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How African countries can chart a path to fresh recovery by Humberto Lopez

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The current state of world affairs continues to weigh heavily on global growth prospects, with new and ongoing crises taking an enormous toll on global economies, particularly those of developing countries. Just as we prepared to emerge from the pandemic and resume life under new normal conditions, Covid variants and the Russian invasion of Ukraine introduced additional shocks across markets. The costs of these persisting crises are staggering.

To put orders of magnitude on these costs, compare the January 2020 World Bank Global Economic Prospects projections for global GDP growth for 2020 and 2021 (at 2.5 percent and 2.6 percent respectively) with actual growth, which was -3.3 percent for 2020 and 5.5 percent for 2021. The difference translates into a cumulative global forgone output of $8 trillion, or slightly above $1,000 per person on earth between 2020 and 2021.

Taking into account that the World Bank expects 2022 global GDP to be 1.8 percent below its pre-pandemic projections, one could also add the projected forgone output for 2022 ($1.7 trillion) for a cumulative loss of $9.7 trillion.

The real costs have distinct variances across global regions.

If we were to repeat the exercise, comparing projected regional growth rates for Sub-Saharan Africa in January 2020 — which had growth at 2.9 percent, 3.1 percent, and 3.3 percent for 2020, 2021, and 2022, with actual growth over the same years resulting in -2.2 percent, 3.5 percent, and 3.6 percent, the foregone output for the region would be $180 billion over 2020-21 and $265 billion over 2020-22. While these numbers are not of the same order of magnitude as the global estimates, it is worth noting that $265 billion represents approximately the combined GDP of Kenya, Angola and Ethiopia.

Considering these massive economic setbacks and hard times ahead, the most important question governments should be asking themselves is: What combination of policies will enable our economies to rapidly recover while adapting to the evolving and acute challenges brought on by the war in Ukraine – all while charting a long-term path to greener and more resilient growth?

The first policy recommendation needs to include strategies that increase the rates of Covid vaccination. Only 12 percent of the population of Sub-Saharan Africa is fully vaccinated, far from the continental target of 70 percent. To reach the target, vaccination efforts would need to increase sixfold. Recent analysis by the World Health Organisation has concluded that assumptions about low Covid numbers in Africa could be the result of low testing rates, masking a deeper threat with much higher case numbers.

Low vaccination rates not only expose a country to the emergence of new Covid waves, as we are seeing today with Omicron, but also creates hospitable breeding environments for new variants.

A second policy recommendation would be to focus on building an enabling environment for the private sector to thrive. Pre-dating the pandemic, debt levels were already on the rise in several countries, reducing the buffers needed to respond to possible shocks.

The response to Covid-19 has further reduced buffers with many countries having to adopt measures that will allow them to regain a sustainable fiscal position, with the consequence of the reduced ability of the public sector to act as an engine of recovery. The private sector has to become the solution for a realistic recovery effort with public policy aimed at improving the investment climate and attracting private investment. Policies that create affordable, reliable access to sustainable energy will be crucial to enabling companies in Sub-Saharan to thrive and compete in the global economy. Currently, the cost of reliable access to electricity is about 50 times higher in Africa than in OECD economies, creating significant barrier to doing business in the region.

The third recommendation requires a deepening of regional integration efforts. Prior to the Covid pandemic and the Ukraine crisis, the world had already entered into a phase of deglobalisation. This is worrying, given the major gains realised from trade and the international exchange of goods, services, and ideas. Yet, Sub-Saharan Africa has an opportunity, thanks to the African Continental Free Trade Area agreement (AfCFTA), now the largest free trade area in the world as measured by the number of countries participating.

A successful implementation of the AfCFTA would boost the region’s income by $450 billion by 2035, raise exports by $560 billion, boost wages by 10.3 percent for unskilled workers and 9.8 percent for skilled workers, and lift 30 million people out of extreme poverty while driving wage growth for women. It is estimated that reducing tariffs will boost intra-African trade by 15-25 percent, and the biggest income gains will come from measures to reduce red tape and simplify Customs procedures. This opportunity will only become more important over the coming decades, when Sub-Saharan Africa will become the largest continent in terms of population, based on current projections, from 2060.

The road ahead is not an easy one, but the cost of inaction risks dire consequences for the region’s economies and people. While there is great uncertainty, one thing does remain certain – the resilience of Africans and their ability to innovate in times of crisis. The World Bank has been and will continue to support Sub-Saharan Africa to build back resilient economies that can weather the challenges ahead.

J. Humberto Lopez is the World Bank director of strategy and operations for Eastern and Southern Africa

Strictly Personal

World Bank is leaving? Big deal! We’re joining the ‘Big City Club’ By Joseph Nyagah

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Imagine a couple whose marriage has produced many children celebrating their golden jubilee (50th anniversary) with divorce!

The World Bank and Uganda did better (or worse) – celebrating their Diamond Jubilee by parting ways. Yet diamond symbolises strength, durability and enduring value.

Uganda officially joined the World Bank group in 1963 after a decade-long courtship in which the bank had funded game changing Owen Falls power dam that Queen Elizabeth II switched on in 1954.

After independence in 1962, Uganda couldn’t wait to formalise its relationship with the World Bank just months later. Then without warning, the bank called it quits for their 60th anniversary.

Was Uganda taken by surprise? Yes. For while the bank all along knew its weakness in financial management – the blow came not as a warning but a notice on August 8, 2023, cutting funding citing Kampala’s new anti-homosexuality law.

Of course, a relationship with a bank that excludes finance doesn’t exist, unless the bank will be running Uganda’s school football tournaments.

Uganda as a member must have known the bank’s values of inclusion and non-discrimination, but had been under the illusion that such a drastic measure could only ever be taken over the core business of the relationship.

Ugandans wouldn’t have been shocked if World Bank had cited corruption; even President Yoweri Museveni has publicly said evidence of collusion in Treasury with Parliament to steal public funds exists.

So deep had the Uganda-World Bank relation grown that a year after separation, a major project that had been in the works has been launched.

Like a couple who after signing their divorce find that there was a bun in the oven, both Kampala and Washington are somewhat happy to welcome the baby – the Greater Kampala Metropolitan Area (GKMA) project, which is set to produce one of the world’s largest cities.

To understand the accuracy of this assertion, one needs to understand what has been happening over the past 39 years since Museveni stormed Kampala in 1986 after years of fighting in the bush.

When the city still stood on the seven hills colonialist Captain Frederick Lugard founded it and hoisted the Union Jack on in 1890. Today Kampala stands on 77 hills and still counting.

People who knew Kampala in the 1980s can understand the unguided construction boom unleashed by Museveni’s arrival.

By 1986, for example, many wealthy families that had fled the massacre around their farms had been living in small car garages belonging to civil servants who had no cars.

With the new Museveni era marked by security and economic revival, they couldn’t wait to build new nice homes around Kampala. And they built and built.

Everyone got obsessed with building on the space nearest to them that has not been bought by someone else until the whole central region is fast becoming a construction site because of the location of GKMA which accounts for two-thirds of the country’s GDP and tax collection.

In 2013, government and consequently World Bank woke up to the need to catch up with the ordinary people.

In absence of official physical plans (or disinterest in observing them where they exist) people have been building anywhere and everywhere.

Kampala is now growing far beyond its gazetted 200 sq kms or so to about 6,640 to include Wakiso, Mpigi, and Mukono districts.

With the inevitable expansion targeting the remaining Kayunga and Buikwe districts to firmly engulf Jinja city, GKMA Kampala will soon be 9,534 sq kms, call it 10,000 if you include the exotic Lake Victoria islands that are becoming weekend playgrounds for the city middle class.

Ten thousand sq kms is not far from the biggest real city we know called New York at 12,093 sq kms (any bigger cities are so-called because of administrative boundaries but not the criteria of a city being a densely populated urban hub of economic and cultural activities, interconnected with transport infrastructure and playing important roles in international affairs).

To its credit, government knew the huge future metropolitan transport needs and plotted futuristic industry starting with creating a local automotive industry starting with manufacturing of zero-emission buses and investing in electricity generation capacity.

When the World Bank is done supporting 10,000 sq kms city, I see our government replicating and connecting up with its 10 other “cities by legislation” located around the country that have been (in)operational since being instituted five years ago.

“And when another five cities become (in)operational anytime now, Uganda will be on the road to join Vatican and Monaco as a city state, and the largest in the world at 242,000 square kilometres. Not a bad parting gift from the World Bank, as we mumble “…was nice knowing you…: to Bretton Brothers.

Buwembo is a Kampala-based journalist. Email: buwembo@gmail.com

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Dangote Refinery: A timely win for industrialisation, By Abiodun Alade

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Nigeria, rich in resources and with a burgeoning young population, remains paradoxically stagnant due to its over-reliance on imports. This dependency, rather than being a temporary measure, has entrenched itself as a systemic barrier to long-term prosperity.

With a population exceeding 200 million and a predominantly young demographic, Nigeria has become a prime target for global product dumping. Each year, a flood of new products enters the Nigerian market, to the point where the country imports nearly everything imaginable. This has created a mindset where locally produced goods are often perceived as inferior compared to imported items.

As one writer aptly observes, Nigeria imports toothpicks despite having bamboo, starch even though it is the world’s largest cassava producer, and tomatoes while having its own tomato production base. For nearly thirty years, Nigeria relied on imported refined petroleum products despite being a major crude oil producer with four refineries.

However, this narrative changed a few days ago with the production of gasoline (petrol) from the Dangote Petroleum Refinery and Petrochemicals, owned by Africa’s wealthiest entrepreneur, Aliko Dangote. This landmark facility, recognised as the world’s largest single-train refinery with a capacity of 650,000 barrels per day, also produces diesel, aviation fuel, and other products.

This marks a significant victory for industrialisation in Nigeria and serves as a powerful example of how Africa can break free from the cycle of being a dumping ground for foreign goods. It is striking to note that only Algeria and Libya out of the 54 countries in Africa do not import fuel, highlighting the transformative impact of this development.

By harnessing Africa’s abundant crude oil resources to produce refined products locally, Dangote aims to catalyse a virtuous cycle of industrial development, job creation, and economic prosperity.

In Nigeria, the refinery will significantly reduce fuel imports, save foreign exchange, and contribute to stabilising the naira, lowering inflation, and reducing the cost of living, among others. The refinery would lead to the protection of forex revenue of around $20bn a year at current market prices and savings of $14bn a year through domestic supplies of petroleum products. It would also create a minimum of 100,000 indirect jobs through retail outlets and ease the availability of petroleum products in the country.

Beyond its role in petroleum refining, the Dangote Refinery also represents a significant boost to Nigeria’s industrial and manufacturing sectors. It will produce crucial petrochemicals such as polypropylene, polyethylene, base oil, and linear alkylbenzenes that will grow in many sectors, including the agricultural sector.

Previously, some players in the packaging industry had to shut down due to the difficulty in accessing foreign exchange to import polypropylene. This issue is expected to become a thing of the past, as Dangote proudly declared on Tuesday: “We are committed to ensuring that starting in October, there will be no need to import polypropylene. Our petrochemical plant will be fully capable of meeting all local demands.”

The availability of these raw materials is set to revive related sectors and industries that had nearly vanished due to the prohibitive costs of importation. While importation provides immediate, short-term gains, it rarely supports sustainable growth. In contrast, industrialisation fosters long-term economic development by creating jobs, boosting productivity, driving innovation, and improving infrastructure.

In recent years, the impact of substandard fuel imports has been catastrophic. In 2022, poor-quality fuels damaged vehicles, generators, and machinery, leading to health crises, including cancer cases. The halt of these imports, achieved through interventions from Belgium and the Netherlands, is only a temporary reprieve as new routes for these harmful products were found, thereby continuing to inflict damage on Nigerians.

However, Nigerians can now breathe a sigh of relief, as the Dangote Oil Refinery will deliver refined products meeting the Euro-V standard, the highest quality in fuel. This level of excellence would have been unattainable through importation; under such circumstances, the best available would likely remain subpar.

As Nigeria contemplates her future, the lessons from industrialised nations are instructive. Nations like China, Japan, Taiwan, and South Korea have experienced significant growth through industrialisation. These nations have demonstrated that investing in and protecting domestic industries, rather than reliance on imports, is a pathway to sustained development and global competitiveness.

The transition from a trading company focused on importing bulk commodities to a diversified conglomerate over the last two decades has enabled Dangote Industries Limited to significantly boost the economy and champion Africa’s drive for self-sufficiency. This evolution illustrates a vision that other stakeholders, including the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), should consider.

I was concerned when DAPPMAN, in a letter to President Bola Tinubu, expressed worries about financial losses incurred by its members due to Dangote Refinery’s decision to reduce the price of automotive gas oil (diesel) from N1,700 to N900 upon starting production in January. The association said that players in the downstream petroleum sector have invested over N3 trillion in establishing around 130 private petroleum depots. Such an amount could turn around some manufacturing sectors instead of serving as infrastructure for importation.

I believe that DAPPMAN and other Nigerians should mobilise resources to support the government in developing the manufacturing sectors of the economy. This is the most effective way to accelerate Nigeria’s development, reduce unemployment, and address insecurity.

Nigeria’s path to progress lies in embracing industrialisation. By investing in local industries and fostering a climate conducive to growth, Nigeria can unlock its potential and secure a prosperous future for its citizens. The time has come to shift from a reliance on imports to a focus on nurturing and expanding domestic industries. This transformation is not only feasible but essential for Nigeria’s development.

 

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