By Dennis Matanda
A silver bullet is a weapon whose well-aimed-and-well-timed blow will permanently kill a werewolf, a vampire, or a witch. While these silver solutions are as mythical as they are atavistic, our silver bullets encapsulate modern-day mechanisms a country or region deploys to attract foreign direct investment (FDI). Given that this global capital form is more adept than, say, official development assistance (ODA) and remittances at deepening economic growth linkages between developed and developing nations, one would not be wrong to assume that FDI should address some of Africa’s deep-rooted challenges, like low domestic savings, low productivity in agriculture, corruption, internecine civil conflict, and the hulking horror of African poverty. After all, China, Indonesia, Japan, Malaysia, Thailand, and Vietnam hammered out silver bullets that attracted adequate FDI to nurture billions of Asians out of poverty.
But alas, Africa’s mavens seem to retch bronze bullets amidst fields filled with silver and other extant metals. Import substitution had as much success as structural adjustment policies (SAPs) in attracting FDI, growing African economies, and ending poverty. Foreign aid and remittances were silver bullets in reducing HIV infection rates and hunger, respectively, but bronze ones because they both swelled expenditure and consumption but not production. Foreign aid also often promoted the donor programs themselves and, in some cases, exacerbated corruption. The Grand Bronze Prize goes to agricultural emancipation programs, which led to total factor accumulation, but not total factor productivity like in China. All the while, more and more Africans were lost to history, while others were thrust into a world that seemed poised to gobble them up as soon as they emerged.
Of course, the skulking monster inherent to African poverty has fed on delicacies like centuries of colonial extraction infrastructure and decades of unbelievable socio-economic incompetence. Added to intrusive donor policies and what my friends Francis Mangeni and Andrew Mold term ‘the informal power of the global value chains,’ these pooled fluidities connived to create vicious cycles of poverty and unleashed an endless spate of post-independence dictatorships throughout Africa. As a result, the region has remained unattractive to global capital. Whereas Asian countries like South Korea, Vietnam, Thailand, and Malaysia are increasingly attractive to global capital, Africa’s share of global foreign direct investment (FDI) reduced from 5 percent in 1980 to less than 3 percent in 2023. Illustratively, although African countries like Mauritius, Botswana, Cabo Verde, Cote d’Ivoire, Tanzania, and São Tomé and Príncipe score higher on the 2023 Index of Economic Freedom than Latin American nations like Ecuador, El Salvador, Honduras, and Nicaragua, U.S. direct investment abroad (USDIA) to that region was US$ 1.03 trillion by 2022, about 17 percent of total USDIA while all fifty-five African countries drew less than 0.71 percent.
But something quite unique emerged from this balkanized morass. Africans held onto the dream of a pre-Berlin Conference Eden that could flourish under an African economic community. In this case, it mattered less that Africans spoke Arabic, English, French, Portuguese, Spanish, Swahili, and Zulu and more that they were done with being dominated by things like the World Bank’s 1981 Berg Report. The fundamentals are that Africa’s social, cultural, and political factors unify the continent more naturally than other continents, and Africa aspires to Adebayo Adedeji’s 1980 Lagos Plan of Action. While it did not come to pass as initially envisaged, the Plan presaged an African Common Market achieved through standard policies, free movement of people, integrated financial institutions, multilateral enterprises, and African executive organs. And that, my friends, is the essence of the African Continental Free Trade Area (AfCFTA).
Covering over three times the size of the U.S., the AfCFTA is the world’s largest free trade area by number of member countries. Like the European Union, it is a well-negotiated way to fold Africa’s smorgasbord of regional arrangements into one regime that reduces barriers to global capital and intra-region trade. Since the AfCFTA builds upon the infrastructure of the African Union’s eight-building bloc regional economic communities (RECs), the regional pact also infuses sustainable growth, and increased cohesiveness because of the collective REC institutions, policies, and productivity factors that work to increase market efficiency, reduce business costs, and bolster competitiveness.
The promise of the AfCFTA as a silver bullet cannot be overestimated. A 2020 report projected that the AfCFTA would raise the continent’s income to US$ 450 billion by 2035. However, less than two years later, updated figures show that a fully implemented AfCFTA will grow Africa’s economic output to over US$ 29 trillion by 2050. At full implementation, the AfCFTA should raise real income in Africa by at least 9 percent, lifting over 50 million people out of extreme poverty by 2035. The AfCFTA should also usher in consumer and business-to-business spending growth, which is projected to reach a combined value of US$ 6.7 trillion by 2030 and grow to US$16.12 trillion by 2050. Equally, the AfCFTA’s robust rules of origin, liberalization schedules, and institutional guidelines for trade and investment mean the Member States of the AfCFTA—now fifty-four of the fifty-five Member States of the Africa Union—can viably deploy public or private global capital allotted to rectify the region’s debilitating tariff and non-tariff trade barriers.
You may now wonder why the silver bullet analogy applies to the AfCFTA. After all, there is a tendency to look at intra-African trade as sluggish because Africa’s largest economies are not as oriented towards intra-African trade as we would like. There is truth to that. Where intra-Asian and intra-European trade stand at the 60 to 70 percent mark, intra-African trade has, historically, languished below 20 percent of total trade. Relatively, except for South Africa, the region’s other largest economies—Egypt and Nigeria—import more from outside the region than within. Worse still, the low manufacturing base, costly trade finance, limited access to information and trade-enabling infrastructure, and production structure inherited from the colonial model of resource extraction mean that Africa is still a long way from being as competitive or as functional as Europe.
Conversely, the AfCFTA is a silver bullet because capital typically goes to industrialization, production of goods, and trade in commodities. Capital also goes to regions with robust regulatory frameworks and institutional arrangements guaranteeing the free movement of goods and persons. Well, while the AfCFTA does not necessarily do all these things yet, the speed and finality with which it was put in place is a solid signal to global capital that Africa is inching closer to where a viable investment destination ought to be.
Invariably, when we talk about global capital, there is a big difference between getting official development assistance and remittances as foreign capital versus attracting direct investment abroad from multinational corporations. The first kind of capital—ODA and remittances—is typically spent on consumption and may not lead to the economic development the region needs. The second kind of capital—direct investment abroad—is the precise sort of capital Africa may need. It is typically infused into a region after a strenuous market study, where profit maximization is the priority. In the process, those multinational corporations (MNCs) that undertake direct investment (a) deepen a rules-based and open global investment environment; (b) play a pivotal role in promoting equity acquisitions abroad in Africa, and (c) reprise a proven hands-off approach and infusion of tangible official development assistance to hasten a single market whose system would emulate America’s free-flow of regional goods, services, and capital.
The United States’ experience with the European Coal and Steel Community (ECSC) between 1950 and 1953 should be an inflection point for interested capital to engage with the AfCFTA. During the Schuman Plan phase, American capital and influence were used to redistribute the competitive German coal and steel industry and facilitate cross-border trade. Likewise, member states of the AfCFTA could benefit from American capital’s regional integration power because American multinational corporations (MNCs) possess a competitive advantage in cash, intellectual property, and franchising strengths to produce or supply and specifically satisfy local or regional demand for products and services. A quick look at funding sources shows how the Lobito corridor, a US$ 2.3 billion plan to upgrade a railway line from Lobito in Angola to Chingola and Chililabombwe in Zambia, can draw capital into the region through public/private partnerships.
Silver bullets distinguish between ‘happily ever after’ and The Wizard of Oz. With Africans comprising up to 17.8 percent of the global population—a median age of 18.8 years, growing to 25 percent of the world’s population by 2050—a silvered regional economic regime enhancing Africa’s agency shall not only amplify Africa’s 28 percent of the votes at the United Nations General Assembly, but also leverage its resources worth 30 percent of the world’s critical minerals, and 60 percent of the world’s unused arable land. The AfCFTA is undoubtedly a silver bullet that must be inculcated in all economic, social, and development associations with the continent.
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