Wealth Gap Overshadows Brexit, Populism as Threat to Global Economy
A new compact between the G20 group of nations and Africa is a major intervention to tackle the world’s biggest geopolitical risk the growing gap between rich and poor throughout the continent; Growing levels of migration and escalating terrorism in Africa and elsewhere are results of this lack of inclusive growth
Durban, South Africa Volatility in the exchange rate of South Africa’s rand did not emanate from the recent reshuffle in the cabinet, said Malusi Gigaba, Minister of Finance of South Africa, at the World Economic Forum on Africa today.
Speaking in a CNBC Africa televised debate on Africa’s economic outlook, Gigaba said the rand was volatile for some time before recent cabinet changes made by President Jacob Zuma. “The exchange rate is okay it is appreciating and showing some stability,” noted the minister. He conceded that major changes in the finance ministry over the past two years might have temporarily affected the rand’s value, but this was not the primary driver of the currency’s volatility.
“South Africa is a democratic country and markets should not panic,” said Gigaba. “We will have a general election and there will be a new president in 2019. There will be a peaceful transition. We will continue to strengthen our institutions for political predictability and stability.” These institutions include the courts and the country’s legal framework, he said.
Wolfgang Schäuble, Federal Minister of Finance of Germany, said European elections and Brexit are not major geopolitical risks in the global context. By contrast, the growing wealth gap between the rich and poor has the potential to create “major problems” for the world.
This gap is epitomized by the disparity between African economies and those of the developed world. Alarm over the potential for violent social upheaval across the globe has prompted the G20 group of nations, along with South Africa, to launch a Compact with Africa to try to rapidly improve the continent’s growth path and thereby stabilize the political environment. So far, five nations Cote d’Ivoire, Senegal Rwanda, Morocco and Tunisia have committed to working with the G20 to build infrastructure and attract considerable new investment. The G20 will facilitate and fund projects as well as encourage major private-sector investors to throw their weight behind the effort.
One demonstration of confidence in the future of Africa and of investor commitment to making a difference on the continent is the investment of $1.5 billion in Johannesburg by Swiss conglomerate ABB. Ulrich Spiesshofer, President and Chief Executive Officer of ABB, Switzerland, said his group has shown its faith in Africa over many decades. This long-term commitment has been well rewarded.
Spiesshofer said the challenge for Africa now lies in mobilizing investment to add value to its resource wealth. The continent has enormous untapped wealth and a vast indigenous market, and bringing these two phenomena together offers Africa a way out of its poverty trap.
Frédéric Lemoine, Chairman of the Executive Board of Wendel, France, and a Co-Chair of the World Economic Forum on Africa, said the risk factors for investors in Africa are often overstated. Companies in the developed world simply do not know enough about conditions on the continent to make informed decisions. The challenge for Africa is to prove that investments can work over time and not be disrupted by political instability and policy uncertainty.
The 2017 World Economic Forum on Africa takes place on 3-5 May in Durban, South Africa, under the theme Achieving Inclusive Growth through Responsive and Responsible Leadership. The meeting convenes regional and global leaders from business, government and civil society to explore solutions to create economic opportunities for all. It will also provide insight from leading experts on how Africa will be affected by the onset of the Fourth Industrial Revolution, particularly in terms of safeguarding the region’s economies from negative disruption and exploiting opportunities for further growth and development.