AFRICANGLOBE – Africa is rising and the hand on the pivot is capitalism. The aged economic principle of free enterprise and private ownership, is producing record figures in GDP growth across the continent, creating jobs like never before, enlarging the middle class faster than in any other part of the world, improving the standard of living and driving development across all spheres of the African society.
The private sector, growing at an incredible pace, is creating vast amounts of new wealth and effectively executing societal responsibilities that were hitherto solely—and poorly—managed by governments. However, most of the new income created by the private sector has gone into enriching the continent’s one percent rich rather than creating opportunities for the 40 percent of Africans living below the poverty line.
Capitalism’s increased role and influence has also given birth to fears of monopolies and oligopolies, and in some instances, the supersession of corporate interests over the needs of the masses. These negative impacts of capitalism, if ignored, could wreck the foundation of the very pedestal that it aims to lift Africa.
In July, South African wealth research firm, New World Wealth, released its Africa Wealth Report which showed a 145 percent rise in the number of High Net Worth Individuals (HNWI)—people with over $1 million dollars—in the continent since the turn of the millennium. The report said there were now approximately 161,000 HNWIs living in Africa (as of December 2014), with combined wealth holdings of US$660 billion. It also expects the HNWI numbers to rise by 45 percent to 234,000 over the next 10 years.
While Africa’s rich continues their assent in wealth, the continent’s poor are barely moving above the poverty line. According to the most recent World Bank official estimates from 2011, 415 million Africans live on less than $1.25 a day. The number is 15.9 percent higher than 15 years prior when 358 million people in the continent were below the poverty line.
South Africa, Egypt and Nigeria have the largest number of HNWIs. Their economies are largely capitalist driven, and they all share the burden of alarming rates of wealth inequality and poverty. For example, in 2011, South Africa had the highest level of income inequality in the world, while in 2010, Nigeria was the largest contributor to the number of Africa’s poor. Starting in 2011, Egypt’s Arab Spring was ignited by frustration with oligarchic control of the economy and political sphere. Angola comes fifth on the report’s list with 6400 people worth over a million dollars, but over 50 percent of the country’s 21.7 million people live on less than a dollar a day. Mozambique, identified as the next highflyer in HNWI growth, has recently been criticized for being too slow to address poverty amidst rapid economic growth.
Although Nigeria’s former minister of finance, Dr Ngozi Okonjo-Iweala agrees that inequality is rising together with Africa’s capitalism drive, she contends that the problem is not with the economic principle of capitalism, but its application. “We need to change and improve the quality of growth by focusing on those sectors that create jobs,” she said. The income quality of the jobs is equally as important, notes Gavin Keeton, an Associate Professor of Economics at South Africa’s Rhodes University.
In a 2014 article on income inequality in South Africa, he argues that while millions of low-income jobs could slash poverty, their impact on inequality would be modest. “The largest cause of income inequality in South Africa lies within the workplace. Thus, even if all those currently unemployed earn the current incomes of low-skilled workers, overall income inequality in South Africa will fall only modestly and will still be very high by global standards.
The unemployed need to move also into higher wage jobs for the impact on reducing inequality to be substantial.” “We also have to look at the type of social safety nets that we can use to help those at the bottom without adequate sources of income,” Dr Okonjo-Iweala adds. She contends that providing access to quality education through conditional cash transfer programmes and making universal healthcare available are measures that would at least prevent the younger generation from slipping into the poverty of their parents.
Creating higher paying jobs and social safety nets would mean a great deal of wealth re-distribution in the continent. For Professor Mthuli Ncube, a former Chief Economist and Vice-President of the African Development Bank (AFDB), even the successful execution of this grand exercise would struggle to achieve the goal of eliminating poverty in Africa by 2030.
In a recent post on AFDB’s blog, he notes, “even under the ‘best case’ scenario of accelerated growth and redistribution from the richest 10 percent to the poorest 40 percent of the population, the poverty rate in 2030 would still be around 10 percent.” Another effective way of driving down poverty through capitalism, is to increase the number of small and medium scale entrepreneurs, and empower them, says Dr. Okono-Iweala. “There is a tendency for our young people to look for who is going to employ them. Encouraging them on how to create jobs for themselves is a wonderful way [to tackle inequality]. We had great success with this under the last administration, with a programme like Youwin in which each [university graduate] created an average of nine jobs for themselves and others.”
While there is a general consensus on the need to boost entrepreneurship in Africa, as exemplified in the historic 2015 Global Entrepreneurship Summit held in Kenya, there is also a growing worry of just how powerful the continent’s corporate giants are becoming and how negative some of their profit-driven interests could be on the economies of African countries. Corporate greed has been blamed for South Africa’s recent crisis with mine-workers, that among other debilitating socio-economic consequences, left dozens of miners at the Marikana Platinum Mine dead in August 2012.
In Nigeria, like most fast growing African economies, there are also worries of a few companies cornering whole sectors. Dr. Okonjo-Iweala also says there’s always a tendency for certain segments of the private sector to become very influential to the policies of government officials they may have aided through contribution to political campaigns. “This has to be avoided, otherwise they hold the country to ransom,” she said. “We have to put in place the kind of institutional mechanisms that prevail in many countries, they are not perfect but they help you mitigate some of this. She added that African countries need competition laws and anti-trust legislations to prevent the thriving of monopolies and oligopolies and ensure the existence of fair competition.
“Most [people] believe trade is good for their country; and while support for the free market has declined in many nations, most still think people are better off in a capitalist system,” argues Richard Wike of the Pew Research Centre. However, he readily admits that in both rich and poor countries, and between the wealthy and the poor- there is a shared view that inequality has gotten worse and poses a “major economic threat” for the future. He states that what needs to be addressed is the disproportionate share of the economic growth that heavily favours the top of the economic ladder and largely neglects those below. Carrying this out will not be quick and easy, Gavin Keeton said, with particular focus on South Africa. “This will happen only with far greater political will and focus than is currently apparent.”
By: Onyedimmakachukwu Obiukwu