The Brookings Africa Growth Initiative’s Foresight Africa 2016: Preview
The launch of Foresight Africa: Top priorities for the continent in 2016 is on the horizon. In anticipation of this year’s report, the Africa Growth Initiative team offers a preview of two of the major topics covered.
Free trade agreements and the implications for Africa
Much of the world is entering into mega-regional free trade areas (FTAs). Indeed, October 5, 2015 marked the ratification of the Trans-Pacific Partnership (TPP), the most significant trade agreement in recent years. Now, the United States is currently negotiating with the European Union toward the establishment of the Transatlantic Trade and Investment Partnership (TTIP). When combined, the TPP and the TTIP will cover 60 percent of global GDP.
But where does that leave sub-Saharan Africa, as no country in the region is party to these agreements? According to Foresight Africa issue brief author, Brookings Global Economy and Development Senior Fellow Joshua P. Meltzer, these exclusions will impede African businesses’ ability to compete on a global scale.
The TPP and sub-Saharan Africa
The 12 TPP countries, which represent 40 percent of global GDP, 25 percent of global exports, and 30 percent of global imports, clearly are set to dominate global trade in upcoming years and likely to move much trade away from Africa – trade that was not very large in the first place. For example, the value in U.S. dollars of exports from the United States to other TPP countries is 29 times the value of U.S. exports towards all of sub-Saharan Africa.
Sub-Saharan Africa will fall behind for many reasons. First, the preferential access offered through the TPP will lead to relatively higher tariffs for trade with Africa. A second reason is, as Meltzer argues in his brief, new, tougher labor, environment, and health and safety standards enshrined in the TPP will become de facto global standards, and African businesses may struggle to meet them. African trade may also suffer because of its growing dependence on the services sector and new rules around global supply chains, on which Meltzer elaborates in Foresight Africa this year.
These changes will happen despite the fact that the African Growth and Opportunity Act (AGOA) was reauthorized in 2015 and extended to 2025. Yes, AGOA is the cornerstone of the U.S.-African trade relationship, but in this evolving trade environment and the so-far “underutilization” of AGOA, sub-Saharan African will still fall behind. In fact, Foresight Africa viewpoint contributor Africa Growth Initiative Nonresident Fellow Witney Schneidman describes the legislation as an “underutilized resource,” as the legislation provides duty-free access to many manufactured goods – notably textiles.
Indeed, this underutilization also hurts manufacturing jobs, the percentage of which lies around 6 percent, a figure that has remained unchanged in decades. Without country-led efforts to create AGOA strategies, beneficiary countries won’t be able to truly capitalize on the advantages the legislation offers.
Urbanization in the African context
Historically, urbanization was a sign of economic prosperity. As a country underwent structural transformation, and its economy shifted from agriculture to manufacturing and industry, the composition of the population of the country shifted from being predominantly rural to predominantly urban. However, urbanization in the African context displays different characteristics from the ones witnessed in Asia and Latin America. Rather, African cities are seeing fast growth, engendering the emergence of megacities, without the structural transformation urbanization has been compiled with in the Asian and Latin American context.
Fast urbanization, slow structural transformation
As chapter three of this year’s Foresight Africa shows, with an average annual rate of 1.4 percent between 2010-2015, Africa is the second-fastest urbanizing continent, second only to Asia. Despite the substantial urban growth experienced in the last decade, however, Africa is and will remain the least urbanized region: By 2050, Africa’s urban population will only represent 55 percent of the country’s total population, compared to 64 percent and 86 percent in Asia and Latin America, respectively. While fast and uncontrolled urbanization presents several challenges – such as housing informality, poor sanitation, crime – a low urban population can impede economic prosperity.
As our viewpoint authors, Brookings Metropolitan Policy research associate, Joseph Parilla, and senior fellow and deputy director, Alan Berube, note, “There are no wealthy countries that are not urbanized, but there are plenty of urbanized countries that are not wealthy.” In other words, urbanization is a necessary, but not sufficient, condition for economic prosperity. African countries must now strive to capitalize on urbanization and strive to become high-income urbanized nations.
The growth of the African megacity and the importance of financing urban infrastructure
Shown below are nine of the 10 biggest cities in Africa (Abidjan not shown). Right now, three of them – Lagos, Cairo, and Kinshasa can be considered “megacities,” in that they have 10 million people or more. Within the next few decades, many other sub-Saharan and North African cities – for example, Johannesburg, Nairobi, Dar-es-Salaam, Khartoum, Casablanca, and others – will reach that 10 million person threshold. Unsurprisingly, then, the total number of individuals living in Africa’s urban areas is expected to rise from 400 million in 2010 to 1.26 billion in 2050.
This growth demonstrates a great need for better urban management and institution building, especially because over 60 percent of African urban residents live in slums. Thus, if managed properly, the megacity can engender several economic opportunities as cities offer economies of scale, which can be conducive to sustainable economic prosperity and improved human development.
Still, “urban management and planning” should not be confined to megacities, says Jérôme Chenal, senior scientist at the Urban and Regional Planning Community at Ecole Polytechnique de Lausanne, in his Foresight issue brief. Chenal stresses the importance of managing intermediate cities, i.e., cities where population lies below 10 million people, as urban growth in said cities is most pronounced.
In that light, viewpoint author and mayor of the city of Dakar, Senegal, Khalifa Sall, stresses the importance of municipal finance for urban development for his citizens and all African cities. In fact, the city of Dakar – population lies between 3 million and 5 million people – is presently working towards establishing the region’s first municipal bond in order to fund urban infrastructure projects.