Why building resilience is key to Africa’s future

Africa has made remarkable progress on a range of social and economic metrics in recent years, but there is still much work to be done in developing the continent’s resilience to regionally and globally interconnected risks.

The World Bank reports^[1] that the GDP of sub-Saharan Africa has grown at an annual rate of 4.4% over the past two decades, and is expected to increase a further 4% in 2015.

That economic progress has been paralleled by social development. In a 2014 report,^[2] the United Nations Economic Commission for Africa notes that delivery on the Millennium Development Goals has accelerated on the continent since 2003, with eight of the ten best performing nations on those targets coming from Africa.

The report highlights progress in reducing poverty, unemployment, infant and maternal mortality, HIV infection rates, and death related to malaria. At the same time, it points to steady improvement in access to clean drinking water, foreign markets and financial services.

Fragile

As heartening as these successes are, Africa still faces fundamental challenges and remains vulnerable to a range of evolving foreign and domestic risk factors.

Sub-Saharan Africa remains the lowest ranked region in the world in terms of human development, according to the UN Development Program^[3], with nearly half the population still living below the poverty threshold of a USD1.25 a day^[4]. It also has the largest number of water-stressed countries of any region, which feeds into a broad nexus of social and economic risks.

Global Risks 2015, a report published by the World Economic Forum in partnership with leading institutions including Zurich Insurance Group, highlights the risks for which global leaders believe their region is least prepared. In sub-Saharan Africa, one in three survey respondents highlighted unemployment and underemployment. Food crises, the spread of infectious diseases, interstate conflicts, and terrorist attacks were also seen as major issues. In North Africa, the focus was primarily on water conflicts and social instability.

There are a host of ills underpinning these concerns, not least of which is that despite recent economic growth, Africa as a whole remains highly dependent on commodity exports.

The region is “largely bypassing industrialization as a major driver of growth”, the World Bank says^[5], with much of the continent’s recent increase in GDP coming from extractive industries and services, while the share of output from manufacturing and agriculture are dwindling.

As a result of this imbalance in output and production, the recent drop in the price of oil and other commodities, coupled with anemic growth in Europe, saw growth expectations for sub-Saharan African in 2015 reduced by more than a percentage point.

Governance

There are also significant governance challenges. Most countries in Africa are at a relatively early stage in their democratization process and, as the UN’s Economic Commission acknowledged in a 2013 report,^[6] the process “remains fragile and contestable.”

Most countries face significant weakness in terms of legislative effectives, judicial independence, human rights, and respect for the rule of law.

Compounding the risks

This perceived weakness of governance makes it even more difficult for the region to respond to catastrophes and greatly compounds the interconnected risks.

A strong recent example is the ongoing outbreak of the Ebola virus in Guinea, Liberia and Sierra Leone. While the disease has been limited to these three countries, its affects have been felt across the region.

According to Abdoulaye Mar Dieye, the Director of the UN Development Program’s Regional Bureau for Africa, “Stigma and risk aversion have caused considerable amounts of damage, shutting down borders and indirectly affecting the economies of a large number of countries in the sub-region”.

The United Nations Development Group estimates^[7] that the disease will cost West Africa as a whole about USD 3.6 billion a year between 2014 and 2017, reducing per capita income by about USD 18 a year over the period. It estimates that the poverty rate in Côte d’Ivoire has already risen by half a percentage point, while in Senegal the number of people living below the poverty line may have risen by as much as 1.8 percent due to the disease. Food insecurity in neighboring countries is expected to rise.

Building resilience

The African Union has recognized the need for action and committed through the Common African Position (CAP) on the Post-2015 Development Agenda^[8] to address “the challenges posed by climate change, desertification, land degradation, drought and loss of biodiversity; promoting peace and security; and implementing a responsive and accountable global governance architecture through, inter alia, the full and equitable representation of African countries in the international financial and economic institutions.”

CAP includes measures to diversify African economies, improve agriculture techniques and overcome some of the regions social challenges, but to be successful these changes will need the support of business.

Companies need to proactively engage with governments to foster the conditions that will support future investment in the region, and need to play a part in combating corruption and developing solutions to social fragility.

by Patrick Manley, CEO of Zurich’s General Insurance business in Europe, Middle East and Africa.