Opportunity calls: Booming growth and innovation in Africa

July 08, 2014
Naser Faruqui
COMMENTARY

Africa is the next frontier for trade. Surprised? With weak economic outlooks in industrialized economies, global growth depends on trade with developing countries. After East Asia, Africa has the world’s fastest-growing economy.

Over the past decade, trade between Africa and China has grown from $10 billion to $170 billion and stock markets in sub-Saharan Africa have led the world for the past five years. Private equity managers are more excited about Africa than the emerging economies of Brazil, Russia, India, and China. The International Monetary Fund predicts that between 2010 and 2020, 10 of the world’s 20 fastest-growing economies will be African.

This may not be as surprising as it seems. Africa has 15 percent of the world’s population, 20 percent of its natural resources, and with only three percent of global GDP, the continent’s potential is no longer limited, as it has been historically, to exporting its many natural-resources.

Investment opportunities are growing as Africa increases its investment in science and innovation. Just 20 years after a brutal civil war, Rwanda was among the top 10 countries whose economies grew fastest between 2000 and 2010. It’s also easier to start a business there than in Switzerland or Singapore.  Together with Australia, an African consortium is building the world’s largest radio telescope—a science mega project. Uganda, Kenya, Ghana, South Africa, and Senegal perform well on innovation indices. M-pesa, an innovative banking platform that pioneered mobile banking, was invented in Kenya and boasts more than 21 million users in Kenya and Tanzania.

Agencies that fund or catalyze innovation are emerging. iHub, a Nairobi-based technology incubator supported, in part, by Canada’s International Research Development Centre (IDRC), has spawned 150 companies in three years. Fast Company magazine named it one of the world’s 50 most innovative companies. Another example, the African Institute for Mathematical Sciences, funded in part by a $20 million investment from the Canadian government and implemented by IDRC, is providing world-class training to the best students across the continent. It aims to find the next Einstein in Africa and fill the skills gap needed to sustain Africa’s growth and transform it into a knowledge economy.

Multinational corporations are taking notice. As chronic diseases become more common among Africa’s growing middle class, GlaxoSmithKlein recently announced a $200 million investment to establish additional drug-manufacturing factories across the continent. The company also plans to open the world’s first R&D lab to focus on non-communicable diseases in Africa, establish 25 academic chairs at African universities, and train 10,000 community health workers. Clearly, GSK sees Africa’s market potential over the long term. More promising developments came when IBM established a big-data analytics lab and Royal Philips set up an innovation hub. Both are in Nairobi.

These are encouraging signs. But constraints remain, including weak science and technology capacity and a lack of collaboration among African countries. There’s also a poor knowledge of local needs. For example, the HIV drugs being developed in the West don’t treat the HIV strain that prevails in Africa.

The African academic environment also poses constraints. Not one university from West or Central Africa appears among the world’s top-500 universities. Many African countries lack research-funding bodies. Others have poor research ethics regulations. In one country, 75 percent of research funds were awarded to a single institute.

There’s also no question that some African countries face serious governance challenges. But economic growth and innovation needn’t wait until all are addressed. The two can happen simultaneously. Rwanda’s lessons show countries can and will emerge from unthinkable times. Investing in science and innovation to create jobs and growth reduces economic inequalities and is an important part of overcoming governance challenges.

Continent-wide, Africa has seen average growth of five percent so far in 2014, and is projected to hit six percent in 2015. There will undoubtedly be ups and downs in the short term, but prospects for long-term growth look good, especially if development efforts build on investments Africa itself is making in science and innovation. Industrialized countries will want to sustain this growth for their own good and Africa’s. The ongoing transformation offers opportunities for universities, granting councils, and the private sector to collaborate with Africa. It offers opportunities for Canada and others to secure prosperity by developing strong partners with whom to innovate and trade.

Naser Faruqui is the Director of Technology and Innovation at Canada’s International Development Research Centre.