The road to recovery in Sub-Saharan Africa: Capitalizing on transformative opportunities from shifting FDI patterns

The flow of Foreign Direct Investment (FDI) to Africa has shifted over the past decade, as new sources of investment have emerged and new sectors have expanded. While the COVID-19 crisis has clouded the outlook for future investment, capitalizing on the longer-term trends presents a compelling opportunity for African policy makers looking towards economic recovery.

Low foreign investment has held back Africa’s participation in global value chains (GVCs). FDI is beneficial to the host countries because it helps to enhance firm productivity and integrate domestic firms into global markets, as illustrated by the rapid development of newly industrialized Asian economies in the last few decades. Unfortunately, both FDI inflows and GVC participation are low in the Africa region (Figure 1.1 and Figure 1.2).

In 2000, Africa only attracted 1% of global FDI inflows, and raised it to 3% by 2018. Yet its share of global GVC participation remained constant during this time at 2%. In contrast, developing countries in the Asia-Pacific region increased their global FDI share from 10 to 31% , and raised their GVC participation share from 11 to 17% during this time. Hence, compared to other regions, Africa’s FDI and GVC integration are still underdeveloped.

 Figure 1. FDI inflows and GVC participation

1.1. Total share of global FDI inflows                        

1.2. Total share of global GVC participation

Source: Authors’ calculations using UNCTAD FDI and EORA Statistics.

Note: For Africa, Latin America and Asia-Pacific, only GVC participation and FDI inflows for developing countries are reported. 

There has been a steady increase in FDI from Asia and Africa. Historically, Europe has been the dominant source of Africa’s FDI, making up two-thirds of its FDI stock until 2005. While its absolute value grew, its share has fallen since then to below 50% in 2018 (Figure 2.1 and Figure 2.2). In its place, FDI from Asia has increased, whose share grew from 5% in 2002 to 23% in 2018. A primary driver is China, whose FDI accounts for almost half of Asian FDI in the region. Recent evidence highlights the impact such Chinese FDI has had on Africa’s economic growth. Intra-African FDI also rose from 9% in 2002 to 13% in 2017.

 Figure 2: FDI in-stock by source region

2.2: Value of FDI stock (US$b)

2.1: Share of total FDI stock in SSA

 Source: Authors calculations using World Bank Group harmonized bilateral FDI database.

Note: Eastern Africa data excludes FDI to and from Mauritius as it operates as a major offshore financial center. Most of its FDI flows through the country but does not reside in the country. Separating out such FDI flows is extremely difficult and therefore the convention is to present FDI data without flows to and from offshore financial centers.

There have also been major changes in the destinations for FDI. Southern Africa (especially South Africa) has historically been the main destination for FDI, hosting more than 70% of all FDI in the region in 2004 (Figure 3.1). Yet, by 2018, it represented only 30% of FDI stocks by 2018. This is because FDI in other parts of the continent grew, most notably in Western Africa (led by Nigeria), where FDI stock increased from 15% in 2002 to 36% in 2018. Eastern Africa also saw an increase in FDI (Figure 3.2).

Figure 3: FDI in-stock in SSA by destination sub-region

3.1: Share of total FDI stock in SSA

3.2: Value of FDI stock (US$b)

Source: Authors calculations using World Bank Group harmonized bilateral FDI database.

Note: Eastern Africa data excludes FDI to and from Mauritius as a major offshore financial center (see note figure 2).

 

New investments have been increasingly diversifying from raw materials into manufacturing and services. Between 2006 and 2010, resource extraction, petroleum and coal processing projects made up more than half of the estimated $236 billion greenfield FDI projects announced in Africa (Figure 4.1). Yet, between 2016 and 2020, new projects in these sectors accounted less than a quarter of the total (Figure 4.2). Sectors that have attracted significant new investment in the recent period include logistics, communications and IT services, chemicals, and renewable energy (which makes up more than half of utilities investment, up from around 20%  in the earlier period).

 Figure 4: Announced greenfield FDI projects in Sub-Saharan Africa, by sector (US$ billion)

4.1: 2006-2010

4.2: 2016-2020

Source: Authors calculations using fDi Markets.

Note: dark-blue includes coal, oil & gas and metals, red captures manufacturing sectors, and grey reflects service sectors.

 

Unfortunately, COVID-19 significantly disrupted FDI to Africa. FDI flows globally were already in decline when the pandemic struck. Greenfield FDI announcements declined rapidly in the second and third quarter, before rebounding slightly in the fourth quarter of 2020 (Figure 5). Overall, new announcements in 2020 were down 56% from 2019. Such declines occurred across nearly every major sector.

Figure 5: Impact of COVID-19 on Greenfield FDI Announcements in Sub-Saharan Africa

Source: Authors calculations fDi Markets.

FDI has a key role to play to help Africa achieve a rapid economic recovery from COVID-19. For this to happen, Africa needs to attract more foreign investment, and ensure that it occurs in more employment-intensive, export-oriented or green sectors. The continent saw promising new developments on both fronts before the pandemic, and should continue to improve their domestic investment climates, adapt to possible new priorities in investment policy and promotion, and strengthen regional collaboration (as through the African Free Continental Trade Agreement).  

You Lazy (Intellectual) African Scum!

They call the Third World the lazy man’s purview; the sluggishly slothful and languorous prefecture. In this realm people are sleepy, dreamy, torpid, lethargic, and therefore indigent—totally penniless, needy, destitute, poverty-stricken, disfavored, and impoverished. In this demesne, as they call it, there are hardly any discoveries, inventions, and innovations. Africa is the trailblazer. Some still call it “the dark continent” for the light that flickers under the tunnel is not that of hope, but an approaching train. And because countless keep waiting in the way of the train, millions die and many more remain decapitated by the day.

“It’s amazing how you all sit there and watch yourselves die,” the man next to me said. “Get up and do something about it.”

Brawny, fully bald-headed, with intense, steely eyes, he was as cold as they come. When I first discovered I was going to spend my New Year’s Eve next to him on a non-stop JetBlue flight from Los Angeles to Boston I was angst-ridden. I associate marble-shaven Caucasians with iconoclastic skin-heads, most of who are racist.

“My name is Walter,” he extended his hand as soon as I settled in my seat.

I told him mine with a precautious smile.

“Where are you from?” he asked.

“Kenya.”

“Kenya!” he exclaimed, “Kenyatta’s country.”

“Yes,” I said, “Now the Son.”

“But of course,” he responded. “You just elected prince Cobra as your president.”

My face lit up at the mention of UK moniker. Walter smiled, and in those cold eyes I saw an amenable fellow, one of those American highbrows who shuttle between Africa and the U.S.

“I spent three years in Kenya in the 1980s,” he continued. “I wined and dined and many other highly intelligent Kenyan.” He lowered his voice. “I was part of the IMF group that came to rip you guys off.” He smirked. “Your government put me in a million dollar mansion overlooking a shanty called Kibera. From my patio I saw it all—the rich and the poor, the ailing, the dead, and the healthy.”

“Are you still with the IMF?” I asked.

“I have since moved to yet another group with similar intentions. In the next few months my colleagues and I will be in Nairobi to hypnotize the prince. I work for the broker that has acquired a chunk of your debt. Your government owes not the World Bank, but us millions of dollars. We’ll be in Nairobi to offer your president a couple of millions and fly back with a check twenty times greater.”

“No, you won’t,” I said. “Prince Cobra is incorruptible. He is …”

He was laughing. “Says who? Give me an African president, just one, who has not fallen for the carrot and stick.”

Quett Masire’s name popped up.

“Oh, him, well, we never got to him because he turned down the IMF and the World Bank. It was perhaps the smartest thing for him to do.”

At midnight we were airborne. The captain wished us a happy 2014 and urged us to watch the fireworks across Los Angeles.

“Isn’t that beautiful,” Walter said looking down.

From my middle seat, I took a glance and nodded admirably.

“That’s white man’s country,” he said. “We came here on Mayflower and turned Indian land into a paradise and now the most powerful nation on earth. We discovered the bulb, and built this aircraft to fly us to pleasure resorts like Lake Kenya.”

I grinned. “There is no Lake Kenya.”

He curled his lips into a smug smile. “That’s what we call your country. You guys are as stagnant as the water in the lake. We come in with our large boats and fish your minerals and your wildlife and leave morsels—crumbs. That’s your staple food, crumbs. That corn-meal you eat, that’s crumbs, the small Tilapia fish you call Omena is crumbs. We the Bwanas (whites) take the cat fish. I am the Bwana and you are the Muntu. I get what I want and you get what you deserve, crumbs. That’s what lazy people get— Africans, the entire Third World.”

The smile vanished from my face.

“I see you are getting pissed off,” Walter said and lowered his voice. “You are thinking this Bwana is a racist. That’s how most Kenyans respond when I tell them the truth. They go ballistic. Okay. Let’s for a moment put our skin pigmentations, this black and white crap, aside. Tell me, my friend, what is the difference between you and me?”

“There’s no difference.”

“Absolutely none,” he exclaimed. “Scientists in the Human Genome Project have proved that. It took them thirteen years to determine the complete sequence of the three billion DNA subunits. After they

were all done it was clear that 99.9% nucleotide bases were exactly the same in you and me. We are the same people. All white, Asian, Latino, and black people on this aircraft are the same.”

I gladly nodded.

“And yet I feel superior,” he smiled fatalistically. “Every white person on this plane feels superior to a black person. The white guy who picks up garbage, the homeless white trash on drugs, feels superior to you no matter his status or education. I can pick up a nincompoop from the New York streets, clean him up, and take him to Nairobi and you all be crowding around him chanting muzungu, muzungu and yet he’s a riffraff. Tell me why my angry friend.”

For a moment I was wordless.

“Please don’t blame it on slavery like the African Americans do, or colonialism, or some psychological impact or some kind of stigmatization. And don’t give me the brainwash poppycock. Give me a better answer.”

I was thinking.

He continued. “Excuse what I am about to say. Please do not take offense.”

I felt a slap of blood rush to my head and prepared for the worst.

“You my friend flying with me and all your kind are lazy,” he said. “When you rest your head on the pillow you don’t dream big. You and other so-called African intellectuals are damn lazy, each one of you. It is you, and not those poor starving people, who is the reason Africa is in such a deplorable state.”

“That’s not a nice thing to say,” I protested.

He was implacable. “Oh yes it is and I will say it again, you are lazy. Poor and uneducated Africans are the most hardworking people on earth. I saw them in the Nairobi markets and on the street selling merchandise. I saw them in villages toiling away. I saw women on Namanga Road crushing stones for sell and I wept. I said to myself where are the Kenyan intellectuals? Are the Kenyan engineers so imperceptive they cannot invent a simple stone crusher, or a simple water filter to purify well water for those poor villagers? Are you telling me that after fifty years of independence your university school of engineering has not produced a scientist or an engineer who can make simple small machines for mass use? What is the school there for?”

I held my breath.

“Do you know where I found your intellectuals? They were in bars quaffing. They were at the Muthaiga Golf Club, Bacchus Lounge, XS Millionaires,               Galileos Lounge and Nairobi Club. I saw with my own eyes a bunch of alcoholic graduates. These intellectuals work from eight to five and spend the evening drinking.

We don’t. We reserve the evening for brainstorming.”

He looked me in the eye.

“And you flying to Boston and all of you in the Diaspora are just as lazy and apathetic to your country. You don’t care about your country and yet your very own parents, brothers and sisters are in Kiambu, Kisii, and in villages, all of them living in squalor. Many have died or are dying of neglect by you. They are dying of AIDS because you cannot come up with your own cure. You are here calling yourselves graduates, researchers and scientists and are fast at articulating your credentials once asked—oh, I have a PhD in this and that—PhD my foot!”

I was deflated.

“Wake up you all!” he exclaimed, attracting the attention of nearby passengers. “You should be busy lifting ideas, formula, recipes, and diagrams from American manufacturing factories and sending them to your own factories. All those research findings and dissertation papers you compile should be your country’s treasure. Why do you think the Asians are a force to reckon with? They stole our ideas and turned them into their own. Look at Japan, China, India, just look at them.”

He paused. “The Bwana has spoken,” he said and grinned. “As long as you are dependent on my plane, I shall feel superior and you my friend shall remain inferior, how about that? The Chinese, Japanese, Indians, even Latinos are a notch better. You Africans are at the bottom of the totem pole.”

He tempered his voice. “Get over this white skin syndrome and begin to feel confident. Become innovative and make your own stuff for god’s sake.”

At 8 a.m. the plane touched down at JKIA International Airport. Walter reached for my hand.

“I know I was too strong, but I don’t give it a damn. I have been to Kenya and have seen too much poverty.” He pulled out a piece of paper and scribbled something. “Here, read this. It was written by a friend.”

He had written only the title: “Lords of Poverty.”

Thunderstruck, I had a sinking feeling. I watched Walter walk through the airport doors to a waiting car. He had left a huge dust devil twirling in my mind, stirring up sad memories of home. I could see Kenya’s literati—the cognoscente, intelligentsia, academics, highbrows, and scholars in the places he had mentioned guzzling and talking irrelevancies. I remembered some who have since passed—how they got the highest grades in mathematics and the sciences and attained the highest education on the planet. They had been to Harvard, Oxford, Yale, Massachusetts Institute of Technology (MIT), only to leave us with not a single invention or discovery. I knew some by name and drunk with them at the Playhouse and lounges.

Walter is right. It is true that since independence we have failed to nurture creativity and collective orientations. We as a nation lack a workhorse mentality and behave like 40 million civil servants dependent on a government pay cheque. We believe that development is generated 8-to-5 behind a desk wearing a tie with our degrees hanging on the wall. Such a working environment does not offer the opportunity for fellowship, the excitement of competition, and the spectacle of innovative rituals.

But the intelligentsia is not solely, or even mainly, to blame. The larger failure is due to political circumstances over which they have had little control. The past governments failed to create an environment of possibility that fosters camaraderie, rewards innovative ideas and encourages resilience. KANU, FORD,DP NARC, PNU, ODM, JP et al   embraced orthodox ideas and therefore failed to offer many opportunities for drawing outside the line.

Knowing well that the current leadership will not embody innovation at Walter’s level let’s begin to look for a technologically active-positive leader who can succeed him after a term or two. That way we can make our own stone crushers, water filters, water pumps, razor blades, and harvesters. Let’s dream big and make tractors, cars, and planes, or, like Walter said, forever remain inferior.

A fundamental transformation of our country from what is essentially non-innovative to a strategic superior African country requires a bold risk-taking educated leader with a triumphalist attitude and we have one in YOU. Don’t be highly strung and feel insulted by Walter. Take a moment and think about our country. Our journey from 1963 has been marked by tears. It has been an emotionally overwhelming experience. Each one of us has lost a loved one to poverty, hunger, and disease. The number of graves is catching up with the population. It’s time to change our political culture. It’s time for our intellectuals to cultivate an active-positive progressive movement that will change our lives forever.

Don’t be afraid or dispirited, rise to the challenge and salvage the remaining few of your beloved ones.

Disruptive innovation: The most viable strategy for economic development in Africa

Without question, Africa is the poorest region in the world. The chart below shows the growth of gross domestic product (GDP) per person – an imperfect but widely used measure – for Africa and the rest of the world. Not only is the rest of the world six times richer than Africa, GDP per person has grown at a faster rate. These numbers are significant because they do not simply represent the macro-economic realities that governments in African countries must manage; they also translate to the circumstances in which millions of people live their lives. The numbers translate to the additional 50 million people in Africa living in extreme poverty today than did in 1990. They translate to the millions of babies, children, and mothers that die annually because they cannot afford life-saving medication. They translate to skyrocketing unemployment which reduces the barriers to youth involvement in terroristic activities. The numbers are very significant.
 

Source: Human Progress retrieves data from the World Bank, OECD, Harvard University, etc. See http://humanprogress.org/abou

But perhaps of even more significance is the demographic transformation that Africa is experiencing, and will continue to experience over the next several decades. Now home to 1.1 billion people, by 2050 the United Nations estimates that Africa’s population will reach 2.48 billion; by 2100, 4.39 billion people, a majority of whom will be youth.



When the slow pace at which Africa is developing is combined with the demographic transformation, contrary to the sentiments of many optimists, the future does not look bright. But it can.

Disruptive Innovations Targeted at Non-Consumption
No country has developed in sustainably without investments in disruptive innovations. There are two types of disruptive innovations, low-end disruptive innovation and new-market disruptive innovation. I write about the new-market disruptive innovations, which are targeted at non-consumption, a circumstance where a majority of people in a society are unable to afford a particular product due to cost, time, or skill constraints. These innovations transform the existing complicated and expensive products to simple to use, more affordable products, thereby making them more accessible to a larger set of people in society, such as M-PESA, the mobile money platform in Kenya. They serve as the engine of economic development in a society.

Can Africa Spur Disruptive Innovations

It is tempting to discount the possibility of executing disruptive innovations in Africa because of the many obstacles to innovation on the continent, including poor infrastructure, the difficulty of doing business, and the very low incomes on the continent. But when these obstacles are framed as opportunities, innovators can build truly disruptive companies.

In fact, it is precisely because these obstacles exist that disruptive innovations can thrive in Africa.

Nollywood and Noodles

Nollywood, Nigeria’s film industry, has taken many in the world by storm. While Hollywood’s revenues dwarf Nollywood, it is difficult to overlook Nollywood’s impact in Nigeria. The industry, according to a UN report, is now worth approximately $5 billion, employs more than one million people, and generates around $800 million annually. Nollywood has been able to thrive precisely because it is a disruptive innovation targeted at the average Nigerian citizen unable to purchase, watch, and perhaps relate to Hollywood movies. The innovators in Nollywood have keyed into the vast non-consumption of movies in Nigeria, and Africa, and have created relevant and relatable movies that have given birth to a booming industry.

When Haresh Aswani decided to start importing Indomie Noodles into Nigeria in 1988, the decks were stacked against his company, Tolaram. Nigeria was ruled by a military government, GDP per capita was only $256, and 78% of people lived on less than $2 per day. But Aswani began importing noodles into Nigeria and since then, has built 11 factories that manufacture many of the inputs for the noodles. The company directly employs approximately 10,000 people and hundreds of thousands indirectly. A packet of Indomie Noodles costs roughly 18 cents, a product affordable by the majority of Nigerians. Tolaram has begun expansion plans into other African countries. Where many see obstacles, the company sees opportunity.

The Rebirth of an Old Idea

Investing in disruptive innovations is not a new strategy for creating prosperity. The United States, many European countries, the Four Asian Tigers, and many other rich countries followed this strategy with great success. The returns from their investments were then invested in infrastructure, education, healthcare, and in building institutions. It is tempting to spend billions of dollars on infrastructure, institution building, education, healthcare, and other development indicators that are correlated with prosperity. But a closer look at rich countries today shows that investments in disruptive innovations came first. Africa should thus follow suit.

Governments should support entrepreneurs whose business models are targeted at non-consumption. By doing this, they will inevitably create jobs for many people, as was the case with Nollywood and Indomie Noodles. This, will ultimately lead to unfettered prosperity in Africa.

Agribusiness can help to unlock the true potential of Africa

The challenges faced by small farmers are similar across the developing world – pests, diseases and climate change. Yet in Africa the challenges are even greater. If farmers are to survive at current rates (let alone grow), they need to have access to high-yielding seeds, effective fertilizers and irrigation technologies. These issues threaten the region’s ability to feed itself and make business-growth and export markets especially difficult to reach. Other factors include the rise in global food prices and export subsidies for exporters in the developed economies, which leave African farmers struggling to price competitively.

Organizations such as The International Finance Corporation (IFC) provide and mobilize capital, knowledge and long-term partnerships in agribusiness. It has provided over $25 billion in financing, mobilized investments from partners and provided advisory services across the continent. Connecting the private sector with global and regional NGO’s and the public sector is one of the most important steps. Of the $3.7 billion invested in Sub-Saharan Africa in 2015 by the IFC, $1.8 billion came from other investors.

Modernization of technologies, innovative technologies and widening access to markets is central to turning such huge sums of money into results. In Kenya, a mobile app called M-Farm allows farmers to directly send messages requesting guidance and data on crop prices. It also helps farmers to connect directly with food suppliers; thus reducing reliance on middlemen and market buyers. Cutting costs in this way can go some way to mitigating the impact of subsidized exports from the developed economies.

In Ethiopia, access to simple market knowledge has also helped small food manufacturers grow. AfricaJUICE is the first Fairtrade certified fruit juice in sub-Saharan Africa and it has been able to expand through the provision of technical expertise and understanding global markets and industry practices. This assistance came from the World Bank, alongside equity financing of $6 million.

Agribusiness is growing fast, yet the true potential is stymied by limited mechanization, fragmented markets, price controls and poor infrastructure. For a sector that contributes 25% to Africa’s overall gross domestic product (GDP) and accounts for 70% of all employment, it is an industry that presents enormous opportunities to investors.

A woman farmer who works in the maize fields on the Canhumbuca Farm in Huambo, Angola. © Anita Baumann

For policymakers and investors, one of the hurdles is knowing how to find and identify those small-scale farmers or food manufacturers that have really strong commercial potential. In Angola, this challenge has been met by the creation of a state-backed organization called Fundo Activo de Capital de Risco Angolana (FACRA). It is a public venture capital fund that supports Angolan SME’s in agribusiness and other sectors in building, innovating and expanding their existing business. It opens doors for businesses that have the potential for growth and makes it significantly easier for investors to enter the Angolan market.

Aside from providing growth opportunities and support for market-entry, organizations such as FACRA also have a role to play in helping Africa to become self-sufficient in food and become a regional exporter. With 70% of the workforce already working in the sector, Africa already benefits from having a mobilized workforce. Honing in on communities that have such strong potential is one way of helping to support economic growth.

Like so much in Africa, things have to happen from the ground up, through investing in small projects and local communities. The financial and administrative burden for such initiatives very often fall on the government but the private sector has the ability to get involved at a local level too, if it can take a long-term view and work in partnership. The introduction of world-class machinery and support for the type of infrastructure needed for rural communities to succeed are two areas where foreign investors can take a stake through public-private partnerships (PPP’s) or direct investment.

Direct investment brings with it a range of financial incentives for foreign investors. Infrastructure linking rural communities to markets is much-needed. Mechanization is also particularly important in achieving greater production and capacity and so too are storage facilities and modern irrigation and water conservation technologies. These are all areas where investors can bring capital and technical expertise to an industry sector that has enormous economic potential.

As African economies continue to work against the tide of low oil and commodity prices, there is determination regionally and on the national level to achieve diversification and economic growth within the SME sector, not only in agriculture but all burgeoning sectors.

Agribusiness is especially important because of the scale of opportunity and the important role that it plays in supporting a wider value chain, job growth and economic diversification. Now is the right time for all African stakeholders, global bodies and private investors to come together and create an environment that helps Africa to feed itself and deliver economic growth for ordinary people, national economies and investors.

How can we help smallholder farmers seize opportunities in Africa?

Agriculture is at the heart of addressing poverty in Africa.
The recent End Poverty Day activities in Africa, which focused largely on agriculture, was also a reminder of how central the sector is to ending poverty and boosting prosperity.  Indeed, the different stakeholders I work with on a daily basis—which includes African governments, development partners, civil societies, the private sector and farmers—all agree: Agriculture is important to the future of Africa.

Much more than in any other region, agriculture is a major driver of African economies, typically representing 30-40% of GDP and 65-70% of labor force. Despite the fact that Africa is the most rapidly urbanizing region, agriculture will remain the dominant sector for many years in most African countries. The poverty impact from agricultural growth is higher relative to other sectors. Agriculture is important for growth, poverty and food.

It’s true that Africa’s agricultural transformation will be a complex, multi-sectoral agenda that requires different enabling factors, from sufficient financing and the right policies to the implementation of climate-smart agriculture. It’s also true that success depends on one crucial factor: the engagement of smallholder farmers. In short, Africa’s agricultural transformation will need smallholders to succeed.

Smallholder farmers continue to dominate African agriculture although some countries--for example, Ghana, Tanzania and Zambia--are experiencing a rise of medium-scale farms of between five and 100 hectares as part of the region’s broader economic transformation. Smallholder farmers still control the largest areas for production.  They employ 70% of the work force, farm most of the land, and are home to most of the poor – so the most obvious way to make agricultural growth pro-poor is to engage with huge numbers of small farms.

However, smallholder farmers face two major challenges today. One is that they are at a major disadvantage in linking to modern value chains because of their low volumes of sales, poor market information and contacts, and limited ability to meet the high standard requirements of many high value markets. Because of their small size and reach, they are perceived to be high cost and high risk farmers by private agrodealers and financial institutions.

So how can people working in the agriculture sector support smallholder farmers?

First, there is need to provide supportive incentives and policy reforms for farmers and agribusinesses. For example, modern inputs and credit remain out of reach for many smallholders. Farmers could benefit from a package of inputs and credit. The issue of land tenure policy reform is critical. Between 10-45% of businesses describe access to land as major constraint.  There is need to build institutions that help farmers--including youth and women-- access land and engage in profitable commercial agriculture.

Work also needs to be done on scaling up investments in infrastructure and technology, particular technology that helps farmers produce more food. Neglecting to invest in agricultural research and the creation of many small, underfunded research institutions has caused setbacks that will need to be addressed. Africa also needs investments to develop agricultural education at all levels. Finally, Africa’s aging infrastructure cannot launch or sustain internationally competitive commercial agriculture without investment, especially in irrigation, roads, energy, and logistics, especially port infrastructure.

We also need to strengthen institutions to make markets work better for smallholder farmers. Some of these institutions would provide critical services such as access to finance, market intelligence, marketing and business development services—all things that the private sector currently has few incentives to provide. Finally, we need to focus on improving coordination and leveraging partnerships among the different key players including but not limited to multilateral and bilateral development finance partners, the private sector, the Consultative Group on International Agricultural Research and African national and regional institutions.

The challenges facing agriculture are great but we have reasons to be optimistic. Agriculture’s value added increased by 5.1% between 2000 and 2013. There’s no limit to what agriculture can achieve—in terms of feeding Africa, creating jobs, and helping to end poverty and boost prosperity. We have to work hard to make sure that smallholder farmers will be part of the work to meet Africa’s growing food and beverage markets –which are expected to top $1 trillion in value by 2030.

Continuous geometric growth in a finite biosphere is impossible

Continuous geometric growth in a finite biosphere is impossible

There is nothing quite as seductive as extrapolation.  I remember when I was in junior high study hall, we budding gearheads would sit around making "calculations" such as "if you can get a car to go 80 Kph with 150 horsepower, you should be able to go 320 Kph with 600 horsepower." And while this childish foolishness was wrong for dozens of sound reason, it was certainly no worse than the typical budget, growth, or profit calculations one finds in daily newspapers or teevee newscasts.

Geometric extrapolation is even worse.  It is probably the most commonly practiced form of utter insanity. For how long have we known this is crazy?  The Sumerians taught us about the S-curve at least 4000 years ago.  The S-curve is based on the historical experience of producing things--whether corn or iPhones.

Michael Hudson on the humans who knew better

Hudson says that – in every country and throughout history – debt always grows exponentially, while the economy always grows as an S-curve.

Moreover, Hudson says that the ancient Sumerians and Babylonians knew that debts had to be periodically forgiven, because the amount of debts will always surpass the size of the real economy.

For example, Hudson noted in 2004:

Mesopotamian economic thought c. 2000 BC rested on a more realistic mathematical foundation than does today’s orthodoxy. At least the Babylonians appear to have recognized that over time the debt overhead became more and more intrusive as it tended to exceed the ability to pay, culminating in a concentration of property ownership in the hands of creditors.

Babylonians recognized that while debts grew exponentially, the rest of the economy (what today is called the “real” economy) grows less rapidly. Today’s economists have not come to terms with this problem with such clarity. Instead of a conceptual view that calls for a strong ruler or state to maintain equity and to restore economic balance when it is disturbed, today’s general equilibrium models reflect the play of supply and demand in debt-free economies that do not tend to polarize or to generate other structural problems.

And Hudson wrote last year:

Every economist who has looked at the mathematics of compound interest has pointed out that in the end, debts cannot be paid. Every rate of interest can be viewed in terms of the time that it takes for a debt to double. At 5%, a debt doubles in 14½ years; at 7 percent, in 10 years; at 10 percent, in 7 years. As early as 2000 BC in Babylonia, scribal accountants were trained to calculate how loans principal doubled in five years at the then-current equivalent of 20% annually (1/60th per month for 60 months). “How long does it take a debt to multiply 64 times?” a student exercise asked. The answer is, 30 years – 6 doubling times.

No economy ever has been able to keep on doubling on a steady basis. Debts grow by purely mathematical principles, but “real” economies taper off in S-curves. This too was known in Babylonia, whose economic models calculated the growth of herds, which normally taper off. A major reason why national economic growth slows in today’s economies is that more and more income must be paid to carry the debt burden that mounts up. By leaving less revenue available for direct investment in capital formation and to fuel rising living standards, interest payments end up plunging economies into recession. For the past century or so, it usually has taken 18 years for the typical real estate cycle to run its course.

As I have previously pointed out, our modern fractional reserve banking system is really a debt-creation system, which is guaranteed to create more and more debts. The modern banking system is therefore exacerbating the debt growth problem which countries have suffered for thousands of years.

Hudson calls for a debt jubilee, and points out that periodic debt jubilees were a normal part of the Sumerian, Babylonian and ancient Jewish cultures. Economist Steve Keen and economic writer Ambrose Evans-Pritchard also call for a debt jubilee.

If a debt jubilee is not voluntarily granted, people may very well repudiate their debts.

It is important to understand the reasons why geometric extrapolation is ultimately impossible because those assumptions are built into almost every newscast, financial arrangement, political planning, etc.  It would be a rare days anymore when the subject is implicitly brought up at least ten times.

At this link, you can find 23 different charts showing historic geometric growth of human activity--which is why all of them are destined to crash in the very near future.

The human economic growth story is incredible. Population increased exponentially, as did global wealth, factory output and other measures of development.

But the flip side is the steady exhaustion of resources and destruction of the environment. As growth continues, planetary tensions will increase too. This is why we're running into peak everything.

Real Economics are best Described by Evolutionary Theory

In 1859, Charles Darwin would publish his seminal work entitled "On the Origin of Species by Means of Natural Selection, or the Preservation of Favoured Races in the Struggle for Life."  This work would set off controversies that resound to this day.

Before Darwin, the generally accepted idea was that the world was the way it was because that is how the Creator wanted it.  The majority of intellectual speculation, whether of a scientific, philosophical, or religious nature, assumed that the goal in life was to discover those divine rules that ordered a fixed universe.  After Darwin, while folks still sought to discover the natural laws with universal applications, the focus shifted to describing the mechanisms of change.

No wonder Darwin is often considered the most disruptive thinker in history.

Taking Darwin out of the biology context is a hazardous occupation.  The ugliest of the non-biological manifestation of Darwin's theories is often called "Social Darwinism."  Perhaps the most famous social Darwinist in USA was the 19th century chairman of Political Economy at Yale by the name of William Graham Sumner.  His most famous student was a kid from Minnesota named Thorstein Veblen.

Veblen was influenced by Sumner--though not in ways usually expected.  Veblen thought Social Darwinism was a monstrous error and devoted much of his life's work to debunking Sumner's teachings.  This did not mean Veblen rejected the theories of evolution.  Far from it.  In 1898, even before his first book was published, Veblen wrote an incredibly important paper entitled “Why is Economics Not an Evolutionary Science”.

Suddenly, the extant economics looked as static and ridged as any holy book.  Veblen would go on to write a body of work that would described "economic man" as a dynamic actor with complex motives who was constantly evolving.  Veblen is usually considered one of the fathers of a discipline called evolutionary economics.  Wikipedia defines this speciality thus:

Evolutionary economics is part of mainstream economics as well as heterodox school of economic thought that is inspired by evolutionary biology. It stresses complex interdependencies, competition, growth, structural change, and resource constraints but differs in the approaches which are used to analyze these phenomena.

Evolutionary economics deals with the study of processes that transform economy for firms, institutions, industries, employment, production, trade and growth within, through the actions of diverse agents from experience and interactions, using evolutionary methodology.

Evolutionary economics is validated by the existence of something that can only be called evolutionary industry.  Toyota imported evolutionary concepts into their system of quality control and called it Kaizen (continuous improvement).  The results were stunning--Toyota so revolutionized quality control they were able to leverage this reputation into their present status as world's largest automaker.

Why this is important

Evolutionary economics, especially in its heterodox manifestations, is hands down the best ways to understand and describe the complexity of the real world.  Typical non-evolutionary economic statements like

The market is always rational

A corporation exists only to maximize the return to the shareholders

Free Trade will bring generalized prosperity

are wrong because they are as static and ridged as any theological statement they so resemble.  This blog rejects static economics--mostly because dynamic descriptions of economic behavior are far more accurate.

Evolutionary industry is important because if we ever produce one, the green sustainable society will happen one tiny little improvement at a time.  And the folks MOST likely to create those new green bits and pieces are those most industrially evolved already.