emphasis on statistics; that means being able to produce best country profiles in the world on the African economies; that means being aware of impact. This leads to specialization. Different parts of ECA are becoming specialized.

How do the statistics you generate impact individual country economies?

Huge. Because you can’t do planning, which is a priority for Africa in general, without good statistics. We are saying statistics can improve in Africa. We are pulling all UN agencies that have statistical responsibilities into a big Africa initiative of UN support for African statistics. But in order for us to do that, we have to be seen as the real leader on statistics. Therefore we have to have the capacity that is beyond dispute.

Finally, what is your vision for the African economy?

I have no doubt that Africa will emerge. If we use that expression emerging economies, Africa will be a strong, emerging economy. I have no doubt that by the year 2040 most African countries will be middle income and we will have the largest work force of any continent, and the youngest.