Building Blocks for Africa's Economy

How to make the most out of Africa's distinct economic regions.

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A Kenyan man talk on a mobile phone at a shop selling Safaricom products, Friday, June 6, 2008 in the Kibera slum in Nairobi, Kenya. Shares in Kenyan mobile service provider Safaricom Ltd. began trading Monday June 9, 2008 on the Nairobi Stock Exchange in East Africa's biggest-ever IPO, a sign of investor confidence in a country torn apart by deadly postelection violence earlier this year.

A major obstacle for development in Africa is the lack of any true regionalization. Road systems often stop at borders, rail gauges don't match up from country to country and customs duties are to be collected at every border, and often inside borders, backing up truck traffic for days and sometimes longer. Ultimately, it often costs more to truck goods a few hundred miles than it does to fly the same goods from one continent to another, making the costs of doing business often prohibitive to potential investors. Currencies are not always easily convertible and the ability to use IT systems sometimes stops at the border as well.

These differences also make some countries too small for investment as the customer base, lacking a broad middle class, is insufficient for major investment. The population of a region, under the same economic principles, however, does create larger scale markets that would entice more investment.

Africa is divided into several economic communities, with the major ones being the Southern Africa Development Community (SADC), the Common Market of East and Southern Africa (COMESA), the Economic Community of West African States (ECOWAS), the Central African Economic Community (CEMAC) and the Maghreb Union of the North African countries. Several countries belong to more than one economic community in an attempt to garner benefits of each.

In some cases the commonalities of the economic community are not easy to distinguish. For instance, COMESA runs from Egypt to Zimbabwe and Zambia, essentially covering half of the continent. CEMAC is entirely of central African Francophone countries, and ECOWAS is a mix of Anglophone and Francophone countries. SADC is controlled by the sheer scale of the economy of South Africa, and Nigeria is the behemoth of West Africa. Kenya and Egypt are the two strongest economies of COMESA, but Egypt, even before the most recent internal strife, had an identity crisis, often arguing that it was African, while remaining firmly in Middle Eastern politics.

Essentially, the economic communities are too big and too diverse to develop a region-wide plan, or simply too lacking in infrastructure at this time to become an effective unit. Yet regionalization is essential to development throughout the continent.

[See a collection of political cartoons on the economy.]

The current U.S. administration has decided to focus on a sub-regional group as the most effective means to support regionalization, and it is hard to argue with the strategy. Work with a smaller group of nations, one that is more advanced economically and with a relatively better infrastructure, get it right as an example for others, and then move on from there.

The sub-region is actually its own economic community, the East Africa Community (EAC), comprised of Burundi, Rwanda, Kenya, Uganda and Tanzania. (The first four nations are also members of COMESA, but Tanzania is a member of SADC.) South Sudan hopes to join the community but that is an issue still unresolved. Its stage of development is far behind any of the others in the region.

There was a previous East Africa Community which existed after independence as an economic union between Kenya, Uganda and Tanzania, but the union was eventually dissolved and only recently was the East Africa Community resurrected, this time including Rwanda and Burundi. Although Rwanda and Burundi are Francophone countries, President Kagame of Rwanda has made English an official language of the country. Burundi, the least developed of the five countries, is recovering from war and internal strife and is far behind the others, although one of the region's major development banks, PTI, is based in Bujumbura, the capital.

U.S. economic assistance is expected to focus on East Africa. Power Africa and Trade Africa, two of the main pillars of Obama's Africa Initiative, will focus considerable efforts on the region and my own organization, the Corporate Council on Africa, has agreed to be the private sector partner for the East Africa Business Council, the private sector arm of the EAC. A major goal will be to develop the private sectors of the five countries.

[Check out our editorial cartoons on President Obama.]

It will not be easy, with or without U.S. assistance. Kenya is by far the dominant economy, something that both Uganda and Tanzania resent, and the latter two are reluctant to agree to anything that strengthens the Kenyan economy, the linchpin of East Africa, without first developing their own economies. Rwanda is developing itself as Africa's IT center, and if successful, will be the key to IT for the region and beyond. However, as a landlocked nation, it is dependent on transportation routes through Kenya for its path to international shipping.

Burundi's plans are less clear. Its borders with the Democratic Republic of Congo, and the unrest in Eastern Congo, are constant cause for concern. One of its greatest challenges is developing a stable society economically and politically. For this region to be successful as an economic community and as a prime destination for investment and development it will need to remain politically stable. Kenya, Burundi and Uganda especially have shown signs of political discord over the past two or three years, and those issues must be addressed if development is to be fully effective. Major crises in any will set the region back for years again. In Uganda, Museveni is ruling with an increasingly strong hand, and in Kenya, there remains political uncertainty until the charges against Kenyatta are either dismissed or resolved.

Yet the rewards for the region and beyond are immense if the countries can become an effective regional economic community. It could become the example for the continent and an anchor for peaceful economic and political relations. Its success would only encourage others.

Stephen Hayes is president and CEO of the Corporate Council on Africa.

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