Abstract
In recent years, Africa has been undergoing its own industrial revolution. With a young and talented population, African nations are destined to reach their economic objectives. Africapitalism is an economic term that was introduced by Mr. Tony O Elumelu and it is quite a hot topic on the African continent. Mr. Elumelu is a Nigerian billionaire and has fostered the concept of Africapitalism immensely in his home nation of Nigeria. He is one of the many large investors in Nigeria that have adopted the philosophy and is setting a good example for fellow countrymen and women, showing that his idea of Africapitalism is economically strategic. This extended essay discusses the impact that Africapitalism has had on Nigeria’s economy in the recent past.
Word Count:122
Introduction
Africapitalism is an economic term derived from capitalism. Capitalism can be defined as a philosophy whereby goods or services are produced by private investors to make profit, with little to none government intervention. The main goals of the Africapitalism are to create social wealth and long term investments. The economic term was created in 2011 and was introduced by Nigerian multibillionaire and former banker Mr. Tony O. Elumelu. Mr Elumelu’s main aim is to ensure Africapitalism is associated with philanthropy whereby, businessmen and women invest in their own society. On the 8th of May 2011 Tony Elumelu founded the Africapitalism Institute. Many African countries such as Nigeria, Ghana and Kenya have experienced positive impacts from its implementation which in turn, has proven well on their economies. In Nigeria this has been discovered through high entrepreneurship and enhancing local demand. The economic term is still relatively new and I thought it would be interesting to see how it has fared so far.
The theory of Africapitalism
Mr Elumelu stated that Africapitalism “is a deceptively simple notion, but a powerful one that has the potential to remake a continent, and put Africa on an equal economic footing with the rest of the world,” The African continent is often referred to as the capitalist hub meaning that there are a lot of economic opportunities for entrepreneurs and investors to build successful businesses which helps solve most social challenges such as poverty. Therefore, an appropriate definition of the philosophy would be, “long-term investments that create economic prosperity, as well as social wealth.” With prosperity and wealth also comes improved standard of living, better health care and less social ills.
The progression of Africapitalism
With the implementation of Africapitalism, Nigeria has been able to put their hardship of exploitation by their colonial master in the past. Africapitalism has played a role in alleviating problems such as poverty and poor infrastructure. Present day Nigeria’s economic growth is noticeable. For instance oil companies are able to create petroleum from natural oil, which in the same time has created jobs and a new group of consumers. Influential people such as Mr. Aliko Dangote have put much effort into making sure private investment is changed into social wealth. Mr Dangote is Africa’s largest cement producer and is best known for being the richest African with a net worth of about 12.3 billion USD. He and many other Nigerian entrepreneurs have ensured that the money they amass is injected back into the well being of their communities.
Figure 2: Shows Breakdown of Nigeria’s GDP Pre and Post Africapitalism
Pre Africapitalism (2009)
Source:http://www.economywatch.com/world_economy/nigeria/structure-of-economy.html
Post Africapitalism
Source:https://www.proshareng.com/news/Nigeria-Economy/Nigeria%E2%80%99s-Real-GDP-Records-6.21Percent-Growth-in-Q1-%E2%80%9914–Higher-Than-4.45Percent-in-Q1%E2%80%9813/23719
The above graphs show that the service industry has significantly overtaken the agricultural and industrial sectors over the years. For example, many Nigerian firms such as Heirs Holdings which is owned by Mr Elumelu himself, invest long term in the most promising sectors such as oil, real estate and hospitality with the hope that this will create economic growth. Heirs Holdings also prioritises creating competition between businesses. The Heirs Holdings company is proving the world that Nigeria is leading example in long term investment and promoting entrepreneurship. Nigeria has created many economic partnerships with other nations. The creation of these partnerships have seen Nigerian exports skyrocket. Nigeria also has a young and growing population which is ready for the industrialisation of the West African nation. Less dependence on exporting raw materials and a growing service sector has seen Nigeria’s GDP grow at a faster rate. A good example would be the opening of Nigeria’s first fruit juice concentrate plant Teragro Commodities Limited. The fruit juice plant has contributed to making fruit juice which can be exported. Prior to its construction Nigeria had heavily depended on just exporting raw fruits of which they could not charge much for as these are primary commodities. The fruit juice plant has also sticks by the goals of Africapitalism which are to create long term investment and social wealth. So far, the company is reaching these goals and have also considered focussing job creation, creating local demand, ensuring farmers get a fair pay and helping alleviate food insecurity. The goals of Africapitalism can be found on the Africapitalism Institute website.
The effects of Africapitalism on the banking sector
The banking sector of Nigeria has seen vast improvements with the deployment of Africapitalist concepts. The United Bank for Africa (UBA), is one of Africa’s largest and most successful banking institutes that was created in 1949. In the year of 2005, UBA merged with a struggling bank called Standard Trust bank. The Standard Trust Bank had been facing rough times since 1997, going into bankruptcy, facing charges over corruption and so on. The two banks merged with a mission of democratizing Nigeria’s banking sector. The first few years were a hassle to get the bank up and running as the public were skeptical on whether they could trust the bank or not given its previous history. Around 2010, the bank was formed into a Pan African institute and saw a large increase of customers and ATMs nationwide. The board members promised to deliver and they did, to date the UBA has more than 8 million global customers and has opened branches in the likes of Paris. After the realisation of Africapitalism’s impact on United Bank for Africa, more and more banks have become locally empowered. This change in Nigeria’s banking sector has seen an increase in international finance between African countries. Other banks that have seen tremendous growth in Nigeria are the First Bank of Nigeria, Access Bank and Zenith Bank. All these banks have very aggressive marketing strategies and have been able to forge partnerships with other international banks in various parts of Africa and the world at large.
The impact of Africapitalism on agriculture
Agriculture is one of Nigeria’s biggest sectors in the economy as many people living in rural areas rely on rearing animals and growing crops to bring bread to the table. As earlier mentioned the Teragro fruit juice plant was one of the many successful agricultural end products to come from the implementation of Africapitalism. Africapitalism in the agricultural sector has seen immense improvements in rural areas of which the economic philosophy has been applied. In the North Western regions of Sokoto and Kebbi Africapitalism has been widespread and has been highly appreciated by young agricultural innovators who are being supplied with development loans that charge low interest rates by the philanthropic Africapitalist institutions. Many Africapitalist pioneers state that despite the African continent having over 60 percent of the world’s arable land there is still a lot that can be improved in terms of yield output as this land is not being used effectively. By financing and supporting innovative agricultural ideas the African continent has the potential to increase productive and allocative efficiency in the agricultural sector. This strategy has proved successful in the regions of Sokoto and Kebbi with mechanisation on farms increasing efficiency and crop yield as well as ensuring that farmers working on the fields get better pay.
The oil and gas sector
Gas and oil are the biggest energy contributors in Nigeria. They are one of Nigeria’s biggest exports and therefore play a very pivotal role in Nigeria’s economy. When Nigeria discovered that they have crude oil this shifted the country’s production possibility curve outwards meaning that the economy has grown. From this discovery there have been more benefits than drawbacks. Even though the government has discovered crude oil, there has been a lack of government policies to encourage the local private sector to participate in the economy. Local private sector participation has not been greatly involved in crude oil production, this has hindered the efforts that Africapitalism has made.
Figure 3: Shows contribution of each sector to the GDP
Source: http://www.afdb.org/en/
Infrastructure Improvement
Infrastructure in any country is important for economic development. In Nigeria there is a problem with regards to infrastructure, this pushes the country back in terms of development. Countries such as Nigeria which lack proper infrastructure will heavily depend on other nations for survival. Improved infrastructure is a healthy indicator of economic development in a nation, constructions of firms can help reduce structural unemployment as new firms will have a demand for certain types of employees. In recent times, Nigeria has also had huge economic growth, improved infrastructure has increased industrialisation and competitiveness throughout the business sector. Telecommunications, sanitation and water supply are some of the many things that the Nigerian government has promised to improve. Africapitalism has not yet significantly had an impact on infrastructure. However as Africa’s natural resources and population grow, there will be many more opportunities to invest in the transport sector.
Economic Growth in Nigeria
Nigeria for the past decade has had very high economic growth, clocking at an average of 7.4%, this has been achieved via the thriving telecommunications, tourism, construction and manufacturing sectors. Economic growth was projected to be 6.9% in 2013 which was roughly two years after Africapitalism was adopted. In 2014 inflation rates were relatively high in between 7%-8.6%, however that same year the government of Nigeria implemented monetary policies that helped lower the average price level. In the year 2013, the government of Nigeria implemented contractionary monetary policies such as limiting the supply of money in the market and increasing interest rates, the government felt inflation rates were too high and also needed to lessen aggregate demand which were the main objectives of the government that financial year. In 2015, inflation was expected to plateau at 8.4%. Although economic growth has blossomed, poverty and unemployment still loom – the unemployment rate was at a staggering 23.9% in 2013 with roughly two thirds of the Nigerian population living under one dollar per day. The government has since promised that they will create jobs for the youth, which has not been going well so far.
Figure 4: Shows Nigeria’s GDP growth trend
Source: http://www.tradingeconomics.com/nigeria/gdp-growth-annual
As already alluded to earlier in our discussion, Nigeria’s main challenges are infrastructure, little economic freedom, corruption and overdependence on the oil and gas sector. These problems are prioritised by the Nigerian government which urges the private sector to get involved in developing infrastructure to help build the non oil sector. Diversification from the oil and gas sector is therefore, very key to the government. According to the African Development Bank (ADB), Nigeria and fellow African nations have undergone changes in public financial management in order to efficiently allocate resources. However this is not easily achieved as another problem that Nigeria suffers from is high levels of corruption. The Nigerian government tries to address this issue by creating economic crime organisations. The country has lived up to its promise of trying to reach its four main Millennium Development Goals and these are, achieving primary education for all, promoting gender equality, reducing extreme poverty and hunger and lowering child mortality rates. As a result of slowed oil production and a battered global economy, Nigeria’s GDP has not grown at heights that are expected of it, with the nation dropping from 6.63% to 5.89% growth rate in 2014-15. Agriculture is a big player in Nigeria’s economy accounting for roughly 40% of the country’s GDP. With low tax rates, oil and gas account for about 80% of tax received and about 25% of the country’s GDP. Whilst all other sectors only accounting for 20% of tax and 65% of GDP. Such over reliance on the oil and gas sector makes it difficult to plan and grow due to fluctuating oil prices. Hence, Nigeria is currently trying to diversify their economy to help relieve the strain that the oil and gas sector has on it.
Applying the Rostow Model to Africapitalism
Source: IB economics course companion (self drawn)
The Rostow model shows economic growth of a nation in five steps. Currently Nigeria is in the pre-conditions for take off stage, however with a fast growing economy and cleansing of internal problems, Nigeria is fast approaching the take off stage. Investments and savings are growing in the West African nation which is one of the characteristics of a nation that is in the take off stage. As Africapitalism promotes long term investments and creation of social wealth, Nigeria is well on track to reaching the take off stage as Africapitalism becomes more widespread. The economic theory of Africapitalism is sustainable to help Nigeria reach the level of mass consumption of which most Western nations have reached or are on the brink of reaching. Nigeria, applying Africapitalism to help propel economic growth, should set a good example for fellow African nations to also adopt the economic theory given the success it is proving in Nigeria at the moment.
Nigeria and the regional competitors
When compared to other Africapitalist nations, Nigeria thrives and struggles in some areas. Nigeria has outgrown all African nations to claim the highest GDP at 521.8 billion USD. This has been made possible by the flourishing private sector and the involvement of public sectors such oil and gas sectors, agriculture and others. Nigeria’s has had a rapidly increasing human development index when compared to the likes of its West African competitors such as Cameroon and Togo. However, Nigeria is still very far behind when compared to other countries on the continent. Having a literate nation is a basic component to reaching economic development however, this is one area where Nigeria struggles. Literacy rates in Nigeria clock at 59.6% of the whole population which makes the nation inferior when compared to the likes of Botswana and Kenya who clock at roughly 87%. Unemployment is another huge problem that Nigeria suffers from, with roughly 13.3% of the working population being unemployed. The most popular type of unemployment that Nigeria suffers from is frictional unemployment as majority of the population are either in the working age group or are below it, meaning that many graduates are still waiting to get a job or have skills not applicable to available jobs otherwise known as structural unemployment. The adoption of Africapitalism has promoted import substitution not only in Nigeria but in other African nations such as Ghana and Kenya, for example, and this gives Africans motivation to continue being innovative as their countrymen are supporting local produce. We have since seen a number of countries in Africa seeking to uplift the lives of their population by emulating Tony’s concept. For example, South Africa came up with the Black Economic Empowerment (BEE) after attaining independence and abolishing the apartheid regime. This programme is aimed at the young aspiring entrepreneurs in South Africa. In my own country Botswana, the government established the Citizen Entrepreneurship Development Agency (CEDA), whose aim is to support the local entrepreneurs both financially and technically so as to create more jobs and alleviate poverty.
Figure 5: Shows Nigeria’s unemployment rate
Source: http://www.tradingeconomics.com/nigeria/unemployment-rate
Hindrances to Africapitalism
The economic philosophy of Africapitalism is of much benefit to countries within the African continent that have very transparent governments. However in Nigeria this unfortunately is not the case. The economic philosophy of Africapitalism fails to reach many of its goals due to internal problems in the country’s government such as corruption. Some of the challenges faced by the Government of Nigeria are discussed and elaborated below.
Corruption
Nigeria’s public sector is one of the key prospects for Nigeria to further develop its economy. In order for Africapitalism to thrive it is important that both the private and public sector work hand in hand so that the goals of Africapitalism can be achieved. In Nigeria this is a problem that is being addressed, though not much has been done until recent times. Huge government funds that should have been allocated into improving the wellbeing of Nigerians is going into top government officials’ pockets. This is a huge problem as many Nigerian officials are living better off at the expense of millions of Nigerians who do not have an adequate standard of living. For instance Former President Goodluck Jonathan has been accused of embezzling an astonishing $15 billion worth of public funds during his 5 year term as President. Former President Goodluck Jonathan is only one of the many high ranked officials who have committed such offences. Under Jonathan’s presidency, Nigeria’s corruption levels had peaked, with Transparency International ranking the West African nation as the 136th most corrupt nation out of the 167 nations that were surveyed.
Inadequate Infrastructure
Despite the efforts made to improve infrastructure in Nigeria, Mr Tony Elumelu and other Nigerian Africapitalists believe that there is much more that can be done. Load shedding or intermittent power outages is still a prominent problem that hinders many businesses in rural areas from operating efficiently and effectively. The limited number of innovation hubs hinder further processing of creative innovations. Other infrastructures such as roads slow down transportation of goods across the country which in turn slows down economic growth within Nigeria. In short, distribution channels for products to the customers is generally affected when the road networks are not well maintained. Distribution of supplies to remote schools and health facilities become a challenge.
High Government Maintenance Cost
High ranking government officials in Nigeria allocate themselves more money per ministry than the government budget allocated. This in turn leaves the government bank balance in huge deficits. Under the the administration of former President Goodluck Jonathan, the Nigerian military was allocated funds of roughly 2 billion USD to purchase weapons, however it was later discovered that high ranking army officials split the funds amongst themselves. Some of the army officials were arrested for these actions however this is only one of the many cases of over supply of budget in government ministries. Such acts of exploitation put the citizens of Nigeria at the risk of exposure to poverty.
Figure 4: Graph showing the increase in government spending
Source: http://www.imf.org/external/country/
Despite the increase in the Nigerian government’s revenue, as seen above it is evident that the Nigerian government is spending more than it is making therefore leaving the government’s account balance in a deficit.
Internal Conflicts
At the moment, Nigeria is facing many internal issues such as terrorist organisations and tribalism. Nigeria consists of many ethnic groups with the two biggest ethnic groups in terms of population size and political power being, Hausas and Yorubas. Currently there are many economic conflicts between the two ethnic groups with regards to land ownership and political power. As a result of this many startups from each ethnic groups are often vandalised due to the intolerance the two ethnic groups have.
Terrorist organisations such as Boko Haram slow down economic development as funds that should have been used to develop the country are being injected into fighting the terrorist organisation. Towns and villages attacked are often seized by these terrorist organisations and are run in accordance to the terrorist organisations demands, which hits business operations in seized places such as the Northern town of Chibok. Not only does it affect businesses but it also leads to a brain drain as many potential workers are fearful for their wellbeing. This creates a large diaspora of well educated Nigerians seeking jobs in other parts of the world as they are fearful of returning home. Having a large diaspora can be beneficial too as remittances are obtained as is the case with Nigeria. According to the World Bank 20.829 billion USD were sent back to Nigeria from nationals living abroad in 2014.