27 April 2017

The West can’t afford to turn its back on Africa

By J. Andrew Spindler & John L. Walker

As the Trump Administration advances past its first 100 days in office, its foreign policy team, as well as their counterparts in other Western capitals, would be well-advised to consider some important global demographic trends. If overlooked, these trends will become a threat to global stability.

While population growth rates are slowing, if not declining in the United States and across much of Europe and East Asia, the opposite is true across the developing world, where there is a bulge in youth populations that is expected to grow for decades. This trend is especially striking in Africa, particularly Sub-Saharan Africa, where half of the population is 25 or younger.

As mortality rates in the African Sub-Continent drop, the population is expected to swell from about 1 billion at present to 2.4 billion by 2050. There are currently roughly 300 million  15-24 year olds in the region, and this figure is projected to nearly double to 560 million by 2050. Education levels are rising, with more and more Sub-Saharan Africans finishing secondary school. But there aren’t enough jobs waiting for them when they graduate. Youth unemployment exceeds 40 per cent in many Sub-Saharan countries.

In the Middle East and North Africa, the picture is largely the same. According to the OECD, youth unemployment there is the highest of any region in the world, exceeding 50 per cent in some countries. Egypt is a case in point; a recent Brookings Institution study concluded that if the Egyptian government does not deal with the problem of youth unemployment soon, it will likely face instability, and perhaps another uprising, in the years to come. The World Bank has estimated that over 50 million new jobs need to be created in the MENA region in the next decade to ensure political and social equilibrium.

Youth disaffection is growing in many African countries, and there are significant implications not only for their own social stability, but for Western countries too. Across Sub-Saharan Africa, governments are perceived as too big, too slow and too corrupt. And banks are correctly perceived as not lending to support economic growth or prosperity.

With key American and European security and economic interests at stake in Africa, the new Administration cannot afford to ignore this vast continent. Africa poses both a challenge and an opportunity for the US Administration and other Western governments.

The challenge is to help ease demographic and economic pressures before they produce consequences that will destabilise the world order and negatively impact the United States and many of its allies. The negative consequences would include, but not be limited to, national security risks and even greater migratory flows than those already occurring from Sub-Saharan Africa to Europe.

The opportunity lies in the long-term economic development of Africa as a marketplace for Western companies and a destination for Western investors. China has actively engaged with African governments and economies. There is a “global game” being played out in Africa and the West must decide what part it is going to play.

What would it take to stimulate job creation and robust inclusive growth in, for example, Kenya, a country whose population is projected to increase by 138 per cent between 2010 and 2050? Or in Morocco, Tanzania or Egypt?

While no two economies are identical, the core ingredients needed for greater prosperity are universal. Developing effective financial infrastructure, including competent bank and financial market supervision, is critical in order to maintain the confidence of a local population as well as investors and economic counterparts, both domestic and international.

An equally essential ingredient is promoting access by small- and medium-sized enterprises to finance in all its forms, from bank loans to newer, innovative approaches such as crowd funding that hold particular promise for Africa. Across Africa and the Middle East, SMEs are the most viable creators of large numbers of sustainable jobs. Yet the SME growth in these regions is either stagnating or falling far short of its full potential. A key reason is their lack of access to capital, combined with insufficiently business-friendly environments.

Related to all of these challenges is the need to combat corruption. Corruption is endemic in developing countries. Unless it is dealt with, it undermines confidence in a country’s economy. Corruption may well be the most serious problem confronting the world today. But if we wait for a world without corruption to work to address the ever-growing need for job creation in the emerging economies, we risk an explosion in these parts of the world that will only add serious stress to the global order.

There have been reports that the Trump Administration may shift away from providing foreign assistance to Africa, and potentially from assisting other regions of the developing world as well. According to The New York Times, a four-page list of Africa-related questions that the Trump transition team sent to the US State Department indicated overall scepticism about the value of foreign aid, and included such questions as, “With so much corruption in Africa, how much of our funding is stolen? Why should we spend these funds on Africa when we are suffering here in the US?”

Of course we must make concerted efforts to prevent our taxpayer-funded assistance from being “stolen”. But turning our backs on Africa would be a short-sighted course to take at this critical time. Instead, increased attention should be focused on helping these countries create jobs, and this requires building innovative, transparent, market-based financial sectors that are committed to supporting entrepreneurship and SME growth.

The perilous alternative is a youth unemployment volcano that could erupt in Sub-Saharan Africa and the MENA region, with potentially dire consequences for world stability and global migration. It is in the vital interests of the United States and its closest allies to take a leading role in averting this outcome, and to act now.

J. Andrew Spindler is President and CEO of the Financial Services Volunteer Corps (FSVC), a not-for-profit organisation that helps build financial systems in emerging market countries. John L. Walker is a Director of FSVC