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The Devil In The Detail

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The sharpest minds in world business are in Africa to take stock of the last quarter of a century and help unravel the great knot of economic problems of the continent. The future of our grandchildren depends upon it.

At the heart of the issue is how the continent is going to get Africa’s fast growing working population to work. The World Economic Forum estimates that working population will double to one billion strong – that’s more than three times the population of the United States – by 2040.

Many of these young workers will be young, restless and savvy; they will be plugged into social media and will know what they are missing out on. Few in Africa will need a reminder that the devil makes work for idle hands; those who remember the death and violence of the Arab Spring in North Africa or the xenophobia in South Africa.

The only way to mop up this growing lake of unemployment is through economic growth. Regional growth in Africa has remained steady at around 5% – at a time when most of the world has struggled with poor growth.

But double-digit growth is needed now to help draw the young, bright and talented into the workforce. Given Africa’s fight for foreign investment, with the rest of the world’s emerging economies, this growth rate, is likely to prove a mountain to climb.

“Even the world’s fastest growing economies are struggling to grow at 7.5%, so the chances of double digit growth for Africa are almost zero. I think the continent is more likely to be looking at 4.5% to 5%,” says George Glynos, an economist with ETM Analytics in Johannesburg.

For growth to happen, infrastructure is needed in Africa like a drink in the desert. Broadband, rails, roads and ports; a list that trips off the tongue, but the reality is more complicated.

In May 2013, all of us in Cape Town for WEF Africa heard how the World Bank estimated Africa needs $93 billion a year worth of infrastructure. Even at the time, most people in Cape Town thought this figure was a drop in the ocean and they were probably right.

Raising that kind of money may prove difficult with a shallow investment pool and institutions short of money. The Development Bank of Southern Africa admitted in Cape Town that it could only hope to raise 5% of the infrastructure bill, even though it predicted the BRICS nations would invest $50-75 billion over the next decade.

Furthermore, African states have to compete with nations around the world, who are also suffering from crumbling infrastructure, for investors. The exception may be the Chinese who are prepared to pour money into African infrastructure in return for resources and business.

The three magic letters to bring in the necessary billions, according to the experts, are PPP. In English, that is Public-Private Partnership, marrying investor’s money with state coffers to build the infrastructure that economies need. It sounds easier than it is. Many have the romantic idea that governments can sit down with private business, shake hands and agree. Not so. Governments and private business tend to work at different speeds. Governments in Africa can take many months to pay bills and their approach to business can differ.

“Private enterprise always needs to make sure the financing is sound before going into a project with government. If you look at the attempt in South Africa to boost the electricity grid by using PPPs it has proved difficult because the pricing is low. With all the will in the world, nothing will happen until you get the pricing right,” says Glynos.

Most agree that the governments of Africa have to work harder.

First, transparency in processes enables swifter decisions and execution; second, shared value and clear understanding of incentives across the value chain drives buy-in; and third, building a culture of trust between stakeholders is paramount, enabling bottle-necks to be addressed as they arise,” says Euvin Naidoo, a South African banker and strategist who is a WEF Global Young Leader.

Power, or the lack of it, is likely to be one of the big issues at WEF. South Africa, the largest power generator, has been struggling through the winter because of maintenance and breakdowns.

Linda Olagunju, the CEO of DLO Energy Resources who will be a speaker at WEF, believes it is time to integrate Africa’s power business by region.

“It is time for us to stop thinking about what each country is doing individually and start thinking of the progress of investment in power as a region,” she says.

Olagunju believes this could be helped by a legal framework for each region to ease cross-border power transactions and set up uniform bidding processes to help attract private money. She also believes renewable energy should be encouraged.

One of the big issues to be discussed at WEF Africa, is the pledge that the continent’s regions would agree to integrate infrastructure by region. That is, one country has the best airport; while its neighbors have good ports and roads so, between them, they can move trade through. This makes sense but it could be fraught with conflict as each country, naturally, wishes to have the best of everything. At WEF Africa 2013, leaders agreed to negotiate; this year’s gathering will hear back from them, I am sure many people can’t wait.

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