[Anita Erskine] You're very welcome to an important conversation. My name is Anita Erskine. Of course, the sixth edition of Africa's Pulse is just coming out. As you know, Africa's Pulse is, I would say, managed at the helm of the Office of the Chief Economist at the World Bank, but I tell you why this publication is so essential, because it is a snapshot of African economies. And today, at the launch of this edition, I have three outstanding individuals who are going to be talking about the information that you'll in Africa's Pulse in this edition, but also looking at the trends. We're talking about growth, we're talking about inequalities, and ultimately, we're talking about the transformative policies that could bring each and every one of us, Africans, onto an equal playing field. You're very welcome to the conversation. Ladies and gentlemen, allow me to welcome Andrew Dabalen, who is a Chief Economist for the Africa region of the World Bank. Andrew, you're very welcome. Also joining us is the Africa Director at Oxfam, Fati N'Zi-Hassane. Fati, you're also very welcome. Last, definitely not the least, we have joining us, Léonce Ndikumana, who is a Distinguished Professor and Director of the African Development Policy Program at the Political Economy Research Institution, otherwise known as PERI, at the University of Massachusetts. Lady and gentlemen, you are very welcome to this 45, maybe one hour conversation about the state of Africa's economy, perhaps looking at the sub-Saharan Africa, the state of our economy, what we see to be indications of growth, and perhaps how we all need to roll up our sleeves and maybe put a little bit more effort into what our continent needs. I want to start off, first of all, by coming to you, Andrew. Not necessarily wanted to put you on the spot, but Andrew, I put you on the spot this morning or this afternoon. Let's start from the bigger picture, Andrew. What does the Pulse say about economic trends in sub-Saharan Africa this year? I know it's a big question, and I know it's a lot of responsibility, but what are the trends telling us, Andrew?
[Andrew Dabalen] Thank you so much, Anita. It's great to see you again and to be in a panel with these distinguished panelists, Fati and Léonce. Let me get to the point. You asked what's the big picture about Africa's economy and outlook. Our main message this year is that we see an economic rebound in the region, but that rebound is incredibly fragile. What we see is that economic growth this year will rebound to 3.4% and then maybe rise to about 3.8% in 2025, compared to what it was last year, which was about 2.6% growth. The primary driver of this rebound is the recovery of private consumption, specifically households. That is because inflation over the last three years has been declining. We expect median inflation to come in at 5% this year from about 7% last year. This has been a steady decline. Nine out of 10 countries will see inflation declining. Even the ones, a dozen or so countries that are actually experiencing double-digit inflation will begin to see inflation ease a little bit. Whenever inflation eases, it actually lifts the pressure of family balances, and therefore, households have a little bit more room to actually spend more. That's really what's driving the recovery. However, that cannot be enough to propel growth for a long period of time and sustain growth over a long period of time. This is where the fragility comes, and there are three reasons why it's very fragile. One is many countries still carry very high levels of debt. Debt service costs and liquid and cash flow problems are massive. Just to give you a marker, last year, on average, African countries spent 46% of their revenues on servicing debt. That puts a lot of squeeze on public finances to finance education, health, infrastructure that we needed, and so on and so on. That is still a problem that has not been resolved. Second, alternative sources or supplements, finances that usually could supplement public finances when they are not available, are drying up. For example, the FDI, which will not add to any debt, foreign direct investment, which will not actually add to any debt for a country, has been declined declining, and it continues to decline. There's no any end in sight in a turnaround. Then China, which is a major source of financing, has basically slowed down to a trickle. Financial markets are not available to many countries, and when they are, they're very expensive. And official development assistance, that is money from IMF, World Bank, African Development Bank, bilaterals, have also basically to really resumed back to what it was in 2019. And then finally, we have a lot of conflict and violence, instability, climate shocks, and so on and so on. So when you combine all these factors, You begin to see why the rebound is there. It's positive and it is encouraging, but it is actually very fragile.
[Anita Erskine] Andrew, I'm not sure if this is where we start to worry because there's the word “fragile” at the end of what could have been a little bit of hope, or where we start to really essentially look at perhaps the fragilities and identify the opportunities for growth in there. Let me bring this conversation to you, Fati. I mean, let's take it away from the economic jargon for a little bit and just bring it to somebody like you that you live and breathe on the streets of a multitude of countries at any point in time. You're originally from Niger, but I hear someone told me you've been to more than 100 countries, but let's focus on the 53 countries of Africa. Fati, you travel so much across the continent for Oxfam. What are the indications for you that growth is not too far away or that growth may be happening?
[Fati N’Zi-Hassane] Thank you. Thank you very much, Anita. And thank you, Andrew, for creating this space and for inviting Oxfam to be part of this conversation that is very timely. First of all, I was listening to Andrew, and I have to acknowledge that as Oxfam, our approach to economic growth really places human well-being at the center of all our work, our analysis, and our interventions. We don't see human beings as being an asset to achieve economic growth. In that, we can be a little bit different from other stakeholders. We also know that all of us, I think around the table, know that economic growth alone does not necessarily translate into improved living standards or reducing inequalities, right? We focus really on ensuring that growth is inclusive, it's sustainable, and it prioritizes the well-being of people. Now, coming to your question. Yes, I'm from Niger, and I can give you an example. Running from the economic situation of Niger, or at least the GDP level of Niger, about 20 years ago, in 2002, Niger had a GDP of 2.78 billion US dollars in today's currency. In 2020, it grew to 13.74 billion USD, which is almost a 400% increase, which is good. At the same time, while the World Health Organization standard is of 100 doctors for 100,000 people, the country went from 3.3 doctors per 100,000 people in 2002 to only 3.4 doctors in 2020. So, 400% increase in GDP, 3% increase in this specific indicator. So, with this in mind, we see that even when there is economic growth, growth that puts people at the center and not economy at the center is not always happening. We think that human development is essential for sustainable growth. When we see in sub-Saharan African countries that human development is overall low, we think it's notably because of low access to quality health care and to quality education. We think that also this increases, to use a word that you like, vulnerability of the majority. When we talk about education, I can give you another example because obviously I'm not working on Niger alone, I can give you an example of how economic growth does not always drive human development, and this is for Malawi. In Malawi, we had a 2.54 billion US dollar GDP in 2002, again. And the secondary school enrollment was 31%. In 2022, the GDP in Malawi was multiplied by more than five compared to 2002, and sitting at 13.16 billion USD. But the secondary school enrollment rates only reach 35%, against 31% 20 years before. So, once again, we see that economic growth that is quite... We see an economic growth that is quite important, but on the other hand, the drivers for better human well-being are not significantly improved. So, looking at these examples, I think it's essential to recognize also that the tools we use to measure growth often fail to capture the full picture of human well-being and development. Traditional economic indicators, such as GDP, the one I used just now, they overlook important dimensions of progress, such as income distribution, social inclusion, and environmental sustainability. So, using GDP specifically for Africa is a mistake, because in Africa, it fails to capture as well the work that is taking place in the informal economy, and also the huge contribution of unpaid care work and domestic work to the economy. We did some research. We showed that 65% of the hours worked in unpaid care work are done by women. And these are hours that are not factored into GDP calculation, but we know how important this work is, because without this work, our economies as well as our societies, will not function, simply not function. So, policies that aim at maximizing only GDP growth, they often overlook the needs and the priorities of the communities, and they also exacerbate inequalities. So, just to summarize, I think that the way we look at the growth should be reconsidered. We should place human well-being and human development at the center, and this would enable a fairer calculation and more sustainable growth over the long term.
[Anita Erskine] Fati, thank you very much for bringing the conversation about growth not only being at that policy level, but really, in truth, growth is everybody's problem. Just before I come to you, Léonce, just wanted to say that we are also online. If you have a conversation, an aspect of this conversation that is essential to you, don't forget to hashtag #AfricasPulse. This conversation isn't only for the economists, it's also, well, actually, it's more so for the citizenry than it is only for the economists. Which brings me to you, Léonce. Fati has very well-established growth, the essence of growth. I just talked about the economists, growth being important to the economists. Is it only for the economists? Should we perhaps only be listening to what the economists are saying? Or should we also look at growth, generally, in terms of people's lives, generally? Léonce.
[Léonce Ndikumana] Thank you very much. First of all, I want to appreciate the opportunity to come and take part in this discussion. Thanks to the World Bank for inviting me. I want to appreciate also the presentations by my colleagues, Andrew and Fati, for setting up the stage. Your question is about whether growth is relevant for other people than economists. First of all, I'm an economist, but I live part in Africa because what happens in Africa affects me, and I see it. I travel Africa a lot. I have huge families in Burundi whose well-being I see every day. So, development is part of what I do as a profession, but also is what I live every day. Is growth important or relevant only for economists or for other people? Yes, growth is relevant for everyone. It's relevant for the people, the public in Africa. It's relevant for policymakers. It's relevant for the international community. It's relevant for businesses. Let me start with why people care about the growth. There is what something I could call historically impossibility. We have not seen a country that developed, reached higher levels of standards of living, reduced poverty substantially without growth. That's simply the history, okay? Let me give you an illustration. If you look at the period after the turn of the century, 2000, before COVID-19, let's remove COVID-19, so 2000 to 2019, East Asia Pacific recorded a per capita GDP growth rate of 4.3% on average. They were able to reduce poverty by 97%, right? South Asia recorded a per capita GDP growth of 4.5% and reduced poverty by 73.8%. Sub-saharan Africa grew its per capita GDP by only 1.5%, so one-third of what the other regions were doing, and were able to reduce poverty by only 34% compared to 97%, 73%, and the poverty in Africa, in sub-Saharan Africa declined from 56% to 37%, still high. I don't know, whichever way you look at the numbers, sustained growth seems to be correlated with decline in poverty. If you take China, then the story is over. It's the country that has been able to reduce poverty massively because of the sustained growth that they have achieved. So, the question that needs to be asked that economists are more focused on and should be focused on is what quality of growth should we be looking for? What kind of growth should countries seek to achieve? It's growth that's inclusive, as Fati as I said. It's growth that brings everybody into the market, into the labor market, into the consumption, being able to consume. It's growth that's broad-based, that's not just dependent on one sector, one mineral resources, and so on. It's growth that is job-creating. The way you increase people's wellbeing is you give them access to jobs. Jobs that generate decent income. And that's what allows them to be independent because we want people to grow out of what they produce themselves, their own work. It's growth that is sustained. The problem with African countries is not that they have not been able to grow their GDP, it's because they have not been able to grow their GDP sustainably. Every country in Africa, if you look at the history over the last 25 years, you'll find growth rates years where they grew by 8%, 9%, more than 10%, but then the following two years, they have bigger growth rates. So in Africa, the problem is what Andrew mentioned, that growth is too fragile, growth is too volatile. How do you get African countries to grow sustainably over a long time period? One is you have to have what I call transformative growth that the economies are transforming rather than relying only on agriculture, as it has always been, agriculture that's not transformative itself because many times I hear people saying, “Oh, this country is a success story.” And I say, “What is a success story?” “They have been increasing their exports of mangoes.” I said, “No, that's not success story. You don't export mangoes. You export the products of mangoes which are transformed domestically, that's how you produce jobs.” One of the big challenges in Africa in terms of driving growth is that they have not been able to move up the value chain. They have not been able to create new sectors of activities. And it's the same sector, the same two or three sectors that they keep relying on. I think growth is necessary, is indispensable, but we have to ask the question of what growth is going to take Africa to the next level. It's growth that's transformative, it's growth that produces jobs, it's growth that's inclusive, it's growth that is sustained. If you do that, then Africa is on the path to conquer poverty, to create better health systems, to create better education systems, and then human development is going to follow. So, you can't take growth out of the equation of increasing well-being because you don't have anything to redistribute. If you want to do redistributive policies, you can't redistribute what you don't have. You have to create the income. Finally, from a global perspective, a growing Africa is good for the world. It's good for the world because it's creating income, it's creating jobs, and we will not have to worry about people dying in the Mediterranean Sea while trying to look for better living opportunities because they would have better living opportunities at home. So, if we can invest in the people, as Fati has said, if we can create people who are better educated have better skills that are demanded by the labor market. Here it's about doing education differently. It's no longer the case that we just send the kids to school to study French and English and geography. No, you have to send the kids to study the skills that the market is demanding. Because right now, let me tell you, my biggest worry in Africa is this. We have way too many young people who are educated and have no prospects of employment. That's very, very dangerous. So, how do we create economies that create jobs for these young, educated kids who are very energetic, enthusiastic, but they are frustrated by the fact that they don't have opportunities? And people tell them, “Go create your own jobs.” How do they create their own jobs? They were not trained to do that. They have no capital. So how do they create the jobs?
[Anita Erskine] Yeah. Léonce, we're going to come and expand further on that gap, the solution to closing that gap when we move into the conversation about inequality. But on the level or on the topic of growth, Andrew, I hear Léonce talking about having to change how we run our economies. I hear Leon saying that a developed Africa, so to speak, is good for the entire world. Assuming that you also have certain thoughts on what causes us not to, “grow”, what are the challenges created by us not being able to grow? What is the problem? What is the hurdle that we seem to be suffering to jump over? Andrew, what would those limitations to our growth be as far as you're concerned?
[Andrew Dabalen] Thank you. I think Fati and Léonce have really started off on a very important part. Now, what are the limitations on growth in Africa? If you look at African countries, of course, these are a hugely diverse set of countries. They are countries that are very small, countries that are very large in federal systems, countries that are landlocked. The factors that affect their growth are going to be very different. They have different policies, they have different political systems, and so on. Setting that aside, though, I think what Fati and Léonce said are very important. One, I would just summarize this in maybe a few key things that are quite common, usually about why, in fact, we get the growth that we're getting. One is that, as Fati and Léonce says, the human capital of African workers at the moment needs to be elevated. For example, the World Bank has this indicator called the Human Capital Index, which is a measure that includes survival, health, and education of someone. If you're a child born in Africa today, when they turn 18, will only be 40% as productive as somebody who has gotten a full complement of education, health, and nutrition. That cannot be a basis. It cannot be the foundation for actually raising the levels of growth and sustainability for a long time. Human capital investments are massive and important. I completely subscribe to the idea of putting people at the center of this and investing in them. Second, poor infrastructure services. Whether it is the density of infrastructure, whether it is the quality, it's the cost, and so on. Take, for example, energy that everyone has talked about. That is very commonly understood to be very important for powering your factories, your homes, your farms and machinery and so on. Only 50% of Africans have access to energy. When it is available, it is either too small to power factories or homes, or it is too costly. Often it is not even available in most cases. There's a lot of interruption. You will see this across... I mean, you will see it in Ghana, you will see it in South Africa, you will see it everywhere. You will see people are out without electricity for five, six hours a day. You can't run factories efficiently in that way. Then you come to issues around trade. Cross-border trade is very costly, is very cumbersome. Even where they have actually, there are lots of taxes when you arrive at the border, even where they have harmonized taxes, often what happens is that they introduce all kinds of other barriers that are not related to taxes. Then you add on top of that the fact that the transport corridors are just incredibly inefficient and logistic services are very inefficient and so on. Then, Léonce mentioned something about agriculture. Some of these sectors are very critical for such as agriculture. There are very low and inadequate investments such as irrigation, storage, processing, maybe making input markets like fertilizer and seeds available cheaply and reliably. All those things are really important. They undermine growth in general. Then there are shocks. We talked about conflict, we talked about climate, but also trade shocks. As we saw, for example, what happened when there was a war that broke out in Ukraine, food prices, fuel prices. These are all important inputs to people's businesses and so on. When the prices skyrocket, you become uncompetitive and they are very disruptive. Finally, this is something that is subtle and people don't talk about, high levels of inequality. Africa is a region that has high levels of poverty, but it is actually also a region with high levels of inequality. When you have high levels of inequality, what usually happens is you deny a lot of people the opportunity to participate in the economy. There are all kinds of distortions and misallocation of talent. The right people with the right skills are not the ones who are actually running factories, starting entrepreneurship, getting access to credit. When you have that, overall, you will get a society that is very inefficient, economies that are not very productive, and they're unable to actually reduce poverty. When you combine all these factors, what you get is in Africa, historically, low levels of growth that are not durable and have been unable to reduce poverty on a mass scale as Léonce was talking about. Let me stop here.
[Anita Erskine] Andrew, you've done us a favor. You've moved us into a very important part of this conversation, which is inequality. And Fati, I bring you in here. We've been talking about the economy. We've been talking about growth as far as economy is concerned. Let's talk about inequality. The idea or the concept that we live in a continent that still faces high levels of social injustice. Gender equality. I mean, let's talk about the impact of crisis like climate change. We could go on and on and on. Fati, from where you stand, do you feel that we have perhaps... How do I put this? Have we overlooked inequality for far too long? Are we only kicking in simply because we realize that we are in trouble, Fati?
[Fati N’Zi-Hassane] Yeah. Thank you. That's a very good question, Anita. I'm a trained statistician, and I have a major in demography, demographic Studies. When I was graduating in the early 2000s in Abidjan, Côte d'Ivoire, our curriculum and our surveys and our ground applied work were a lot on poverty. And even as students, we could see the focus from the development sector on poverty. I did study inequality, but more, let's say, the mathematical equation of it, whereas the actual work, the surveys on the ground, the data analysis, sometimes they were even commissioned by international organizations, they were all about measuring poverty, understanding poverty, and understanding what helps reducing poverty. So yes, I'm particularly well placed to say that for many years, governments and international institutions, like the World Bank, saw inequality as a less pressing issue. And that was surpassed by poverty. After decades of focusing on poverty, poverty is increasingly concentrating in sub-Saharan Africa. About 60% of the world's extremely poor live in sub-Saharan Africa, and this is expected to rise to over 80% over the coming years. When we talk about, this is not the case now, but when we talked about inequality versus poverty approach and the land that we have on focusing on inequality, we are somehow sometimes told that, “You know what? There are two sides of the same coin,” or it's a chicken and egg situation. We can't determine between inequality and poverty, which one creates the other. But if we look at it this way, wealth is created through the labor, through the consumption. We heard about Andrew how consumption has allowed the economic rebound in Africa. So, it's created by labor, by consumption, and even by the taxes of the mass, which are then reinvested in various parts of the economy, but this wealth goes predominantly to the ones that are already wealthy. This is inequality, because in the same time, the cost of living of the 99% is increasing. If we're talking chicken and egg, inequality is the chicken, and poverty is the egg. Inequality is the chicken, and poverty is the egg. And inequality is not only the root cause and driver of poverty, but also the cause for conflict, for low human development, for slow growth, and also, as you mentioned, climate meltdown. We have demonstrated that it's mainly, or in large parts, or in a disproportionate part, at least, emanating from excessive consumption of the rich. But fortunately, we're here today to discuss this. After realizing that focus on poverty alleviation has not dented poverty, and the number of poor people have increased by 44% since the '90s, even though the poverty rate has decreased. The international institutions, the governments, the policymakers, they are now turning to inequality as one of the critical root causes and drivers of poverty. And I think that most people have realized and are now accepting that the current status quo, where a tiny few are increasingly becoming richer, when everyone else is going through the cost of living crisis, this is not sustainable. So, we must not only understand the dynamics that create inequalities, but we must take the necessary actions to reduce inequalities because they are the results of policies on which we have influence. And the World Bank and the IMF and the international institutions in general, they have a lot of influence in this regard. So, we're turning to Bretton Woods Institutions to ask for more just economic growth and for more inequality-busting initiatives. As you may know, out of the Sustainable Development Goals, the World Bank is the custodian of the SDG 10 on Reducing Inequality, and the World Bank has an important role in ensuring that inequality is at the top of the global agenda. So yes, I think that inequality has been overlooked at the expense of poverty, and that people and institutions aren't paying more attention today, but we must act against those inequalities, and this can only be done if we all work together.
[Anita Erskine] Fati, thank you so much, and you bring in World Bank. And Andrew, I wore this specifically for you because there's a very important question that I have as far as what the World Bank is doing in terms of this conversation and actions around inequality. And how is, if I may ask, how is it factored into the World Bank's work, Andrew?
[Andrew Dabalen] Okay, thank you, Anita. I think, let me agree with Fati, but also provide another nuance. As human beings, we come with different kinds of talent, and we invest our effort and time to develop a craft. In the end, you might end up having somebody who is a better carpenter than someone else. You might be a better musician than me, you might be a better engineer than me, or whatever it is, because you've invested effort and time and stuff. Those benign differences, we don't think of them as inequalities, but those are unequal skill sets. When we have those kinds of inequalities and they're rewarded fairly, they're good for society as a whole. That's why we get better engineers, better musicians, better poets, better writers, and also better inventions, and better products, and more competent people who then are able to provide public service, and provide better services and so on. I think it's really important to acknowledge that. But the way the inequality that I think we often try to make sure does not perpetuate itself is the one that is unfair. There's a certain level of inequality that is truly unfair, and that has something to do with inequality that comes from circumstances you don't have any control of. It's where you are born. You're born in a rural area and you don't have the same opportunities to go to school, to get health care, to get water and sanitation, and so on. Whether you are... Inequalities that are linked to who you're born to, parents that are relatively wealthy or more educated. Inequalities that have to do with religion, to ethnicity, to whether you're woman or man, and so on. These are the kinds of inequalities. We call them the inequalities of opportunity because they deny people the opportunity to actually build their human capabilities and their capacities in order to be able to uplift themselves, but also society as a whole. That is the inequality that is inefficient. That inequality, when perpetuated, is very, very harmful because it prevents intergenerational mobility of people, children doing better than their parents and so on. It leads to lack of entrepreneurship. It leads to misallocation of talent again in a society, and it leads to a lot of inefficiency and poverty, entrenched poverty, as Fati was saying. What do we do in the World Bank? I would say to Fati that, practically, everything we do in the World Bank impacts inequality indirectly or directly. For example, for households who are vulnerable, we support programs like social protection. These are programs that uplift people across the poverty line and in some sense, reduce inequality, but a lot of the investments in education, for example, early childhood education that allows children to have their best start in life, when we invest in bringing in adolescent girls that are discriminated against into school, that helps with reducing these inequalities of opportunity, when we support equalization of school completion between boys and girls, and so on. So, these investments in child health, child education, and so on are all geared towards reducing inequality of opportunity. The other things that we do that are not obvious. So for example, when we try and work with countries to make markets work so that a farmer can actually get their produce and get a fair price, when we try to work with countries to remove discriminatory laws in labor markets that deny women their rights to actually own property or to work in particular occupations and so on. All these are ways of making a society allocate its talented people in a way that is appropriate. All those things are ways to reduce inequality. We actually have it in our goals. If you look at the World Bank goals, it's “reduce extreme poverty and shared prosperity.” And the Shared Prosperity Fund, specifically, is about inclusion, is about reducing inequalities in a livable planet, of course, that's the goal of the World Bank at the moment. But we also are actually monitoring that now very, very closely. We, of course, monitor poverty and inequality outcomes, but now we have a scorecard, something called a new scorecard in the World Bank, which will be monitoring a few sets of indicators across the globe on how, in fact, the World Bank investments are supporting countries to overcome unemployment, gender equality, and reducing inequalities. That's how we approach our work.
[Anita Erskine] Thank you so much, Andrew. Léonce, this is the perfect time for me to bring you in to explain to me your findings. You wrote about capital flight. I want to know about your findings as I'm hearing about inequality and how perhaps in this instance, Andrew’s talked about what the World Bank is doing as I'm listening to Fati's explanation of what she's seeing, how she defines growth, etcetera. I'm thinking about your findings when you wrote about capital flight in sub-Saharan Africa. What did you see? What did you discover? And what can we learn from that, Léonce?
[Léonce Ndikumana] Thank you very much. Again, very nice listening to my colleagues. And as I said, this is a very good point to talk about capital flight because many of the points we made refer to elevating the level of economic activity in Africa. And that raises the question of how do you finance these activities? We talk about infrastructure. One of the reasons why there is poor infrastructure in many African countries is because there is not enough financing to build those infrastructures. We don't have enough money to send and keep all the kids in school with the appropriate equipment, enough books, enough lab sciences, enough teachers, and so on. And it's all about financing. In the case of African countries, the irony in the tragedy is that while they are facing these large financing gaps, they are also experiencing a hemorrhage, a financial hemorrhage of their wealth, which is being smuggled out of the country in the form of capital flight. Capital flight is the outflow of money that's not through official channels where people find a motive, a reason to hide the money abroad because maybe they don't want to justify how they got the money, or they don't want to be forced to have to pay taxes on the investments they are making abroad. So, they will use informal, illegal, illicit mechanism to take the money out of the country and hide it away out of the site of the regulator. When we use our statistical analysis to estimate capital flight from African countries, we find staggering numbers. So, our latest estimates up to just before 2020 show that the African continent has lost up to 2.4 trillion dollars of money through capital flight. That's a big number. It's more than the size of GDP of all countries in Africa, combined. So, if you took all African economies in terms of monetary terms, take that in offshore financial centers. That's how much wealth Africa has outside. On an annual basis, the African continent is losing more than 60 billion dollars through capital flight. It's more than what they receive in the form of aid, it's more than what they receive in the form of foreign direct investment, it's more what they receive in the form of external borrowing. And that makes the discussion about financing development in Africa much more complex because many times when people say, African countries need money to finance investment, infrastructure need more money to finance education, they say, “Oh, let's go look for more aid. Let's look for more borrowing.” No. If you keep borrowing and half of that, more than half of that goes away as capital flight, you'll never achieve your development financing goals. It's like if you send a kid, I'm thinking of me growing up in the village, my mother sends me to fetch water in the valley. If I take a leaky bucket, how much water am I going to bring home? That's exactly the tragedy of finance development in African countries. Money comes in, money goes out. Even though money that's generated domestically through mineral resources, exploitation zone, a big fraction does never come back to African countries. And we find that the most exposed countries are, in fact, the natural resources of each country. And this is where you have multinational corporations coming in, investing capital in the resources, and pay no taxes because they have a way of gaming the system, shifting the profits to low tax jurisdictions and pay very little taxes in Africa, which means that Africa really gets very little from the exploitation of natural resources, no revenue in taxes, and in many, many countries, people say they have experienced export booms. Exports benefit the country only if the export proceeds come back to the country. In many the companies export minerals and the proceeds stay in offshore financial accounts. What is the benefit for the country? Not much. In these sectors, very little jobs are being created. So, you have activities that create very little jobs, so no income. They create very little government revenue, so government finance capacity is not improved. And they generate very little foreign exchange that actually comes back to the country. And that's why you find that many African countries today, one of the biggest challenges they have is a foreign exchange shortage. They are short of foreign exchange, their currencies are depreciating, and they cannot afford input of goods that they need, of input and equipment that they need to grow their economies. So, another aspect of growth that we need to look at is look at how much exports are these countries generating so that they can generate enough for an exchange to be able to finance their industrialization. Industry will need inputs. Industry will need-
[Anita Erskine] Sorry, I don't mean to disrupt you, but just before you continue, there's just some very important questions that are coming through the Twitter feed, and I want to read that into your contribution. And one of them is asking, “how can African countries put a stop to capital flight, and what could it achieve, Léonce?” So, if you're going to add that to your question coming from our social media followers, please. Go ahead.
[Léonce Ndikumana] Sure. Exactly. So again, just to conclude, my point is that the leakage of financial resources through capital flight, diminish African countries' capacity to grow their economies, to provide for the poor, to provide for education and health. And then how do you resolve that? One is you have to acknowledge that capital flight is a global phenomenon. It happens because actors in African countries are channeling the money out of the country, and because on the other side, there are bankers, accountants, legal law firms, and so on that are helping to hide away the money. So, we need to work on both ends, the domestic side and the global side. One is transparency in the banking system. Banks have to be open and report all banking transactions of non-residents to African countries. Who owns the assets that are being intermediated in banks in offshore financial centers. Country by country reporting of trade and finance so that African countries can know how much money is going to the world. Nobody's stopping African wealth holders from investing abroad, but do it legally. Report your earnings so that you can pay your taxes. So, we need Western countries, especially, to cooperate with African governments to throw more transparency in trade and finance so that African countries can assess how much their nationals are investing abroad, how much money they are earning, how much exports are going abroad, so that they can actually know the true tax base in their economies. Right now, it's not happening because the bankers benefit from that, but the African countries are the ones loosing.
[Anita Erskine] Léonce, I'm going to stop you here only because I don't want you to give us all the goodies. I want you to bring us eventually to a part of this conversation towards the conclusion where you share your recommendations. I don't want you to give everything to the away just, just, just now. But I will like to bring it back to Andrew and then bring it to Fati. Léonce has spoken extensively about the measures that need to be put in place. Perhaps, maybe on behalf of Léonce, on behalf of the entire continent of Africa, these need to be done as of yesterday and not as of tomorrow. Andrew, we're talking about transformative policies. Fati, I'll ask you for your recommendations as well. What would be examples of transformative policies that are required, Andrew, immediately as we bring this conversation to a close? Andrew, the floor is yours.
[Andrew Dabalen] Okay, so transformative policies. Now, the one thing that we know that has been extremely transformative in Africa has been digital transformation. That has transformed all kinds of markets. More families are now included in banking. Financial inclusion is now much more widespread than it was only a decade or two ago. Telecommunication, government services, people no longer have to go and queue to pay their electricity bills or their school fees or something like that. But what I think what we have missed in this transformation is the productive use of digital technologies. What we find is that in Africa, people have access to, say, these broadband technologies, either through their phones or through their iPads or their computers, but even though 83% of them could, in principle, actually connect to this, only 22% of them use it productively. In other words, we need businesses in Africa to begin to actually adopt these technologies in order to be able to reach more customers, do a lot more accounting, back office work, do a lot more marketing, do a lot more innovation, and so on because when you do that, it improves the efficiency of the businesses, it improves the profitability of the businesses, it allows them to grow, and it allows generation of jobs, these new types of jobs. I would say productive use of digital technologies will be one of the key transformative policies that African countries can adopt.
[Anita Erskine] Fati, what about you? Here, we're eager to ensure that everyone has access, equal access, everyone has equal access to education, equal access to employment. Let us lay an equal playing field down for the continent of Africa. What would your examples of transformative policies be?
[Fati N’Zi-Hassane] I can give you an example, the one of Botswana. You know that when Botswana got its independence in the late '60s, it was one of the poorest countries in Africa, but right after its independence, they discovered diamond. They implemented the diamond revenue management approach that they still follow up to today with the support of the World Bank. Following this approach, they generate revenues from exploitation of diamond, and they strategically invest these revenues in infrastructure, in health, and in education. And this not only boosts the economic growth, and we're talking now about the quality of growth that Léonce was referring to, it has also boosted human well-being. Today, Botswana has 30 doctors per 100,000 people. This is about nine times the one of Niger. And secondary school enrollment has a rate of 70%, which is double the one of Malawi. But most importantly, Botswana today has the second-highest human development index in sub-Saharan Africa. Well, of course, not everything is perfect in Botswana, and I don't want to oversimplify the trajectory of Botswana and there are a lot of cultural, historic, social, demographic, even geographic factors that allow for this to happen, but this is an example of a transformative policy. African countries have a lot of resources that can generate revenue that they can use for the benefit of the population like Botswana has done and is still doing, but for this, we need to put economic growth at the service of human well-being. Today, we're seeing very little evidence that African tax systems are collecting taxes more effectively to allow for this economic growth to be really inclusive and to benefit everyone, and we see, especially, that large corporations and wealthy individuals are not putting their fair share in the benefit of the whole population. We think that transformative policies on the African continent will be implemented when there are more progressive tax reforms. Progressive tax reforms are really simple. It means taxing more to the one that can afford it more and not taxing less to the ones that are less privileged. We think that this is going to allow for progressive policies to be put in place. This is how we can have a real impact on the majority of people.
[Anita Erskine] Thank you so much, Fati. Léonce, you had a very interesting point that you were making before I shifted the gears. I would like you to, within the next minute, minute and a half or so, highlight how we achieve to achieve a strong, powerful, great Africa, an Africa that is prosperous. What would be that one thing, Léonce, that we would have to put into place immediately?
[Léonce Ndikumana] Thank you very much. Again, I want to echo and support the recommendations made by my colleagues. I think that's the way to think about going forward. I want to add that in thinking about Africa, how to make stronger African economies, we have to start from the position that Africa needs to leverage what it has. One example is what my colleague Fati has just mentioned. Many African countries have huge amounts of wealth, underground, above-ground. So, the starting point has to be how to do better in leveraging your mineral resources, your oil resources, stop exporting raw mineral resources. Stop exporting raw oil. Transform your mineral resources domestically. Botswana did it. Why can't African countries also do the same thing? Move up the value chain. The other half of African countries are very richly endowed in fertile land, but they will not be able to develop if they don't develop an agriculture that's transformative with value added to their products and exporting high-valued output. Then, we need to think about social policies. I want to go back to education. Education is in the world, historically has always been the biggest equalizer. I am here being able to teach, being able to feed my family because I went to school. A kid from a normal farming family in Burundi was able to go to school and are able to achieve. That's a chance that we need to give to every kid, but we need to do it differently. Again, it's being cognizant about what the market wants, what skills. And this links to the point that Andrew made. Information technology, technological innovation. We need to give education to train kids who are cognizant and able and fluent in utilizing modern technologies. Last, tax policy. Okay, as I talk about transformation, tax policy has to be part of the picture because that's what enables investors to invest. If we talk about developing information technology, we cannot have taxes that are overtaxing the Internet. Because at the same time, you have less than 3% people have access to Internet. When you look at the tax on Internet access, it's terrible. It's a terrible policy. You want to enable innovation, you grow the tax base, and you increase the tax revenue because of the volume. But people think that, “Oh, the service sector is growing, therefore it's a good source of tax revenue.” That's exactly the wrong thing to do. You want to enable the service sector to grow. As you grow the base without changing the tax rate, you mobilize more revenue. At the same time, the Internet is a template to growing other activities. If you kill it, then you're killing the source of growth. Really, we have to think very carefully, critically, lining up the macroeconomic policies to the sectoral policies so that we enable investment, we enable trade, we enable human capital development, and we leverage our resources, which is our people, the young and the older people, but also our natural resources, our agriculture. That's how you can achieve us. You can put Africa to a path of strong growth and elevate the level of well-being. Thank you very much.
[Anita Erskine] Léonce, thank you so much, and very well said, and very timely and apt, because we run a small poll ahead of this recording, and we did this on social media. Now, we found that 45% of the respondents felt concerned about the health of African economies in 2024, and only 35% felt optimistic. The other 20%, completely unsure. I would say that beyond the fact that all our conversationalists or our panelists have laid really the foundation for a broader, bigger, further, stronger conversation on African economies, I would like to encourage you to also pick up Africa's Pulse. As I said before, it is managed by the Office of the Chief Economist of the World Bank. Ladies and gentlemen, boys and girls, because you are also invested in this conversation, I've had three extraordinary conversationalists. Andrew Dabalen, Chief Economist for the Africa region at the World Bank. Andrew, thank you so much for doing this again. Africa's Pulse sits right on your desk, and every time we speak, I see the passion and the yearning and your urgency to see Africa grow a lot more than we see it to be right now. We've also had Africa Director at Oxfam, Fati N'Zi-Hassane, joining us. Fati, it's been great listening to you. Thank you so much also for your recommendations. Last, definitely not the least, Léonce Ndikumana, a Distinguished Professor and Director of the African Development Policy Program at the Political Economy Research Institute, PERI, at the University of Massachusetts. Lady and gentlemen, I have to say a big, big thank you for taking time to share your thoughts, your experiences, but most importantly, for giving all of us something to fight for. My name is Anita Erskine. Of course, join us for the continued elements of this conversation online. Don't forget to hashtag #AfricasPulse. Until we see you next time for the next edition, take it easy. Think about Africa. Push hard, and remember, right here, we are the cradle of humanity. Don't go anywhere. Africa's prosperity is just around the corner. See you next time.
[Andrew Dabalen] Thank you, Anita.
[Léonce Ndikumana] Thank you very much.
