Africa could be the largest source of global economic growth over the next half a century, but during the same period, the continent could also trigger the next great European war.
Goldman Sachs projects that Africa’s GDP would grow from roughly US$3 trillion today to US$44 trillion in 2075, with its share of global GDP rising from 3 percent to 11 percent. This increase would make the continent one of the world’s main growth engines, surpassed only by India, which is predicted to add US$46 trillion in GDP over the same period. To put this in perspective, between 2030 and 2075, Goldman Sachs’ model predicts that Chinese GDP would rise by US$8.5 trillion less, and the US’ GDP by US$16.5 trillion less.
In fact, by 2075, Nigeria is forecast to become the world’s fifth-largest economy, with a GDP of US$13 trillion, and Egypt the seventh-largest, with a GDP of more than US$10 trillion. Meanwhile, Ethiopia is expected to rank 17th and South Africa about 25th with GDPs of more than US$6 trillion and US$3 trillion respectively.
Illustration: Mountain People
At the same time, Africa’s population is set to rise from 1.4 billion today to 3.3 billion in 2075, accounting for 32 percent of the world’s population, up from 18 percent today, according to the UN World Population Prospects report in 2022.
Two conclusions can be drawn from all this. First, by 2075, nearly one-third of the world’s population would have to share 11 percent of global GDP. While this represents an improvement on the current situation, it implies that African nations would still struggle to feed, clothe and provide income to all their inhabitants, likely triggering an explosion of migration to Europe. Second, a small section of African society would benefit disproportionately from this period of wealth creation, while large segments of the population would most likely remain in poverty, implying a rise in inequality and an increasing risk of social unrest.
Africa’s demographic dividend represents an immense opportunity for investors, especially in the technology, consumer, clean-energy, agriculture, infrastructure and financial technology industries, but the risk of a humanitarian disaster grows with each passing day, as more people contend with poverty, joblessness and violent conflict.
The continent is a ticking time bomb. Global post-COVID-19 pandemic economic conditions, including the rising cost of capital, surging inflation and interest-rate hikes, have hit African nations hard, closing capital markets to most African issuers. The defaults of Zambia, Ghana and, most recently, Ethiopia are warning signs of a sovereign-debt crisis, offset only by the Ivory Coast’s successful bond issue last month and Kenya’s, albeit expensive, bond issue. Equally worrying are spiking yields and the wall of debt coming due in nations such as Kenya and Angola. As a result, these countries have been forced to cut public spending to the bone and raise taxes, worsening social and business conditions.
Moreover, exchange-rate fluctuations, which contributed to the dramatic collapse of Nigeria’s naira, have tightened financial conditions, reduced the supply of US dollars, and made it difficult for corporates to service foreign-currency debts and repatriate their US dollar revenues. As humanitarian and sovereign-debt crises build, and business conditions deteriorate, multiparty democracy on the continent has begun to break down, reflected in a string of military coups in west and central Africa.
The current situation has already fueled a sharp rise in migration. The UN High Commissioner for Refugees in September last year reported that more than 2,500 people had died or gone missing while trying to cross the Mediterranean to Europe in the first nine months of last year, with many more perishing before they reached the coast. During that same period, 130,000 migrants, many departing from Tunisia or Libya, landed in Italy.
These numbers are set to increase sharply if Africa’s population growth is not coupled with improving economic conditions. Worryingly, the IMF’s forecasts suggest GDP growth of about 4 percent in Sub-Saharan Africa for the next two years — well below long-term trends. The current influx of mass migration to European nations such as Italy, Spain and Greece might be only the beginning.
The impact of African migration on European nations’ domestic politics can already be seen in the increasing popularity of right-wing, anti-immigration parties across the continent. The political tremors that massive African migration would trigger throughout Europe in the coming decades could even lead to the rise of fascism. To avert this nightmare scenario, policymakers must act now.
Sending asylum seekers back to the continent — as envisioned by the UK’s controversial deportation deal with Rwanda — would not stop migration (and, importantly, does not comply with human rights standards). The only answer is to fix the structural problems that plague Africa. That means supporting various homegrown African initiatives, including the Africa Continental Free Trade Agreement, innovative infrastructure-financing tools, and peace and security missions.
The international community should consider implementing a comprehensive Marshall Plan for Africa, led by the G20. By mobilizing large-scale financing, boosting trade, investing in capacity-building initiatives, and providing military and security support, the G20 could collaborate with the African Union and leading African nations to accelerate economic growth, promote human development and ensure social stability on the continent.
For such a plan to work, the US, European nations and China must come together to design, negotiate and implement this initiative. A joint effort is needed to deliver structural transformation, as the best intentions of individual nations would not be enough to tackle Africa’s economic, social and political problems. Failing that, the continent’s problems would eventually ignite a global conflagration that burns brightest in Europe.
A G20-led Marshall Plan for Africa could help produce sustainable solutions to the continent’s biggest challenges. When combined with homegrown initiatives and the nearly US$1 trillion annual GDP growth that Goldman Sachs forecasts, it could provide the incentive required to mobilize the massive private-sector investment the continent needs.
Colin Coleman, a former partner at Goldman Sachs, is an adjunct professor at Columbia Business School.
Copyright: Project Syndicate
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