‘De-risking’ Africa, Davos-Style

The World Economic Forum hosted a (televised- see video below) debate asking how to ‘de-risk’ Africa. The debate, while interesting, did not at all venture beyond first-order economic improvement and political stability. This could have been an enlightening and dynamic debate on the effects of economic growth and distribution, or lack thereof, on the continent. Instead it was a list of risks which, while accurate, doesn’t venture further down the prescriptive road past “states need to do everything they can to allow the growth to continue.” Whose growth and whose benefit? Mystère et boule de gomme, as they say. This is my attempt to add another dimension to the debate.

Why is this debate one-dimensional?

The prompt for this debate was rightfully put into question by Jacob Zuma, president of South Africa, at the outset. But the subsequent conclusion drawn by the panelists was short-sighted. ‘De-risking’ Africa could imply that Africa is an inherently more risky place (from an economic standpoint- this is the WEF after all) than other continents. Zuma and two other entrepreneurs sitting on the panel with him (a panel which also included Louise Arbor, the president of the International Crisis Group, and Nigerian president Goodluck Jonathan) responded that Africa was, far from a continent of risk, one of the most promising future economic opportunities.

But most panelists took this one line about growth and the ‘rise of Africa’ as the entire response to the question. That is to say, 1) the intrinsic answer to economic risks is economic growth. 2) Africa will continue to experience good economic growth, ergo, 3) Africa has a good answer to the question of ‘risk’.

WEF Africa

World Economic Forum

In particular the discussion emphasized the ‘hard infrastructure’ needed to facilitate economic activity and the implantation of foreign companies (roads, electricity, internet). A slight mention of ‘soft infrastructure’ (laws and regulations, governance-related factors) was made by Ms. Arbor. This back and forth, while interesting, misses a more fundamental question/critique of the debate prompt: risk for who?

Risk for who?

The WEF being what it is, this debate saw company owners, investors and politicians talking at length about economic prospects in the continent. But it was significantly less clear from discussion who these prospects were supposed to benefit, and why ordinary Africans should be more interested in the bright prospects of their continent.

The panelists talked about risks to investors- foreign and domestic, emphasizing large companies as vehicles for such investment. They talked about risks to states- in governance, in managing development cooperation on a regional level. They also talked about risk to people- but only to the extent that this meant the risk to physical security: the risk of conflict.

But what about all the other risks? There have been a few other bloggers writing about how the debate was framed, mentioning especially the problem of environmental risks being almost entirely overlooked in the debate. There is also the risk to people’s livelihoods and ability to live decently, caused by the cocktail of unpredictable commodity prices and high dependence on imports for basic goods that you see in so many Africa countries. There is the risk of the rough transition from agricultural production for unready emerging economies: university graduates without jobs, shrinking agricultural sector and rapidly rising urbanization.

These risks have a social dimension that was entirely bypassed during the debate. As the gains from economic development are built upon more and more, the social welfare of Africans will become a vital factor in determining the economic soundness of societies. To reduce this problem to one of the ‘security risk caused by the youth bulge’, or to ignore it entirely in favor of a monochrome view of how foreign companies are settling in African countries to not understand the important roles that Africans are playing and will play in their economies.

Growth or de-risking? Growth is de-risking?

Incidentally it strikes me as interesting that the  almost unanimous answer from the panelists be to ‘help growth’ on the continent in order to reduce risk. This is firstly because there is always an element of risk in economic expansion. But also because certain types of economic activities can signify more risks to vulnerable populations. For example, oil exploitation in Nigeria can certainly be a motor or economic growth, but unless it addresses the severe negative environmental externalities it causes, and unless it finds more successful ways to reinvest profits in the local economy, expansion of this activity could mean expanded risk- not for those making the profits of course, but for those who bear the brunt of the side-effects.

That’s not to say that growth and de-risking are directly opposable concepts. It’s a question of finding out how to help growth serve the people of the country in sustainable ways. It is also a question of further involving the people in economic activity, and make them active participants, or ‘shareholders’ with a more direct interest in the growth their country experiences.

The missing social element

Where was then the discussion on social safety nets and social insurance? Programmes to help solidify the most vulnerable in a country through cash transfer programmes, subsidies, fee waivers and others have seen some rather publicized successes in South America. Social insurance formed one of the cornerstones of South Korea’s social policy during its middle-income period.

Assuring that the basic needs of citizens are met is one of the reasons there is a state to begin with. But social safety nets and social insurance are not simply ‘soft’ humanitarian band-aids to poverty. They can help increase schooling rates, or bolster domestic consumption. Solidified ‘African demand’ can in turn bolster trade among African countries, which in turn could also contribute to the ‘hard’ infrastructure projects the panelists mentioned. It can help create a more dependable workforce, more reliable, more educated and if trained, with more know-how.

Just as African countries cannot rely on aid as the principle mechanism to advance their development, they cannot count on simply continuing growth trends without a long and serious national conversation on how the engines of growth should be shaped to address environmental problems and problems of social welfare. It is a debate that is taking place all over the world- just not as this particular debate in Davos.

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Chris Blattman

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