Promoting bold and courageous thinking

Discuss economic analyses relating to Africa at the highest level anywhere on the five continents and Dr. Hippolyte Fofack’s name is bound to come up. Some in the academic and policy making universes will quote him to prove a point, some will refer to his research to bolster their arguments and some will simply help themselves to his ideas to enhance their presentations and give them the necessary gravitas.

To say that Dr. Fofack is one of the world’s thought leaders on the pace of development and its constraints in the emerging world is to say the sun brings light – it’s so absurdly obvious. 

But he is more than a thought leader – he is also a thought catalyst – changing hide-bound perceptions and revealing aspects of issues that few had even contemplated before they were presented fully formed to them. He is the archetypical change maker. He sparks off discussions and ideas at a time when Africa’s original thought-bank is dangerously low.

During the 20 years he worked at the World Bank before joining Afreximbank, he had already shaken the often-ponderous organisation with his focus on inclusive growth and economic transformation.

His rigorous research, vast reading and meticulously prepared papers gave him the reputation of being an analyst par excellence – but he regarded research as only a step towards finding solutions that put the world on the desired path of global convergence. 

In many ways he was ahead of the curve. As he explains later in this interview, it was clear to him that the most critical difference in the comparative progress that societies have made is the degree to which their human capital is developed and strategically deployed.

To his alarm, Africa has been very much in the slow lane in building up its human capital, especially in the sciences – the crucible in which technology – the main driver of growth and structural transformation – is forged. 

Part of developing human capacity is the free flow of ideas, concepts, discussions, and debates that the developing world needs in order to own its own policies and shape them to its own ends. He wanted more freedom to explore a wider range of issues more deeply. 

Afreximbank in the meanwhile had grown from a small trade finance organisation to becoming a leader in its own right on the transformation of African economies and, under the relatively new dispensation laid by incoming President Benedict Oramah, it offered Dr. Fofack the opportunity to shape policy and generate ideas to shift the frontier of development thinking. 

He left the World Bank in 2015 and joined Afreximbank as Chief Economist and Director of Research and International Cooperation. This was a wide brief and a great deal depended on what he made of it.

Promoting a culture of research

Boiled down, with the explicit support and encouragement of the leadership at the Bank, his primary function was to promote a culture of research and innovation across the Bank to enhance ownership of innovative ideas and further strengthen the Bank’s global leadership as a centre of excellence in African trade matters. 

His department was expected to play a pivotal part in the Bank’s ambitious – but essential – mission to expand and diversify African trade and increase the continent’s share of global trade while it continued to function as a first-class, profit oriented and socially responsible financial institution. The battle of ideas was as important as that for capital. The deficit of economic diversification has resulted in huge and growing financial leakages that undermine the process of capital accumulation and long-run growth. 

Dr. Fofack had joined an organisation that had come to the conclusion that if Africa’s economic pattern, derived from centuries old, raw commodity export-based system imposed on it, was to be truly transformed in a world where global trade has been largely driven by manufactured goods with increasing technological content, it had to break cultural eggs.

The Bank expanded the range of its activities and has increasingly played an important role in shaping Africa’s economic agenda as well as challenging the orthodoxy that was constraining its development. 

To solve a problem, you must first accurately diagnose it. Dr. Fofack explains that the Bank encourages rigorous intellectual debate and an honest analysis of problems but with a view to helping provide a solution to bring about a positive outcome.

When asked about Africa’s performance over the last 30 years, he does not believe in putting on rose-tinted glasses when it comes to analysis or going down the ‘Africa Rising’ narrative which can be seen as patronising, comparable to praising a backward child for showing slight signs of improvement.

On the contrary, he is disappointed with Africa’s performance since independence in the 1960s. “Read Gunnar Myrdal, the Swedish economist who won the Nobel Prize in 1974,” he urges. “In his book Asian Drama: An Inquiry into the Poverty of Nations, published in 1968, he argued that Africa would perform better than Asia for a number of reasons.”

A decade later, he points out, “it turns out that Asia did far better than Africa. The continent which had tremendous potential still has not been able to realise that potential.”

Worse, in some metrics and everything else being equal, the continent has gone backwards. “Our share of global trade was 5.7%; today it is less than 3%. “Asia accounted for the lion’s share of the world’s poor at independence; today Africa is home to over 60% of the world population in extreme poverty.”

Africa’s performance cannot be regarded in isolation but must be compared to what others are doing. “It’s like being in a race; you are running but the gap between you and those ahead of you is actually widening. We are not catching up. We should be running faster than others to set the world on the desired path of global convergence.”

This clear-sighted view of Africa’s position vis-à-vis the rest of the world may sound depressing, but it also illuminates Dr. Fofack’s, and the Bank’s, impatience with the pace of progress that has been made so far. The Bank does not want to lapse into a false sense of satisfaction when there is so much more to be done.

Expanding intra-regional trade 

Can he identify the major causes that led Asia to its spectacular growth while Africa lagged behind? He lights on two: intra-regional trade and human capital.

“When intra-regional trade is over 50%, it becomes an insurance against global volatility. Asia, where intra-regional trade accounts for over 67% of total trade, has done that, the EU, where it accounts for 72%, has done that, Africa has not yet done that. 

“Despite the significant increase, from just about 5% in 1980 to about 15% of total African trade, intra-regional trade remains very low in Africa. In large part this is the consequence of African patterns of trade that are still largely dominated by primary commodities and natural resources in a world where manufactured goods have become the engine powering global growth and trade.”

This is one of the reasons why the Bank is so focussed on the African Continental Free Trade Agreement (AfCFTA). Also, it is a potential driver of economic diversification because intra-African trade is largely dominated by manufacturing.  “The mutually reinforcing nature of intra-African trade and industrialisation is a positive sign. It is also cost-effective, by promoting intra-African trade you drive industrialisation, capitalising on economies of scale associated with the AfCFTA to kill two birds with one stone in the development arena,” he says.

The human capital conundrum

But the major stumbling block facing Africa, says Dr. Fofack, is the dire situation of its human capital. “I dare say that the most significant thing that Asia has done to really relegate Africa to where it is today, in my view, has been in the area of human capital which has produced huge demographic dividends to the region.

Over the last 30 to 40 years, he says, “we’ve moved from an old era where growth was driven by organisational change into a new era where growth is largely driven by technological change.” 

Technology has been the most effective competitive weapon, he argues. The whole standoff between the US and China today is over technology. China and India invested heavily in developing human capital. “China and India, every year can produce more than 5,000 world class, elite, engineers at the apex of research. Africa has only 198 scientists per million inhabitants against the world average of 1,150 per million. The consequences of that scientific gap are huge. While Africa accounts for only 0.5% of the world’s patent applications that will determine future output, Asia accounts for 66.8%.” 

Another aspect of the dearth of human capital is that most of Africa has to rely on others and pay a higher cost for its infrastructure development plus its maintenance. “This comes with all the direct implications for macro-economic management as the bill has to be settled in hard currencies in a continent where liquidity and dwindling stocks of foreign reserves have been among the key constraints to trade finance and growth.” 

Looking ahead, he feels that if the AfCFTA project works as it should, it should be able to accelerate the process of industrialisation to boost both extra—and intra-African trade. Preliminary estimates are very encouraging: according to World Bank’s estimates the AfCFTA is expected to boost intra-African exports by 81% and extra-African exports by 19% in the coming decade. Interestingly, manufactured goods are expected to make the most gains – a 110% increase for intra-African trade and 46% increase for extra-African trade. Afreximbank, he tells us, has done a very good job by aggressively supporting implementation of the AfCFTA and also by making intra-African trade the arrowhead of its own strategy.  

“We believe that if we can complete the rules of origin under the AfCFTA, (where some 88% of Rules of Origin have been agreed with only the automotive and textile sector currently outstanding) which is what I call the passport for industrialisation, then you will see intra-African trade grow more rapidly. “Under the best case scenario it will accelerate the process of industrialisation and foster the development of regional value chains as African and foreign investors take advantage of preferential treatment incentives and economies of scale associated with the continental trade integration reform.”

The Bank has also played a big role in advocacy, he explains. It has published seminal research on the risk premium that Africa unfairly pays which has changed the way people today perceive Africa risk. The pernicious perception premiums are among the most important constraints to economic development in Africa. They have imposed default-driven borrowing rates that exacerbate liquidity constraints and undermine the process of economic transformation necessary for Africa’s effective integration into the global economy. 

His department, he tells us, has been encouraged to be bold and courageous in its thinking to help address structural issues that have held back development or that unfairly penalise the continent.

The Bank has been proactive and bold, he argues, playing a leadership role in addressing some of these issues which others have shied away from. He credits the leadership and ethos of the Bank, which is to be confident to put forward an agenda that supports African interests and to articulate loud and clear this viewpoint.

Putting Africa first

“The Bank and President Oramah really need to be commended for having the courage to put Africa first even when others are afraid of making the case for the continent. 

“We have seen the position the Bank has taken on climate change and many other consequential issues. There is a true commitment to intellectual courage so that we get to the right answer, and this augurs well for development prospects in the continent. In a world of zero-sum mindset, courage is perhaps the most important currency for development.”

It has encouraged deep discussions around critical issues. One such arena is the Babacar Ndiaye Lecture, named after the African Development Bank President who was so instrumental in helping establish the Bank. “President Oramah has ensured that we understand our history, and the history of the Bank, and that we crowd in ideas from as wide a field as possible,” he adds.

And the Bank has walked the talk by launching numerous initiatives to tackle the important structural constraints: he cites the Pan-African Payments and Settlements System (PAPSS) to alleviate liquidity constraints in the financing of intra-African trade and AFRICOIN to promote local processing of cocoa as some direct interventions of the Bank that are saving and making the continent billions.

“One major lesson that we’ve learned from Asia is the need to own your development process. In contrast to Asia, African countries have essentially outsourced their development process… This is one of the fundamental reasons why I joined the Bank, because of its work on the continent and its determination to own and lead on that development process.”

He credits the Bank’s leadership for its desire to debate fundamental issues as well as its desire to learn from history. “Afreximbank is very fortunate to have had a series of leaders that truly value history. It is perhaps the one of the first institutions on the continent that has actually established a corporate museum detailing the history of trade. That history of African trade that the bank has valued is actually a foundation for our projection into the future.” 

It breaks the cultural discontinuity which has created a world of distance between Africans and their most precious historical creations now in European museums. That history is so central to African trade and economic development. 

The AfCFTA, which has been touted as a game changer because it has the potential to accelerate the transformation of African economies, will only deliver on its huge potential if leaders across the continent are able to overcome the first-order constraint: transcending the invisible and yet real barriers that were erected in the 19th century during the Berlin Conference by speaking with one voice and reaping the full political and economies of scale associated with the continental trade integration reform in their long-walk towards African renaissance and global convergence.