decrease in its share of FDI projects, while East Africa saw a 26.3 percent increase. Within East Africa, Kenya gained the greatest number of FDI projects, observing an increase of over 50 percent from its 2014 figure. Notably, Kenya also became the largest intraregional investor of FDI in Africa in 2015. In other words, Kenya is the largest African investor in Africa. The report cites many reasons for the apparent shift toward East Africa, including “recent oil and gas discoveries, growing consumer markets, accelerating regional integration and infrastructure development,” (EY 2016).

Despite the fact that regional integration is one of the key factors driving FDI to the region, the East African Community (EAC) has been experiencing some hardships lately. Tanzania, the current chair of the EAC Heads of State, announced two weeks ago that the regional body would not be signing an economic partnership agreement (EPA) with the European Union—a deal that the Kenyan government strongly favors. Tanzania cites the Brexit as justification for refusing to sign, arguing that the deal could render the EAC vulnerable to declining economic conditions in Europe. Still, Kenya has much more at stake if the EAC continues to refuse the EPA, as it does not benefit from the same Least Developed Country status that already allows many other EAC countries favorable access to the European market. Starting in October, Kenya will face increased tariffs and trade regulations if the deal is left unsigned.

Furthermore, regional integration projects such as a railway that would connect Kenya, Uganda, Rwanda, and Burundi have been put on hold. Kenya built 60 percent of its track before Uganda and Rwanda decided to pull back from the project. Thus, despite Kenya’s and East Africa’s recent progress in attracting FDI, certain trade and integration measures in East Africa are still experiencing turbulence.

Sarah Baker contributed to this piece.

      

 

 

As in many other countries, South African local elections are less about their ostensible purpose—electing governments in 278 municipalities—than a test of support for national parties. They may signal whether the next national election, in 2019, will be another foregone conclusion for the governing African National Congress (ANC) or the most competitive in the country’s democratic history. They will also decide whether the ANC retains its hold on all but one of the eight metropolitan councils that govern the major cities—which is why these local elections are attracting more interest than most national ballots.

If opposition politicians and a media that sympathizes with them are right, the ANC is headed for a crushing blow. Just two years ago, in the 2014 national election, the ANC’s vote in three big cities dropped to slightly above or below 50 percent. Similarly, the opposition’s optimism is fuelled by hundreds of local by-elections (held when councillors vacate their seats) that show a swing from the ANC to the largest opposition party, the Democratic Alliance (DA). And it reached unprecedented levels when polls showed the DA leading the ANC in Nelson Mandela Bay in the Eastern Cape province and Joburg and Tshwane (Johannesburg and Pretoria) in Gauteng, the country’s economic hub.

Why is the ANC apparently in trouble and how much trouble is it in?

On the first score, the excitement centers on only three or, at most, four contests (a third Gauteng metropolitan council, to Johannesburg’s East, has been targeted by the opposition although it was not considered a possible ANC loss before the campaign). There is little evidence that the ANC is in trouble elsewhere. In fact, even if the opposition achieves its target, the ANC will win well over 50 percent of the vote across the country.

This contrast between the hotly contested big cities and the rest shows that the more voters are integrated into the formal economy, the more the tide is running against the ANC. This reflects the development of the economy and society since 1994.

When South Africa negotiated a democratic constitution, it addressed the denial of citizenship rights to the majority. But it did not address its symptoms—the dominance of the economy and society by a few.

South Africa in 1994 was controlled by an exclusive club, to which only whites could belong. Democracy opened it to some black members but it remains exclusive: the economy (and other social institutions) still serve the few, but without the racial barriers.

The society is still divided between insiders and outsiders. The insiders are now black and white, but the outsiders are still almost exclusively black. Some black people participate as workers, managers, professionals, and sometimes owners in a formal economy that had barred them but the rest of the racial majority remains excluded. And so a growing fault line has emerged between the politics of the insiders and outsiders. The former is concerned with the health of the economy and checking government power—the latter is dominated by patronage politicians who distribute largesse to those shut out of the market.

The division runs through the ANC, in which factions wedded to the two political styles compete. But it also costs it support in the cities and particularly in the new black middle class which increasingly sees the ANC’s patronage camp as grubby and corrupt. Many in the black middle class also feel they are not equal members of the insider club—that they enjoy opportunities previous black generations were denied but encounter the same white racial biases. Many of these voters gravitated to the Economic Freedom Fighters, a party of former ANC youth leaders that is seen as left-wing but campaigns primarily against white dominance of business and the professions.

It is this trend that fuels opposition hopes. If they are realized, the result will confirm the widening gap between insiders and outsiders, between the politics of the urban core and the periphery and countryside. In the 2014 election, the ANC vote dropped by 10 percentage point in Gauteng, the country’s most urban, middle class, area. Already, a national government that wins almost two-thirds of the vote encounters so much urban middle class hostility that few public commentators dare praise it; outside the urban core it continues to dominate elections and social life. The election could confirm this gulf.

How much ground will the ANC lose in the cities? Urban disaffection with the ANC’s patronage politicians is more pronounced among the middle class. ANC voters may be horrified by its current leaders but many identify with its history and hope the “ANC of old” will reappear. And because the insider-outsider divide runs through the ANC, some who reject patronage politics continue to support its insider wing which is, predictably, stronger in more urban and middle class areas. These factors may stem the anti-ANC tide.

The accuracy of the polls is in doubt—they use telephone interviews which may exclude poorer ANC voters. But they do show many undecided votes. These are almost certainly ANC voters who are unhappy but cannot decide whether to break with it. This trend is not new, though: In previous elections, ANC support increased sharply in the last days of the campaign as disillusioned supporters decide to remain in their political home.

The outcome in the battleground urban areas will depend on whether they do this again or finally abandon their party.  If they do make the leap, the ANC may lose the urban areas for a very long time. Whether that produces a growing divide between town and country or prompts voters outside the big cities to bolt the ANC, this will dent its electoral dominance and herald a more competitive, less predictable, politics.

      

 

 

Michelle Obama echoed this point during the United States of Women Summit in June, saying, “We’ve seen time and again that when educated girls grow into successful women, they don’t just pat themselves on the back and enjoy the fruits of their successes—no, as they should, they reach back and they help other women and girls along after them.” She singled out Kenyan entrepreneur Ciiru Waithaka, the founder of FunKidz, a successful children’s furniture company that designs products inspired by African stories. Waithaka garnered the First Lady’s praise for founding a program that has taught 350 disadvantaged youth about technology and innovation to date.

Prior to her success, however, Waithaka struggled with a common problem for female entrepreneurs in Africa: limited access to capital. She eventually received a loan from Goldman Sachs’ 10,000 Women Initiative, which provides capital to female entrepreneurs in developing countries—but many other potential business owners are not so lucky. According to the International Finance Corporation, nearly 70 percent of female-owned small and medium enterprises in the developing world are reported to be unserved or underserved by financial institutions. In sub-Saharan Africa, formal borrowing rates lag behind those in other developing regions for both men and women (Figure 1).

Source: WDI (2014)

Still, women are excluded from basic financial access to a greater extent than men. Only a quarter of women (compared to nearly one-third of men) have an account at a financial institution (Figure 2). Notably, only 5.7 percent of women—and 6.9 percent of men—actually borrowed from financial institutions, demonstrating that having a bank account does not necessarily increase access to capital.

Source: WDI (2014)

However, women achieve parity to men in their ability to borrow from family or friends. In fact, they outpace men in their utilization of savings clubs, demonstrating a creative solution to limited access to formal finance. Since savings clubs are more popular among women, this trend might signify that women are more dependent on each other for capital than men. Thus, increasing access to capital for one female entrepreneur could have a snowball effect for other female entrepreneurs in her community.

And yet access to capital is not the only or necessarily the greatest constraint facing women entrepreneurs. One study shows that in sub-Saharan Africa, the gap in access to credit between men and women disappears when controlling for other factors such as the applicant’s level of education and income. Another study observes that the average small business in a developing country lacks basic business practices—such as formal record keeping, marketing, setting financial targets, and efficient inventory management—that are standard for small businesses in developed countries. To remedy this, many governments and nonprofits have attempted to develop business skills and encourage human capital transfer through business training programs. A meta-review of studies about the effectiveness of these training programs finds that business training has no effect or a marginally negative effect on the survival rate of female-owned businesses—while there is some evidence for a small positive effect on male-owned businesses. So, how is it that even with training, women still struggle to succeed relative to their male peers?

One possibility is that women face societal constraints that inhibit their business potential, even after receiving training. In Ethiopia, one study finds that small and micro enterprises located near the homes of the owners fare worse than those located near customers and/or raw materials suppliers. This situation creates a serious conflict for women, who cannot travel far from their homes as they are disproportionately responsible for domestic work like housekeeping and childrearing. Competing household needs also make women more likely to mix home and business funds, which is an unfortunately common practice among male- and female-owned small businesses in the developing world.

A pilot program in Uganda attempted to overcome social obstacles that impede female entrepreneurs by combining the hard skills of vocational training with education on marriage, sex, and reproductive health. The study shows that after two years, program participants were 72 percent more likely to engage in income-generating activities—including self-employment—while rates of marriage and childbearing at a young age fell considerably. The study provides evidence for multi-faceted intervention when it comes to female entrepreneurs, as both social and economic constraints play a pivotal role in determining the success of a female business owner.

However, another study from Uganda examines the effects of female empowerment on the competitiveness of women and their siblings in Ugandan communities. Though empowerment had no effect on female competitiveness, the study finds that brothers of newly empowered sisters were significantly more competitive than brothers of women who did not receive the female empowerment training. While competitiveness benefits society in some ways by creating more driven and productive members, this result could have been caused by a perceived threat to male identity in a traditionally male-dominated society. This finding suggests that men should take part in conversations surrounding gender roles, so as to not feel threatened by shifts in gender dynamics.

The benefits of male inclusion are uncharted but potentially great. For example, teaching men to support their wives’ economic pursuits would have generational benefits, as their children are more likely to implement better business practices if they have a father or a mother who owned a business.

All of the evidence from these studies suggests the need to address societal factors when attempting to enable female entrepreneurs. Addressing the hard skill deficit can only go so far without combatting the typical domestic and societal pressures that continue to plague women in the developing world. Accomplished female entrepreneurs, in turn, can potentially generate a greater impact on their environment by channeling their success into helping their children and communities.

Sarah Baker contributed to this post.

      

 

 

The African Union held its 27th annual summit July 11-18, during which time top policymakers across the continent debated and unveiled priorities and innovative policy proposals for the continent. Topping the agenda was the recent eruption of violence in South Sudan after a short-lived peace agreement. United Nations Secretary-General Ban Ki-moon, who was in attendance, called for an arms embargo and targeted sanctions, while East African leaders supported and prompted the deployment of an AU peacekeeping force.

Indeed, policymakers had a long list of issues to work through during the summit: On budget issues, leaders agreed to enhance the AU’s “self-reliance” by levying a 0.2 percent tax on some imports in order to move away from its high dependence (73 percent) on external donors for its annual $500 million budget. In order to enhance regional integration and trade, the African states launched the new all-Africa passport. While only heads-of-state are eligible— President Paul Kagame of Rwanda and President Idriss Déby of Chad are the first to receive them so far—many African citizens praised the move to open borders for growth. Delegates also agreed to a new “roadmap” for tackling the most pressing health issues affecting the continent in its “Catalytic Framework to end AIDS, TB, and Eliminate Malaria in Africa by 2030.” Finally, at the end of the summit, Morocco, which has not been an AU member for 32 years due to the union’s decision to recognize Western Sahara, expressed its wish to rejoin the regional organization.

Perhaps most interestingly, the heads of state of the African Union failed to elect the next AU Commission chairperson. After the first round, none of the three controversial candidates won a majority of the vote, largely due to many abstentions. After the second round, there was still no two-thirds majority, the election was declared null, all three candidates were eliminated, and the voting was postponed until January. The current administration, led by Dr. Nkosazana Dlamini-Zuma, will continue to hold the chairmanship until then.

For more analysis on what these controversial elections mean for the African Union, see John Mbaku’s blog, “Stalemate in Kigali: African Union fails to elect a chairperson.”

This year’s annual U.N. Nelson Mandela International Day was celebrated around the world on Monday, July 18, Mandela’s birthday. Public participation in Mandela Day was spurred by the annual social movement,  “67 Minutes for Mandela,” the devotion of 67 minutes of one’s time that day, one minute for every year of Mandela’s service, toward changing the world for the better. On the official Mandela Day website and through social media, people around the world shared community actions to which others could dedicate their 67 minutes. The 67 minutes of kindness toward strangers is meant to represent Mandela’s belief that “…to be free is not merely to cast off one’s chains, but to live in a way that respects and enhances the freedom of others.”

To celebrate this day, every year the Nelson Mandela Foundation hosts a lecture where prominent visionaries are invited to speak on topics related to the themes of Mandela’s life. The 14th annual Nelson Mandela Lecture’s theme was “Living Together,” the core principle that drove Mandela’s words: “If you want to make peace with your enemy, you have to work with your enemy. Then he becomes your partner.” Bill Gates was selected to give this year’s lecture at the University of Pretoria, which he took the opportunity to focus on the potential of the African youth and the necessity to increase the opportunities for these young people to thrive, especially given the continent’s rapid demographic change. Gates also echoed Mandela’s hope for the future, declaring that “people can make the future better than the past,” and that “highlighting the oppression of young people is a powerful way of explaining why things must change.”

In addition to his speech, Gates also pledged an additional $5 billion in investment over the next five years toward the areas the Gates Foundation believes will have the greatest impact. These include the distribution of vaccines for diseases like pneumonia and severe diarrhea, the fight against HIV/AIDS, the breeding of vitamin-enriched staple crops, and improving education systems across the continent. The investment aims to “clear away the obstacles standing in young people’s way so that they can seize all of their potential.” The Mandela Foundation’s key focus areas for 2016, including education and literacy, food security, and shelter and infrastructure, mimic the same necessity for the basic requirements that pave the road toward human empowerment. Although this year’s theme of “Living Together” applies to people of all ages, the spotlight of this Mandela Day, and of Gates’ lecture, was on Africa’s youth and the potential of the growing youth population. In the words of Nelson Mandela, “There is no passion to be found playing small – in settling for a life that is less than the one you are capable of living.”

Many Africa watchers have been noting some of Nigeria’s recent economic troubles this week. The International Monetary Fund decreased its growth forecast for Nigeria from 2.3 percent to 1.8 percent, attributing the slowdown to a decline in oil production, falling oil prices, and lowered investor confidence. According to this forecast, the Nigerian economy will experience its first contraction in over 20 years. Growth forecasts for 2017 are even bleaker—the IMF cut next year’s forecast from 3.5 percent to 1.1 percent. Breaking another historical trend, inflation reached 16.5 percent in June, the highest level observed in Nigeria in 11 years.

Unfortunately, the benefits of a free-floating naira have not yet been achieved. Though the government released the naira-to-dollar currency peg on June 20, the Central Bank of Nigeria retook control of the exchange rate after the naira fell 30 percent against the dollar. In order to prevent the naira from weakening further, the bank decided to curb demand for dollars by prohibiting the purchase of non-essential imported goods with dollars. Curbed dollar demand has repressed the expected increase in foreign exchange inflows, and forced importers onto the black market for dollars—where the exchange rate is about 20 percent less favorable to the naira than on the formal market. A shortage of goods, including milk and fuel has ensued, and factories in need of inputs have halted production.

Nigeria’s economic woes have simultaneously caused and been exacerbated by the activity of the Niger Delta Avengers, a group of insurgents from the impoverished delta region that generates most of the country’s oil wealth. The rebels are frustrated with the government’s failure to use oil revenue to develop the delta region, and some believe President Muhammadu Buhari is ignoring the region due to his northern ties. In response, the group has been damaging crucial oil pipelines in recent weeks, causing Nigeria’s oil production to plummet from 2.2 million to 1.5 million barrels per day. The decrease in oil production will have serious ramifications for the Nigerian government, as oil revenue comprises two-thirds of the government’s income. 

       

 

 

Unfortunately, South Africa, the second-largest economy on the continent, has the highest youth unemployment rate at 54 percent, as seen in the figure below. Surprisingly, according to the figure the highest rates of youth unemployment lie in the upper-middle-income countries as classified by GNI per capita. Additionally, these unemployment rates might be depressed due to the fact that unemployment refers to people looking for jobs, and many of Africa’s youth are forced into the informal sector after giving up on their search for employment.

Although youth unemployment in Africa is often seen as a growing challenge, a number of experts interpret the large youth population as an opportunity, as long as the youth have access to the economic opportunities through which they can channel their energy into progress. As Africa’s youth is predicted to grow exponentially, achieving broad-based economic growth and development will rely on breaking down the barriers to economic opportunity, by investing in human capital (through education) and in improving business environments.

Figure 2.3. Youth unemployment will continue to be a growing challenge in 2016

Interestingly, GDP and income classification have little correlation with youth unemployment rates. For example, South Africa, which has the second-largest economy on the continent and is considered an upper-middle-income country based on its GNI per capita, has the highest youth unemployment rate at nearly 54 percent. Meanwhile, the Liberian economy, which is nearly 200 times smaller than South Africa’s, has a youth unemployment rate 10 times smaller. Youth unemployment is measured as the share of the labor force (ages 15-24) without work but available for and seeking employment. Estimates may be low in some low-income countries like Liberia because many young people cannot afford not to work to seek employment and as a result, end up in low-paying jobs.

Source: Youth unemployment figures from World Development Indicators and GDP data from the World Bank databank.

See the Brookings Africa Growth Initiative’s Foresight Africa 2016 report, from which the figure below comes, for more highlights on the growing challenge of youth unemployment in Africa. In addition, earlier this month the Brookings Institution hosted an Africa Policy Dialogue on the Hill on jobs in Africa, alluding to the shortcomings of the educational systems and the importance of infrastructure and electricity to support business and attract investment. For a summary of the conversation, see here.

Tor Syvrud contributed to this post.

      

 

 

The discussion centered on the frameworks for peacebuilding in South Sudan, the diverse challenges facing the country in negotiating peace and restarting economic growth, and the transition from humanitarian assistance to resilience and development. It featured a presentation by the Japan International Cooperation Agency (JICA), who is engaged in a diverse array of development programs in South Sudan. Other participants in the discussion included representatives from the U.S. government, multilateral financial institutions, and international humanitarian and civil society organizations.

According to the U.N. Security Council 2009 Report of the Secretary-General on peacebuilding in the immediate aftermath of conflict, several areas where the international community can support conflict-affected countries in their transitions to peace include: basic safety and security, political processes, the provision of basic services, restoration of core government sources, and economic revitalization. Upon its independence in July 2011, South Sudan began implementing its development strategy document, the South Sudan Development Plan (SSDP), which also highlights these areas as its development priorities. The Japan International Cooperation Agency (JICA), as noted by Dr. Furukawa, is one of several bilateral and multilateral stakeholders aligning their support with South Sudan’s plan to promote peace and stability, as well as achieve its development objectives.

JICA is engaging in a number of programs that complement the SSDP and fall under four key pillars: improving basic economy and social infrastructure (by rebuilding water and electricity systems, bridges, roads, and the river port); developing alternative industries (to reduce reliance on oil and support the development of other industries, including agriculture); supporting basic living and livelihoods (by providing skills and vocational training); and strengthening governance and security (by engaging in institutional capacity development of South Sudan TV and Radio, peacebuilding through sports, and helping to resolve of traditional conflict, for instance, cattle raiding). The infrastructure projects, including the expansion of the Juba River Port and construction of the New Nile Bridge in Juba, are scheduled to be completed in 2017 and 2018, respectively.

An interesting point raised by participants during the discussion was that the priorities and programming of different development partners have changed throughout a conflict. For example, the U.S. initially supported the South Sudanese government in capacity building activities; however, once the civil war broke out, it refocused efforts on providing humanitarian support and directly assisting the South Sudanese people. As fighting diminishes, several participants agreed that a focus on agriculture as a key intervention area is important since nearly 90 percent of the South Sudanese population depends on agriculture for their livelihoods.

Participants highlighted some of the many challenges of working in a conflict-affected country such as South Sudan. As Alexander de Waal noted in a 2014 article, South Sudan’s political system can be characterized as a kleptocracy with militarized, corrupt, neo-patrimonial political institutions in which patron client relations are not stable, but are constantly subject to renegotiation. Although there is a transitional government of national unity has formed, which provided some hope for improvements in the security situation, many of the same actors involved in the unity government are the same as those who were in power when the civil war broke out in the first place—and July’s events have flared violence and tensions. Participants therefore raised the question of whether the new government will be able to truly reconcile their differences and govern effectively.

Furthermore, the economic situation remains extremely volatile due to the austerity budget, low oil prices, and fluctuations in the foreign exchange rate. The country has lost nearly all of its foreign reserves, has no revenues, and lacks credibility among financiers, one participant noted. Participants called for greater macroeconomic stability and strengthening of public financial management. Seamless assistance, transitioning from humanitarian aid to more sustainable development is fundamental. Building up the non-oil sector is important to broad-based growth and development.

Future interventions suggested by participants included those that encompass capacity development for core government functions, provision of basic services including social infrastructure, promotion of unity and trust, support to basic safety and security initiatives, and mainstreaming gender parity. A consensus formed around the idea that the security, economic, and humanitarian/social situations needs to be addressed simultaneously, since all of these facets are interlinked. Given the enormity of the challenges facing the security, economic, political, and humanitarian spheres in the South Sudan, however, the question was raised of how this can be done, and how the international community can participate.

Participants offered some recommendations for how this can be achieved throughout the discussion. Disarmament, demobilization, and reintegration (DDR) programming should be prioritized by multilateral development institutions and the South Sudanese government since it addresses several interlinking facets at once: for example, expanding economic opportunities, supporting humanitarian efforts, and improving quality of life for former combatants, as well as victims of violence, to reduce likelihood for a relapse to fighting. For nongovernmental organizations (NGOs) and bilateral/multilateral donors, selecting the right local partners in support of development programming is as important as explaining how the local and international systems work. At the same time, these actors should be careful not to create a two-tiered system, drawing away local talent from the government and local civil society actors to international NGOs. The government should take full advantage of regional markets and integration efforts because South Sudan has joined the East African Community, giving the country greater access to regional markets.

It is possible that JICA and other partners may expand their reach outside of Juba, where most agencies remain, once a clear subsidence in violence takes place. Participants agreed that the recent peace deal enabling the return of opposition forces and Machar to Juba, as well as the establishment of the transitional government, is a major opportunity for the country to consolidate peace and begin pursuing a path toward good governance. Some ministries are already beginning to function again. Unfortunately, the breakout of violence in July seems to have stymied many of these steps forward.

On a positive note, South Sudan will be in the Olympics for the first time. Participants identified several questions that remain, however: How will the opposition and ruling parties work together? Will they be able to build unity and social cohesion, despite the issues of trust and history of corruption? When can DDR begin? Does DDR programming need to wait for a certain level of security to exist before it can be implemented? Who should take the lead on such efforts?

      

 

 

The conventional knowledge of structural transformation—labor migration from agriculture to high-productivity, labor-intensive industry—has been turned on its head in Africa. Instead, Africans are moving to jobs in the services sector, which some experts argue is a less productive path. Then again, unique opportunities in African digital jobs are opening up doors the world has never seen before.

The need for decent job creation in Africa also provides both threats and opportunities to the United States. For example, a lack of viable jobs could make the turn to crime, violence, and even extremism—with the promise of steady income from these activities—more appealing to economically marginalized individuals, especially among the youth. Furthermore, job creation boosts the growth of the middle class, expanding the base of consumers for American products, at the same time creating new, stronger trade partners able to supply goods to American consumers. Already, the United States and other countries are creating a myriad of programs to boost entrepreneurship on the continent.

On Monday, June 27, the Brookings Institution’s Africa Growth Initiative and the Congressional African Staff Association hosted an event to discuss why Africa is struggling to create the quantity and quality of jobs it needs and what policies—both African and U.S.—can turn that trend around. Ernest Danjuma Enebi, founder and managing partner of The Denda Group, moderated the discussion. Panelists included Dr. Eyerusalem Siba, research fellow at the Africa Growth Initiative; Hassanatu Blake, co-founding director and president of the non-profit Focal Point Global; and Nicolas Cook, a specialist in African Affairs in the Foreign Affairs, Defense, and Trade Division of the Congressional Research Service.

The discussion touched on multiple key points, including what Africa’s unique structural transformation path means for the region’s employment landscape; how development partner efforts affect job growth on the continent; how Africa can avoid a potential “demographic timebomb” of youth unemployment and instead benefit from a “demographic dividend”; and how the United States is addressing the challenges these trends pose for both the continent and the U.S.

Enebi began the dialogue with a Q&A with Siba on an overview of African economic trends, youth unemployment, and formal sector jobs on the continent.

Blake argued that the high youth unemployment is due in part to the region’s struggling educational systems where Poor quality education leads to poor grades on periodic tests and thus students are being pushed out of school, she said. Once out of the formal schooling system, they enter the workforce underprepared without the skills they need to succeed in the job market.

Blake continued to argue this point through a description of Harambee, a private South African organization that works towards improving prospects of youth employment. The program has placed over 20,000 youth into jobs over the past 5 years by testing job applicants on literacy and mathematical ability and matching them with employers. Harambee addresses a broader skills mismatch that Blake argued is holding back job creation. More broadly, Blake argued, public-private partnerships must be created to help youth find jobs and employers find employees.

A major theme of the discussion was that a shift away from aid and towards the support of labor-intensive industries and enabling environments for business can spur job creation.

Of course, causes of unemployment are largely driven by the demand-side factors, acknowledged the panelists. A major theme of the discussion was that a shift away from aid and towards the support of labor-intensive industries and enabling environments for business can spur job creation. Indeed, Cook discussed the importance of the mantra “trade not aid” in addressing these issues, as there are many large American firms with an economic interest in expanding to Africa; however this interest is miniscule compared to Africa’s trade with the rest of the world. Increasing global investments in Africa is, thus, a key part of any job creation, he emphasized.

Cook also touched on global relationships with Africa. He noted that only 1 percent of U.S. foreign direct investment (FDI) goes to Africa, and only one percent of American trade is with Africa. Now, several economic development programs, like the U.S. Electrify Africa Act of 2015 and the USAID Power Africa Initiative, exist but are in need of continued funding. To boost trade, the United States has launched the Trade Africa program and has established trade hubs in western, eastern, and southern Africa.

Investments in infrastructure, greater participation in the export market, interventions on improving managerial and marketing skills and the use of information and communications technologies (ICTs) to access global markets can help clear the way for greater job creation.

Siba agreed with the idea of a focus on trade and FDI as major factors in job creation. In fact, she shifted the discussion toward a focus on investments in supporting industry because, as she emphasized, the biggest predictor of business performance including job creation is export market participation. Investments in infrastructure, greater participation in the export market, interventions on improving managerial and marketing skills and the use of information and communications technologies (ICTs) to access global markets can help clear the way for greater job creation, she said.

There are clearly many opportunities for foreign investors to support African industry, but challenges to development remain due to poor infrastructure and a lackluster environment for business.

Blake agreed that ICTs and infrastructure hold great potential for spurring job growth, but pointed out that ICT and infrastructure investment “look different” in different parts of the continent. In some countries in central Africa that she worked with and Cameroon, she suggested, ICTs are not always the best vehicle to drive job growth due to the prohibitive cost of ICT devices and emphasized that keeping local conditions in mind when exploring potential job-creating programs and investments is essential for success.

Cook then pivoted to a discussion on the importance of small enterprises and technology in boosting job growth. He pointed out the importance of WhatsApp as a new means of communication that has helped spur job growth and productivity, and the mobile money transfer platform m-Pesa as a key component of the increase in micro-lending in Kenya. Offered by Safaricom, Kenya’s largest mobile network, M-Pesa allows mobile phone users to transfer money, pay bills, and deposit money. The World Bank highlighted the service in 2009, concluding that “The affordability of the service has been key in opening the door to formal financial services for Kenya’s poor.” The service has also allowed financing of micro-enterprise to take off, but Cook acknowledged that ascertaining the precise impact of these technologies on job growth is very difficult due to the scarcity of data.

The small credit card market and rarely used banking services exclude a wide percentage of the population from the financial system. The widespread presence of mobile phones has now opened up this system.

Fifty to 80 percent of new jobs in Africa are created by small businesses that are not likely to survive more than five years.

Siba elaborated on Cook’s description of the vital role of small businesses in creating jobs on the continent. She argued that any job creation programs in Africa should focus on solving the challenges of small businesses in job creation because they dominate the market structure. Unfortunately, at the moment, small businesses there are not robust. Fifty to 80 percent of new jobs in Africa are created by small businesses that are not likely to survive more than five years. Since small and medium enterprises comprise over 90 percent of all firms in sub-Saharan Africa, this volatility affects the whole economy. As a result, any potential solutions must take this market structure into account. In addition, as Siba suggested, increased focus must be paid to the integration of African businesses into regional markets and domestic and global value chains so that small and medium enterprises have more opportunities to grow.

The discussion concluded with a focus on opportunities for growth: Governments should focus on processing raw commodities for local uses, like timber, coffee, and cocoa; small- and medium-sized enterprises should be scaled up with stronger access to financing and skill development; governments should pursue partnerships with private companies to address the skills mismatch; and education funding should be deliberately targeted to address missing skills, correctly processed, and carefully monitored. Continued job creation in Africa depends on it.

      

 

 

We offer our main findings below on the key recent events influencing the region’s economies, namely: the United Kingdom’s referendum results to leave the European Union (or “Brexit”) and spillover effects on African markets, the introduction of Nigeria’s new flexible exchange rate regime, and credit ratings reviews for South Africa and Mozambique.

As the results of the U.K.’s referendum on its EU membership were announced early on Friday, June 24, 2016, the “leave” outcome rattled global financial markets, and, in turn, sent ripples through African markets.

• Although equity markets fell on June 24, the declines were most pronounced in Kenya and South Africa, which lost about 4 percent in the week following the Brexit (see Figure 1). South Africa boasts liquid markets, which makes it susceptible to investors’ asset reallocation. In addition, since the EU remains one of South Africa’s top trading partners, and the U.K. is the fourth-biggest destination of South African exports, the effects of the Brexit on South Africa were greater than for other African countries less active in EU and U.K. trade.
• The benchmark MSCI Emerging Markets Index’s decline was more short-lived, decreasing by 3.5 percent in the day following the announcement, but returning to levels just 1.4 percent lower than those prior the announcement by the end of the week.
• The impact on bonds markets was muted (see Figure 2). African and global bond spreads increased by 27 basis points and 20 basis points, respectively, the day after the announcement, but fell closer to levels preceding the Brexit by the end of the week.
• The South African rand depreciated by 4.6 percent against the dollar immediately following the announcement. The Nigerian naira depreciated considerably against the dollar in the week following the results although the naira’s weakening can be attributed more directly to the country’s decision to introduce a flexible exchange rate regime on June 20 (discussed in the following section).

While the short-term effects of the Brexit were generally felt through capital and foreign exchange markets, in the long term the spillover channels which may be influenced by the Brexit include: lower growth in the EU and U.K. (suppressing demand for African goods and services) and potential reductions in tourism, remittances, trade, and aid. More information on how these channels are affected is needed to determine the economic impact of the U.K.’s departure from the EU. For more information on the potential effects of the Brexit on Africa, see the recent Africa in Focus blog by Mariama Sow and Amadou Sy: The Brexit: What implications for Africa?

Figure 1. Movements of select African equity indices and currencies following the Brexit announcement on June 24, 2016.

Source: Author’s calculations using Bloomberg Finance L.P. and J.P. Morgan Emerging Market Bond Index Global (EMBI Global).

Note: Equity indices are denoted in local currency terms, except for the MSCI Emerging Markets Index which is denoted in U.S. dollars. For currencies, positive changes indicate a weakening against the dollar.

Figure 2. EMBI Global spreads in basis points pre- and post-Brexit.

Source: Bloomberg Finance L.P., J.P. Morgan Emerging Market Bond Index Global (EMBI Global). Note: The EMBI Global includes only USD-denominated emerging markets sovereign bonds and uses a traditional, market capitalization-weighted method for country allocation. The Africa sovereign spread includes coverage of Angola, Côte d’Ivoire, Egypt, Gabon, Ghana, Kenya, Morocco, Mozambique, Namibia, Nigeria, Senegal, South Africa, and Zambia.

Monday, June 20, 2016 marked the first day of trading following Nigeria’s abandonment of its currency peg of 197-199 naira to the U.S. dollar and adoption of a flexible exchange rate regime. The naira declined by 42.0 percent against the dollar on that day alone to nearly half of its level in January 2015 (see Figure 12). Meanwhile, Figures 3 and 4 show that the Nigerian Stock Exchange All Share Index increased by 7.4 percent (in local currency terms), and bond spreads declined by 30.4 basis points compared to their average figures from the week preceding the devaluation. According to The Wall Street Journal, local investors have been purchasing shares in stocks due to concerns that inflation will diminish cash holdings. Bloomberg also reports that traders anticipate the naira may slide by another 10 percent before September 2016. 

Figure 3. Nigerian Stock Exchange All Share Index prices before and after the introduction of the naira float on June 20, 2016.

Source: Bloomberg Finance L.P.
Note: Prices given in local currency terms (naira).

Figure 4. Nigeria bond index spreads in basis points before and after the introduction of the naira float on June 20, 2016.

Source: Bloomberg Finance L.P., J.P. Morgan Emerging Market Bond Index Global (EMBI Global).

Commodity prices see slight gains

From its 12-year low in January 2016, the International Monetary Fund’s (IMF) all commodity price index continued to climb through June 2016, as seen in Figures 5 and 6. The fuel price index in particular has risen from 60.8 to 88.2 since January 2016 as production outages—notably in Canada and Nigeria—have diminished the excess of global supply, but still remains lower than its 2015 level (see Figures 5 and 6). Non-fuel prices are increasing as well; prices of agricultural goods are up generally due to weaker global supply while metals and industrial input prices grew due to mounting demand (particularly for iron ore and aluminum). Following the “Brexit” announcement on June 24, however, oil prices fell due to concerns that the U.K.’s exit from the EU would contract global growth and stymie demand for energy—although this is not reflected in the monthly figure. At the same time, safe-haven demand for precious metals such as gold and silver bolstered metals prices post-Brexit: Both gold and silver prices reached two-year highs following the outcome of the vote.

Figure 5. Commodity price indices (in January 2016 and June 2016).

Source: IMF, Primary Commodity Price System.


Note: Index (2005 = 100).

Figure 6. Commodity price indices (January 2000 to June 2016).

Source: IMF, Primary Commodity Price System.
Note: Index (2005 = 100).

Ghana’s stocks fall and Nigeria’s rise

From January 2016 through June 2016, Nigeria, South Africa, MSCI Emerging Markets, and the BRVM, saw slight growth in their equity indices, while Kenya’s equity index fell marginally and Ghana’s declined markedly—by 10.4 percent. Nigeria’s growth of 3.3 percent since January 2016 aligns generally with the MSCI Emerging Market Index increase of 5.0 percent and is thought to reflect investors’ anticipation of a new flexible exchange rate regime and subsequent currency devaluation that would boost share prices, despite the fact that a recession still threatens the economy. The slight uptick since January 2016 follows a long decrease in the Nigerian Stock Exchange All Share Index’s prices, from a high of 35,728 naira in April 2015 down 37.0 percent to a low of 22,456 in January 2016, from which it has been rebounding since then.

The benchmark Ghana Stock Exchange Composite Index is in a bear market, experiencing a long decline of 26.6 percent in its price from a peak of 2382.1 cedi in mid-June 2015 to a low of 1747.7 cedi on June 7, 2016. Slowing economic growth, plunging oil prices, currency volatility, and power shortages have all contributed to the decline. Kenya’s Nairobi Securities Exchange Ltd All Share Index’s relative decline in price—3.5 percent since January 2016—is in part owing to volatility surrounding the Brexit although the stock exchange index has been fluctuating throughout the year. According to Bloomberg, Kenyan companies are hoping to raise more capital via the stock market before the elections set for August take place and political risks rise, deterring investors.

Figure 7. Returns for select equity market indices (January 1, 2016 to June 30, 2016).

Source: Bloomberg Finance L.P.

Figure 8. Returns for select equity market indices (January 1, 2015 to June 30, 2016).

Source: Bloomberg Finance L.P.

Note: Index (January 1, 2015 = 100). Note: Index (January 1, 2015 = 100). All indicies are denoted in local currency terms, except for the MSCI Emerging Markets Index which is denoted in U.S. dollars.

Africa’s regional bond spread continues to rise

Since January 2016, African and global bond spreads have fallen by about 45 basis points (see Figure 10). However, most of this decline took place between January 2016 and mid-April 2016. Since then, spreads have leveled. African bonds now have on average yield spreads 5.32 percent above the U.S. 10-year Treasury bond rate, compared with the 4.07 percent for the global bond index.

Figure 9. Sovereign spreads v. credit rating scores.

Source: Bloomberg Finance L.P., J.P. Morgan EMBI Global
Note: Spreads are as of June 30, 2016. Credit rating average scores refer to the average ratings of Fitch, Moody, and S&P ratings. Numerical values correspond to the following credit rating categories: 7 = A, 6 = BBB/Baa, 5 = BB/Ba, 4 = B, 3 = CCC/Caa, and 2 = CC/Ca.

Figure 10. EMBI Global spreads in basis points (January 2015 to June 2016).

Source: Bloomberg Finance L.P., J.P. Morgan Emerging Market Bond Index Global (EMBI Global). Note: Series ends June 30, 2016. The EMBI Global includes only USD-denominated emerging markets sovereign bonds and uses a traditional, market capitalization weighted method for country allocation. The Africa sovereign spread includes coverage of Angola, Côte d’Ivoire, Egypt, Gabon, Ghana, Kenya, Morocco, Mozambique, Namibia, Nigeria, Senegal, South Africa, and Zambia.

Mozambique’s bond spread has continued to drive the increase in the Africa region’s bond index spread, as prospects for the repayment of the country’s nearly $1.4 billion in loans guaranteed to state-owned companies appears to be in jeopardy (see Figure 9). Fitch, Standard & Poor’s, and Moody’s have all downgraded Mozambique’s sovereign credit ratings since May 23, 2016, after the state-owned company Mozambique Asset Management (MAM) missed a May 23 deadline to repay $178 million in debt. Moody’s cited the “weak will of the government to honour its debt commitments, given the pressures it faces in terms of liquidity” as a key reason for its decision to lower the country’s credit assessment. Moody’s and S&P have both indicated their outlook for the country is “negative,” reflecting their estimations that Mozambique should be poised for future downgrades as well.

South Africa avoids junk status during credit review

South Africa has recently avoided a downgrade to junk status by credit ratings agencies Fitch, Moody’s, and S&P. On May 6, Moody’s affirmed that South Africa’s sovereign rating remains at Baa2 based on the country’s strong institutions and promising 2016/2017 budget, but assigned it a negative outlook due to the risks threatening to undermine the implementation of economic reforms. Then on June 3, S&P reviewed its BBB- rating—the lowest investment-grade rating—and maintained this rating, giving the country a negative outlook as well. Finally, Fitch reviewed South Africa’s credit on June 8, similarly keeping the country’s rating at BBB-, however, it assessed the country’s outlook as stable. Avoiding downgrades during this most recent round of reviews gives South Africa much needed breathing space to enact policy reforms to boost the economy—especially in time for local elections in August—and stave off future downgrades during the next round of reviews in December.

Table 1. Sovereign credit ratings and outlooks for select African economies (Updated: July 8, 2016).

Source: Bloomberg Finance L.P., Standard & Poor’s, Fitch, and Moody’s.

South African rand declines precipitously against the dollar and Nigeria implements flexible exchange rate regime

Ghana’s and Kenya’s currencies have remained relatively stable against the dollar since January 2016, while South Africa’s rand has been more volatile, and Nigeria’s naira has depreciated significantly, as seen in Figure 12. The rand’s steep change is owed mostly to investor concerns surrounding the country’s sovereign credit ratings reviews, political tensions over the stated arrest of Finance Minister Pravin Gordhan (which did not, in fact, occur), and the short-term effects of the Brexit. The Nigerian naira’s stability through June 17 on the other hand, remained entirely due to exchange controls imposed by the government, although Central Bank Governor Godwin Emefiele announced in late May that Nigeria would switch to a more flexible dual exchange rate regime and did so on June 20, causing the currency to depreciate by 42 percent against the dollar in one day. As of June 30, the naira had the lowest spot returns of any African currency in 2016, while the Zambian kwacha has performed the best, with the highest spot returns (see Figure 11).

For more analysis on the implications of the floating naira, see Amadou Sy’s Africa in Focus blog: Moving the naira to a flexible exchange rate must be accompanied by strong policies.

Figure 11. Spot returns of select African currencies (%, January 1, 2016 to June 30, 2016).

Source: Bloomberg Finance L.P.

Figure 12. Movements of select African currencies against the U.S. dollar (January 2015 to June 2016).

Source: Bloomberg Finance L.P. Note: A positive move indicates currency strengthening against the dollar, while a negative move indicates currency weakening against the dollar. Index (January 1, 2015 = 0).

       

 

 

What looked at the time to be a curious way to mark a significant moment in the continent’s history was in fact the genesis of what could become the most innovative Obama initiative in Africa. 

When asked during the session by a young woman from Mali why he had convened such a meeting, Obama said that he wanted “to communicate directly to people who may not assume that the old ways of doing business in Africa are the ways that Africa has to do business.” The president added that he wanted the young leaders to meet each other, to develop a network of like-minded people working for a better future, and to reinforce each other’s goals and aspirations.

That town hall marked the launch of the Young African Leaders Initiative (YALI). Over the next two years, YALI engaged Africa’s youth, principally through events coordinated by U.S. embassies throughout the region. Then, during a speech in 2013 in South Africa, Obama announced the establishment of the Washington Fellowship. Subsequently renamed the Mandela Washington Fellowship (MWF), the program initially was designed to bring 500 young leaders to the U.S. for six weeks of executive leadership training at U.S. universities and four days in Washington to meet with each other, leaders in the administration, and to have a town hall with the president. In 2016, the program was increased to 1,000 fellows.

When USAID put the application online for the first class of fellows in December 2013, the response was extraordinary. Nearly 50,000 applied for 500 slots. Similar numbers have applied for the two subsequent classes. Over the course of three classes of fellows, there have been 119,000 applications for 2,000 openings.

The U.S. government kept the qualifications relatively simple. Young men and women from each of sub-Saharan Africa’s 49 countries are eligible to participate, including from countries on which the U.S. has sanctions, such as Sudan, Eritrea, and Zimbabwe. Applicants generally have to be between 25 and 35, proficient in English, possess a proven record of leadership, and have a commitment to return to the continent. Fellows apply for one of three tracks: business and entrepreneurship, civic leadership, or public management.

A review of the program found that in the first cohort, the gender split was 50/50, nearly 40 percent owned a business, and a similar number ran a nonprofit organization. Eighty percent of the class had never traveled to the U.S., and more than half grew up outside capital cities.

The key element of the fellows’ program occurs during the specialized six weeks of leadership training that takes place at nearly 40 universities across the U.S. At the universities, the fellows, in cohorts of 20, are exposed not only to programs tailored specifically for their interests, but to other young Africans who share a passion for making a difference in their communities and countries. For most fellows, meeting other young Africans from different countries is one of YALI’s key benefits, as is forging genuine ties with Americans and U.S. institutions.

The narratives of the 2,000 Mandela Washington Fellows illustrate some of the most compelling stories and realities on the African continent today.

Importantly, the MWF program is cost-efficient, as the average cost of a fellow coming to the U.S. is $24,000. At least half is paid by the participating U.S. universities and a host of companies, including Coca-Cola, IBM, the MasterCard Foundation, AECOM, Microsoft, Intel, McKinsey & Company, GE, and Procter & Gamble, who have made grants or in-kind contributions to the fellowships and the YALI program.

YALI is having an impact on its participants. An initial assessment by IREX, USAID’s implementing partner, found that over 80 percent of male and female fellows who owned businesses reported an increase in earnings in the year following their fellowship in the U.S. Business fellows also leveraged more than $3 million in new sources of support through loans, grants, equity financing, and in-kind contributions.

Fellows who participated in the civic leadership training reported that the impact of their nonprofit organizations nearly tripled to over 1.6 million beneficiaries, with an average contact per fellow increasing from less than 3,000 to just fewer than 15,000 beneficiaries.

Over 80 percent of the fellows reported that they remained in contact with other fellows during the course of the year, and 70 percent indicated they continued to be involved with their host university. The ongoing connectivity is helped by the three regional conferences in Africa that USAID convenes for program alumni, more than 200 internships on the continent—most sponsored by corporate partners—as well as funding for fellows to attend conferences and other programs after they have returned to Africa.

As part of YALI’s broader reach, USAID created four Regional Leadership Centers (RLCs)—in South Africa, Kenya, Ghana, and Senegal—that offer distance and in-class leadership training to about 3,500 participants annually.

The YALI Network (Figure 1) was established in 2013 as a means to stay connected online to the tens of thousands of young Africans who applied for the fellowship but were not selected as well as others interested in the initiative. The network, which provides access to global leaders in relevant fields and opportunities for collaboration on a range of activities, has attracted nearly 250,000 members. Participants in the RLCs and the YALI Network can earn certificates in various courses, including climate change, women’s empowerment, and the election processs.

Figure 1.

Source: YALI Network

YALI, of course is not without its challenges. Recruiting from 49 countries can be exceedingly difficult, and the quality of Skype and telephone connectivity can vary significantly, which impacts the interview process. Due to the high volume of applicants, embassies have learned that they need more time to review applications. Extra efforts have been needed to accommodate fellows with disabilities. YALI’s biggest challenge, though, is winning the support of African leaders who generally have yet to embrace the program due to its unilateral launch.

YALI is a cost-efficient and effective way to invest in Africa’s future, especially as it concerns deepening trade and commerce with the region, strengthening democratic institutions and empowering civil society. If the next administration continues to invest in the program, YALI could become an enduring legacy program of the Obama administration much like the African Growth and Opportunity Act (AGOA) and the President’s Emergency Program on AIDS Relief (PEPFAR) are, respectively, for the Clinton and Bush administrations. Over time, YALI inevitably would contribute to a new generation of transformative African leadership and deeper ties between the U.S. and Africa in a way that few other programs do.

       

 

 

Table 6.1 Regional communities: How the African Union and European Union differ

At the summit this week, the AU will unveil its new African passport, which will allow the free movement of African citizens across the continent. In addition, officials from the Economic Community of West African States (ECOWAS) will discuss its implementation of a common West African currency, the “eco,” originally scheduled for 2020 but long delayed. This plan could serve as a basis for an eventual pan-African currency, though it seems that commissioning a regional currency remains popular among African trading blocs for now.

This year’s summit will also host elections for the body’s new commissioners, with Commission Chair Dr. Nkosazana Dlamini Zuma notably declining to seek a second term. For more on this topic, see John Mbaku’s blog on the outlook for new leadership in the AU: African Union Commission elections and prospects for the future.

Sarah Baker contributed to this post.