Globalization's Challenges for Africa (eBook)

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Africa’s Role in Globalization

Globalization has recrafted how the world operates in almost every aspect. Corporations have broadened their horizons beyond national borders. International business barriers have diminished, and the free movement of people and goods has increased.

Globalization gained momentum in the 1960s and led to the integration among people, businesses, institutions, and governments of different countries in many aspects of human lives. Reinforcing this process has been the liberalization of world trade, international investment, the spread, and development of communication and information technologies, sound macroeconomic policies, a diverse and educated workforce, the existence of a market economy and global economy, and the growing importance of international capital flows.1

Globalization has also changed how business is done, requiring firms and countries to learn to think globally to succeed in this competitive and challenging world marketplace. Countries, communities, and businesses must have global competitive strategies that integrate geographic information with market information, create global added value, and maximize the net gain from international trade. The dramatic acceleration of globalization over the past six decades has mainly been due to the spectacular expansion of businesses, the flow of capital, and the extraordinary advances in information technologies. This growing phenomenon has led to the unprecedented growth of international trade, as shown in the figure below.

World Trade Total Merchandise Exports from 1950 to 20222.
The amount is $US billion.

However, countries are not benefiting equally from globalization. The gap between developed and developing countries has widened despite the supposed benefits of free trade and investment over the past hundred years. In 1870, the average income per capita in the world’s seventeen wealthiest nations was 2.4 times that of all other countries. In 1990, the same group was 4.5 times as rich as the rest. In 2019, the thirty-four member states of the Organization for Economic Co-operation and Development (OECD), which includes most of the world’s prosperous economies, had an average gross national income (GNI) per person of more than $40,000. In contrast, the world’s forty least developed countries had a GNI of under $1,000 per capita, showing that income per capita in the world’s thirty-four wealthiest nations was forty times that in the world’s forty poorest.3 Overall, 60% of the global extreme-poor population lives in Africa.

Moving from countries to continents, it is plain that Africa, in particular, is not benefiting as much as it should from the benefits and opportunities of globalization. Despite the rapid growth of world trade in the past decades, Africa accounts for just 3% of world trade in goods and services. With that share of trade, Africa remains isolated from globalization, which holds back Africa’s business world development. World Bank Vice President for Western and Central Africa Ousmane Diagana, who took office in 2020, stated that African economies could not ignore the global economy as a source of business growth and development.4

This low participation of Africa in world trade can be explained, among other things, by the fact that the continent transacts most of its trade with industrialized countries. Intra-African trade is very low due to a lack of effective business development strategies and the inconvertibility of African currencies. To improve its local and international economies, Africa must reform its trade policy, particularly by diversifying its production and exports and, above all, by developing intra-African business to improve and diversify its participation in global trade and business. Given that some of the leading causes of intra-African business weakness include a lack of effective business development strategies and the inconvertibility of African currencies, it’s clear that African countries must derive relevant and contemporary business strategies and expand their thinking beyond traditional approaches and markets if they want to play an active role in the new globalized market. There are issues with the currency exchange rate, staggering business transaction costs, and sometimes conflicting regulations.

While poverty is still felt in East and South Asia, it is much more severe in Africa, especially in its sub-Saharan region. Africa can reasonably be named the world’s greatest development failure region. Around a billion Africans live with less than $1 per day, and 2.6 billion Africans live with less than $2 per day. In 2020, during COVID-19, over 34% of Africa’s population lived below the poverty line of less than $1.90 per day, representing almost nine times the average for the rest of the world.5

With twenty-three of the twenty-eight world’s poorest countries, Africa remains the continent with the largest share of excessive poverty rates. From 2015 to 2017, the total trade from Africa to the rest of the world averaged US$760 billion, compared with $481 billion from Oceania, $4,109 billion from Europe, $5,140 billion from America, and $6,801 billion from Asia. From 2000 to 2017, the share of exports from Africa to the rest of the world ranged from 80–90%. Intra-African exports were 16.6% of total exports in 2017, compared with 68.1% in Europe, 59.4% in Asia, 55% in America, and 7% in Oceania. Intra-African trade was around 15.2% from 2015 to 2017, compared with 47% for America, 61% for Asia, 67% for Europe, and 7% for Oceania. The figure below compares the total exports of merchandise by region in 2022.6

Total Merchandise by Region, Exports, 20227

As we can see, the total share of merchandise exports from Africa in 2022 was still less than 1 trillion. In contrast, it was about $9 trillion in Asia, 8.800 trillion in Europe, and 3.3 trillion in North America. In 2018, the EU accounted for 29.8% of Africa’s business market, the most significant market share.8 This situation was before COVID-19 had severely impacted the African Continental Free Trade Area implementation due to the closure of national borders.

There are currently two dominant discourses on development in Africa: Africa as a region that has been bypassed by the globalization of the world economy and Africa as a region that has actively suffered from it.9

Africa’s current business environment is also characterized by a lack of effective partnerships and economic integration in this increasingly globalized world of trade.10 In the age of globalization, most developing countries can build their business through trading links from regional and subregional levels. Other countries are grouping themselves and strengthening their commercial partnership with neighboring markets while all these trading links are neglected in African business.

While the United States, Asian, and European countries are implementing winning business development strategies to withstand and win in the age of globalization, African countries have rarely put the issue on the agenda. The African continent remains on the margins and has done little to develop business between African countries, let alone set up an African monetary system based on an African central bank and a single currency in Africa to leverage the benefits of globalization.

Instead of prospering, today’s Africa is rife with economic decline, corruption, environmental degradation, and conflict. Africa’s business world is poor because its economy and society have been ravaged by international capital. Even the more developed countries lack effective African-centric business strategies, and African currencies are not easily, if at all, convertible, as I will discuss in detail below.

This situation inspired my work for this book. I intend to demonstrate in these pages the strategies needed to develop the African business world and the need for an African single currency. In this twenty-first century, Africa is the marginalized step-child of globalization. The question is how Africa can turn this around, participate effectively, and leverage the benefits of globalization.

In this, African nations and Africa as a whole face many challenges, such as the cost of production of goods and services, obtaining building permits, entrepreneurship problems, water and electricity challenges, taxes, getting business loans, insolvency problems, political governance, lack of technology, a deficit of intra-Africa business, Africans’ lack of participation in global business, lack of infrastructure, people’s economic movement, lack of peace and security, corruption, weak partnerships for trade and business development, and absence of practical business ethics, to name but a few.

However, I don’t want to paint a too bleak portrait. Many African universities and business schools have incorporated business ethics into their programs, such as macro-economic, systemic challenges, corporate responsibility, and ethical management and leadership.11 Such programs recognize the governance abuses, corruption, and institutional misalignments that affect capital outflows and cause socio-economic problems. Also, I should note Africa is considered the world’s last frontier market, where competition occurs between domestic and...