Financial, geopolitical and technological headwinds are slowing the income growth of countries across Africa. The African Union has an opportunity to take the lead in the new era of development, writes Teniola T. Tayo.
At the World Economic Forum, held in Davos in January 2024, there were a number of conversations about “the end of development.” The concept has been loosely described as a resignation that current incomes in less developed and developing countries may not change much relative to developed ones, and that there won’t be any significant closing of the gaps between these categories of countries.
The 2024 Global Risks Report released during the forum explained some of the reasons behind this somewhat despondent perspective. First is the widening technological gap between these countries due to factors such as varying levels of preparedness to deploy Artificial Intelligence-enabled technologies, meaning less advanced countries may never “catch up”. Another reason is the large and growing finance deficit for climate mitigation and adaptation, including energy transition costs in the developing world. At the centre of these issues is the assertion that job creation in the near future will be driven by the flow of investment for climate and technology related transitions, and that future investments may be more concentrated in economies that are perceived to be more stable and more technologically advanced, leading to a widening gap between these and less developed economies. Beyond international investment flows, there are other issues to consider.
There have also been challenges in the world of international development. Domestic and regional issues in donor countries ranging from wars, growing nationalistic tendencies, and economic challenges have led to cuts in aid budgets. Since 2019, development aid from the United Kingdom to the world’s most disadvantaged nations, specifically Least Developed Countries, Lower Middle-Income Countries, and Upper Middle-Income Countries, has diminished substantially, with reductions of 55 per cent, 49 per cent, and 49 per cent for each category respectively.
While there has been an increase in spending on refugees from Russia’s war in Ukraine, there are discussions about the European Union cutting up to €2 billion from its development budget and diverting them to fund migration programmes. Migration has become an increasingly controversial issue within Europe, and there is growing support for anti-migrant political movements. Germany, Europe’s largest donor in 2022 (and the world’s second largest after the United States) is also projected to slash its development budget by almost €2 billion in 2024, compared to 2023. In 2023, Canada projected a 16 per cent reduction in its aid budget by $1.3 billion. At $32 billion, the United States aid budget for 2024 represented a 10 per cent increase from 2023, but there are worries that a possible return of Donald Trump as President may reverse these measures. During his tenure Donald Trump continuously attempted to slash aid budgets, but was often met with resistance from the United States Congress.
In 2022, Chinese loans to Africa for infrastructure development were reported to be at their lowest in two decades as they fell below $1 billion. Western initiatives created in response to China’s growing role in the development finance space, including the EU’s Global Gateway and the G7’s Partnership for Global Infrastructure, announced plans to mobilise €300 billion and $600 billion respectively for infrastructure investment. However, it remains to be seen to what extent these targets will be reached, given that both initiatives also re-package existing projects.
The situation does appear to be stark, particularly for African countries that are faced with growing development finance needs. The infrastructure financing gap has been estimated at $68 – $108 billion yearly. There are predictions that the gap in climate adaptation finance will accumulate to $453 billion in the current decade if the status quo persists. It’s also been estimated that Africa needs to create half a billion jobs by 2050. A number of African governments are facing debt distress; fiscal pressures and challenges with domestic revenue mobilisation affect their ability to finance their own development.
It was against this backdrop that the African Union (AU) held its 37th Summit in February 2024. Heads of States alongside other stakeholders came together to discuss the future of the continent and the progress towards achieving its Agenda 2063, a plan for transforming into a global powerhouse in the next couple of decades. The AU’s Agenda 2063 is in direct opposition with the “end of development” rhetoric, and the question of what the future truly holds should be at the forefront of pan-African discussions around collective advancement. These times call for increased pragmatism – directly confronting the fact of declining global generosity, increasing insularity, geopolitical challenges, and a reported weakening of investment appetite. The economic sustainability of the AU itself needs to be discussed, given its historic dependence on development aid. There is also a need to figure out ways to shore up its political sustainability, drawing lessons from the current challenges facing the West African regional community. This means that its regional integration aspirations also need to be examined critically, with a clear assessment of risks and corresponding mitigation strategies. These measures can help protect flagship projects such as the African Continental Free Trade Area (AfCFTA), given that its successful implementation will be crucial for Africa’s future. The demographic expansion, the scramble for strategic minerals and the effects of climate change are all issues that will need to be faced head on, without the assumption of international support.
Following the summit, some hard questions need to be asked and answered. What would it mean if Africa was largely left to finance its own development? Where, realistically, can these resources come from? What are the things that need to be put in place that can put the continent in a better position to do this in the long term? What new strategies can be used to demand fairness in the global move towards sustainability? How can the African diaspora play a bigger role in financing its development? The rhetoric around “the end of development” is that the world may be getting ready to give up on Africa. But Africa must not give up on itself. The AU must then begin to shed redundancies and build the muscles needed to tackle the challenges head on. All available resources will need to be spent in the most efficient and effective manner possible, in view of increased scarcity in the future.
Discussions about the “end of development” typically conclude with the even more urgent need for a growth in trade and investment in developing countries. Nearshoring, friendshoring and reshoring as ways to increase the efficiency of global supply chains, reduce costs, and protect against geopolitical risks lower the prospects of further embedding African countries in global supply chains. This, coupled with growing trade restrictions linked to sustainability measures, elevate the importance of the AfCFTA. The AU was right to make it the theme for 2023, and its implementation has never been more urgent. There has been a reported growth in services trade globally, particularly for digitally-delivered services. The AfCFTA’s Trade in Services protocol already seeks to better position Africa in the production and trade of services, and this should be implemented with sights set on global markets. The AU’s theme for this year is focused on education, and this will be key for growing a workforce that is better positioned for current and future jobs.
On the investment side, the prevailing reason – or excuse – given for flows that do not match expectations is the bankability of African projects. The AU will need to sit with member states and confront this challenge directly and pragmatically, in a bid to unlock much needed finance. The shift in the development narrative from aid to investment was championed by African leaders, and it is now the time to do the work that will ensure that announced and committed investment funds are actually mobilised for African projects.
Africa can take the lead in its development. The path forward requires a concerted effort from all African nations to harness their collective strength, redefine their engagement with the world, and ensure that Africa rises on its terms, resilient and self-sufficient. TheAU should strengthen its position to prepare the continent for taking control of its future, showcasing that, contrary to the global narrative around “the end of development,” Africa is embarking on a fresh journey of growth, innovation, and autonomy.
This blog was originally published by the African Politicy Research Institute.
Photo credit: Paul Kagame used with permission CC BY-NC-ND 2.0 DEED
