Economy

Jay Powell will make a much-awaited speech on Friday as the Federal Reserve seeks to battle the worst inflation in four decades without tipping the world’s biggest economy into recession.The Fed chair will deliver his remarks at 10am Eastern Time at the first in-person gathering of the annual Jackson Hole conference since the start of the coronavirus pandemic. The event, which brings together central bankers from around the world, comes as the Fed grapples with questions about its resolve to squeeze the US economy sufficiently to root out inflation.Powell devoted last year’s Jackson Hole speech to backing the Fed’s argument that the consumer price surge was a temporary phenomenon resulting from supply chain-related issues. But it has since become clear that price pressures are more demand-driven and therefore likely to persist for longer.The Fed, which has now embarked on the most aggressive tightening cycle since 1981, must decide whether it should maintain such a pace or instead begin to reduce the size of its interest rate increases, as concerns grow over the risks of heavy-handedness.Financial markets have rallied in recent weeks amid expectations the Fed could ease up on its efforts to reduce demand as incoming economic data deteriorate further.Last month the central bank delivered its second consecutive 0.75 percentage point rate rise, bringing the federal funds rate to a new target range of 2.25 per cent to 2.50 per cent.Fed officials are debating whether a third such adjustment will be necessary at its meeting in September, or if a half-point adjustment is more appropriate.Atlanta Fed president Raphael Bostic said the decision amounted to a coin toss, in an interview on Thursday with The Wall Street Journal.Officials maintain that their commitment to restoring price stability is “unconditional”, suggesting a willingness to tolerate higher unemployment.

James Bullard, president of the St Louis Fed and a voting member on the Federal Open Market Committee this year, warned in an interview with CNBC on Thursday that the Fed may have to keep interest rates higher for longer than initially expected, given that elevated inflation looks likely to linger.He added that he supported the fed funds rate reaching between 3.75 per cent and 4 per cent by the end of the year.Most officials still maintain they can bring inflation under control without causing a painful recession. However, this runs counter to the consensus view among Wall Street economists, who predict at least a mild recession some time in the next year. Economists also expect the unemployment rate to rise beyond the 4.1 per cent broadly anticipated by FOMC members and regional bank presidents in June. The unemployment rate, the current bright spot in the US economy, hovers at a multi-decade low of 3.5 per cent. More

The typical UK household gas and electricity bill will rise to £3,549 a year from October from £1,971 at present, the sector’s regulator confirmed on Friday, as consumers grapple with a cost of living crisis driven by soaring energy costs.Ofgem said the 80 per cent increase in the so-called price cap, which governs the maximum a household will pay for typical energy use from October, was due to the rise in wholesale gas and electricity prices caused by Russian restrictions on supplies to EuropeThe latest industry forecasts suggest the price cap could rise to over £6,600 a year by the spring, a more than fivefold increase on the £1,277 price cap in October last year.The UK government has faced growing calls for the next prime minister, who is due to take office early next month following the conclusion of the Conservative leadership campaign, to provide additional support for households to stave off a deep recession.Foreign secretary Liz Truss and former chancellor Rishi Sunak, the two candidates in the race, have been warned the crisis could extend for several years, since Russia has cut gas supplies to Europe in the aftermath of its invasion of Ukraine.Jonathan Brearley, chief executive of Ofgem, said the £15bn in government support that was announced in May, which will provide £400 to every household and more to those on benefits, would no longer be enough. In May the price cap was forecast to reach about £2,800 a year by October.“The government support package is delivering help right now, but it’s clear the new prime minister will need to act further to tackle the impact of the price rises that are coming in October and next year,” Brearley said. “We are working with ministers, consumer groups and industry on a set of options for the incoming prime minister that will require urgent action. The response will need to match the scale of the crisis we have before us.”

The UK business department said it was making “appropriate preparations . . . to ensure that any additional support or commitments on cost of living can be delivered as quickly as possible when the new prime minister is in place”.Chancellor Nadhim Zahawi, who was appointed by outgoing prime minister Boris Johnson last month, acknowledged the increase would cause “stress and anxiety for many people”.“I am working flat out to develop options for further support,” he said. “This will mean the incoming prime minister can hit the ground running and deliver support to those who need it most, as soon as possible.”Truss, the favourite to be the next prime minister, said she would “immediately take action to put more money back in people’s pockets by cutting taxes and suspending green energy tariffs”.But her allies said “it would not be right” for Truss to set out detailed plans before she was elected prime minister “or seen all the facts”, but pledged that she would make energy affordable for households.Her leadership campaign said her long-term plan included maximising North Sea oil and gas production.While the sector is likely to welcome her support, senior figures in the industry have questioned whether the UK can drill its way to energy security. The UK imports about 75 per cent of its gas on the coldest days and about 50 per cent on average over the year.Rachel Reeves, the shadow chancellor, said the latest figures would “strike fear in the heart of many families”, adding that the public deserved a government that could “meet the scale of this national emergency”.Labour has said it would cap bills at the existing level below £2,000. It has suggested raising funding for such action by tightening offsets and discounts for oil and gas companies in the windfall tax that Sunak introduced in spring. Cornwall Insight, an energy consultancy that has been one of the most accurate predictors of future price caps, said on Friday its latest forecasts showed an expected increase to £5,386.71 for the first quarter of next year. The cap will next be adjusted in January, since Ofgem now carries out reviews every three months rather than six.By the second quarter of next year the price cap was expected to reach £6,616.37, Cornwall Insight said, before easing slightly to below £6,000 in the third and fourth quarters of next year. The consultancy warned that a significant overhaul of UK energy policy was required to deal with the long-term crisis.“Today should be seen as a wake-up call to policymakers that short-term thinking and triage of the energy system is not enough,” the consultancy said. “Without real change to the energy system in this country it is consumers, suppliers and the economy that will all continue to suffer the consequences.”The government is considering several proposals including one from Scottish Power, one of the largest UK energy retailers, which could involve price cuts for the majority of households, though no decision has yet been made.The Scottish Power proposal is forecast to require funding of at least £100bn over the next two years, with costs spread over household bills for the next 10 to 15 years, absorbed into general taxation, or a combination of the two. That £100bn figure could rise, however, if wholesale energy costs keep going up. More

Would you wince at paying £33 for a pint of beer? How about £28 for a coffee, a tenner for a cheeseburger, or £102 for 20 Marlboro Lights?That’s roughly what these items would cost if they had risen in line with the wholesale gas price this year. The boss of Octopus Energy started the trend of using familiar items to put soaring energy bills into perspective. Following Friday’s energy price cap announcement, I’m afraid the “price shock” of an 80 per cent increase to average household bills is just the start. Annual bills of £3,549 for the average dual-fuel user from October 1 are nearly one-third higher than the £2,800 estimate the government’s £15bn energy support package was based on, and are set to soar further. Quarterly price cap reviews means average bills could hit £5,300 in January and £6,600 by the spring as soaring wholesale costs get passed on to customers more quickly.

To say current energy help measures are inadequate is an understatement. Without further help, suppliers warn the majority of customers will be plunged into fuel poverty by Christmas. Citizens Advice estimates 18mn people — one in three UK households — simply won’t be able to pay. Yet as consumers panic, the silence from Westminster is deafening. In his final days in office, Boris Johnson — a man who has never had to worry about paying a gas bill — said the British public would have to endure soaring energy prices in order to resist Russian president Vladimir Putin.But on the home front, politicians must offer more than warm words. The personal finances of millions of people stand to be nuked this winter. There is so much that can be done now to manage the crushing financial blows we know are coming, and the Conservative leadership contest simply does not excuse the lack of government action to manage the devastating effects of these price rises. Amid calls to freeze the price cap and extend existing support packages, here are some big issues MPs and regulators must address urgently as they draw up policy solutions. Manage payment shockIf you’re among the 86 per cent of UK households on tariffs governed by the price cap, expect your energy supplier to ask to increase your direct debit before the next prime minister takes office. For the average user, the £3,549 cap boils down to energy bills of around £300 a month from October 1. Depending on your usage and credit, your supplier may demand much more. Never mind the growing Don’t Pay campaign — customers who can’t pay are already panicking and cancelling direct debits, says Gemma Hatvani, founder of the Facebook group Energy Support and Advice UK. Cancelling immediately raises bill costs by 6 per cent, rips up any existing repayment plan and could quickly lead to bad debts, damaging people’s credit scores for years. As we wait for news of further help measures, how many more will cancel? Without more support, unprecedented numbers stand to run up huge energy debts this winter — suppliers and regulators must work urgently to manage this. End the prepayment premium Indebted customers are commonly switched to prepayment meters. However, the charity Fuel Bank Foundation estimates average monthly costs of £480 this December for 4.5mn UK households charged up front for energy usage, as they pay proportionally more in colder months.This is a horrific example of the “poverty premium” and so too is the higher price cap of £3,608 for prepayment customers. In any case, the rising cost of living means the budgets of the poorest have been crushed before October’s price rises take effect.Fuel poverty charities are already overwhelmed with requests for emergency vouchers from customers who cannot afford to top up, and have no electricity, heating or hot water. “Debt, destitution and ultimately, death . . . that’s absolutely what we see ahead this winter,” says Gareth McNab, director of external affairs at Christians Against Poverty, one of the UK’s biggest providers of free debt advice. He stresses it is not just the cold that will kill this winter, but the huge impact of indebtedness on people’s mental health. “People turning to us for help are terrified,” he says. “The cost of living crisis is costing lives. An agenda item at a recent meeting was ‘suicides in the past week’. We urgently need a powerful and impactful intervention.”CAP is calling for a moratorium on government debts being deducted at source from benefit claims — a problem affecting nearly half of those who approached the charity for help. Up to 25 per cent of benefits can be clawed back to repay historic tax credit debts or universal credit advances, and no affordability checks are required. This must stop. Launch a social tariff A discounted social tariff to protect the poorest households from being bankrupted by huge energy bills is rapidly gaining credence (even suppliers support it). These already exist for broadband customers on low incomes, but time is running out to launch one before energy prices soar. Social tariffs would limit the unfairness of standing charges, which are set at a fixed daily rate no matter how little power you use, and have ballooned with the cost of energy company failures.By October, prepayment customers who have not used a penny of gas since April will have to load nearly £70 on to meters to get the heating back on just to cover the build up of standing charges. In a fix The lack of further help combined with scarily high future price cap predictions is pushing more consumers to consider paying over the odds for a fix — although deals are shockingly expensive. “I’ve got a three-bedroom rural bungalow, not a cannabis farm!” one angry customer wrote on Twitter at Scottish Power this week after she was quoted just under £17,000 a year for a fixed-rate tariff. Right now, it’s likely you’ll only be able to get a fix from your existing supplier. If energy prices fall in future — or more support is forthcoming — expect to pay a £300 exit penalty. Not in debt to your supplier? You can ask for a variable direct debit where you only pay for the energy used that month, although these tariffs are not openly advertised. Hatvani’s Facebook group is a gold mine of energy saving ideas (air fryers, installing thermostatic radiator valves and lining curtains with old fleeces) to cut bills. Initiatives to incentivise off-peak usage with bill rebates are welcome, but with the crisis expected to last for years, green energy subsidies for home insulation and renewable generation are also needed. Finally, ministers cannot ignore the cost of doing business as commercial energy contracts expire. The pub selling you a pint; the café where you buy coffee; even corner shops selling ciggies. Small businesses can’t quadruple their prices, but in many cases, their energy bills already have.October’s cap announcement is a final reminder, flashing red, for urgent political intervention. Claer Barrett is the FT’s consumer editor: [email protected]; Twitter @Claerb; Instagram @Claerb More

Africa has a huge and rapidly expanding young workforce. And those young workers need productive jobs.We know what is needed to generate these jobs: enterprise. Not informal microenterprises, such as smallholder farms. It is organisations with enough formal structure to raise finance for investment, and sufficient managerial competence to reap the productivity gains from scale and specialisation.Yet Africa is desperately short of such organisations. They exist in Europe, North America and China, where workforces are ageing and shrinking. Meanwhile, the young workers with the energy and appetite for adapting to new technologies are in Africa.For decades, African leaders kept their countries trapped in the slow lane, building networks around patronage. Many businesses that entered Africa in these conditions bribed their way into local monopolies and contrived to take the resulting high profits out of the continent. Once expectations become anchored around patronage and privilege, they become self-fulfilling.

Paul Collier

Breaking free of these expectations is challenging. But, recently, a few governments have done so. There are influential models of successful transitions, such as the transformation of Singapore under its long-serving first prime minister Lee Kuan Yew, who jailed corrupt colleagues to make change credible.But Africa today is different to Singapore of the 1960s.The government of landlocked Rwanda, for example, crafted an ingenious pathway around tourism: high-quality short holidays piggybacked on attending conferences. Rwanda is now the third-most popular destination in Africa for conferences — and tourism is job-intensive. An equivalent pathway for Ghana, coastal and resource-rich, will exploit different opportunities.These transitions offer huge long-term potential for international business. Their success is also existentially important for the west to deflect African governments from alternative options.But transitions are precarious. Once Covid-19 hit, Rwanda closed its borders. It contained the spread of the virus and ensured that more than 60 per cent of its population of 13mn are vaccinated — on a par with European levels. The country has since reopened and aims to double tourism receipts to $800mn by 2024. However, the shock illustrates that transitions need underpinning.Rwanda’s airline, hotels, game parks and other businesses faced the same financial stresses as those in advanced economies. Affluent governments provided huge fiscal support for their businesses. Now, as Covid recedes, the patterns of demand and costs have so changed that some companies will close. But, having preserved the organisational capacity of business, other enterprises will be well-positioned to grow, helping to offset job losses.

Transitions in Africa required fiscal support from the international community to enable governments to provide similar assistance. The need for such support remains acute: they are short of private sector organisational capital and can ill-afford Covid-inflicted bankruptcies. Yet, during the pandemic, this capital was not sufficiently forthcoming.In the wake of Covid disruption, business opportunities are becoming apparent around the world: some businesses should be allowed to close, but many should be financed to survive, and others marked for rapid expansion.Providing similar assistance for African transitions is a massive global public good: they need support to enable them to become the role models that will inspire other countries.Fortunately, there is a way of linking the fiscal resources of affluent governments with many of those businesses in Africa which, in the global public interest, they should be financing. The money involved would be trivial both absolutely and relative to the likely pay-off.Between them, the governments of affluent countries own about 40 development finance institutions, most doing business with African enterprises. If they pooled information, they could rapidly estimate the total cost of the necessary support and report it publicly to the G20, the international financial institutions, and the African Union. A coalition of willing states could commit to share the modest sums involved.This would set a precedent: African transitions would be safeguarded against derailments beyond domestic control. This would make the continent more appealing to global investors and help prime it for growth.Paul Collier is Professor of Economics and Public Policy at the Blavatnik School of Government, Oxford university, and a director of the International Growth Centre More

Protests over job shortages have been frequent in Tunisia since the uprising that overthrew dictator Zein al-Abidine Ben Ali, in 2011. Rising unemployment and falling living standards have fuelled disillusionment with the country’s democratic experiment among many Tunisians.This, analysts say, explains the welcome received by Kais Saied, the populist president elected in 2019, who has since taken steps to increase his power through a new constitution voted in last month. Despite opposition warnings that it represented the final unravelling of Tunisia’s democracy, the charter was adopted by referendum on a turnout of 30 per cent amid widespread apathy.“The absence of development has everything to do with this moment [Saied’s restoration of one-man rule],” says Monica Marks, Tunisia specialist and assistant professor at New York University Abu Dhabi. “It is not the whole story, but it is the biggest part of it.”Since 2011, a succession of weak coalition governments has failed to deliver the jobs, or the improvements to state services and economic prospects, that Tunisians expected under a new democratic era. People in long-neglected inland provinces and the poorer neighbourhoods of coastal cities remain marginalised, facing high unemployment.Until President Kais Saied seized power, Tunisia had been seen as the only example of a successful democratic transition among Arab countries © Fethi Belaid/AFP/Getty Images“Our demands have all been related to jobs and development,” says Khalifa Bouhawash, an unemployed university graduate and one of the leaders of the Kamour movement, which halted oil and gas production in 2017 and 2020 at the crucial Kamour plant in Tataouine, southern Tunisia, as part of a campaign for jobs.This month, Tunisia hosts the Tokyo International Conference on African Development, led by the government of Japan and co-hosted by the World Bank and the African Union Commission. But Bouhawash notes: “Development here is very limited and the state of hospitals remains poor. Unemployment has grown and young men are migrating to Europe, leaving behind women, children and the old.”Economic growth averaged just 1.8 per cent between 2011 and 2020, when it shrank 9.3 per cent because of the pandemic. Unemployment is averaging at 16.8 per cent, rising to 38.5 per cent among the under-25s. The value of the dinar has halved against the dollar since 2011 and inflation is at its highest level for more than 20 years.Protesters blockaded oil and gas production at Kamour in 2017 as part of a campaign for jobs © Zoubeir Souissi/ReutersAlthough the country is already heavily indebted, the government, which subsidises bread and fuel for Tunisia’s population of 12mn, has said it needs an extra $7bn of financing this year.Until Saied seized power, Tunisia had been seen as the only example of a successful democratic transition among the Arab countries that rose up against dictatorship in 2011.Olfa Lamloum, Tunisia director of International Alert, a non-governmental peace-building organisation, says little has changed there in the past 10 years.

“The province of Kasserine, for instance, still has the three poorest districts in the country, where the poverty rate is above 50 per cent,” she says. “In Kasserine, Tataouine and Kairouan provinces, when the Covid crisis started, there wasn’t a single intensive-care bed or intensive-care specialist. In some parts of Kasserine town, unemployment is at 40 per cent among youths between 18 and 34.”Bouhawash points out that the closest well-equipped hospital for anyone needing serious medical care in Tataouine is 250km away. “We produce 40 per cent of the country’s oil production, but there is no decent public hospital and, if you need an MRI, you have to travel to another province,” he says.Protesters halted production at the Kamour plant for four months in 2020, only ending the blockade when the government agreed to provide work for 4,000 people, and loans to 120 others to buy livestock. But most of the jobs are temporary, in areas such as cleaning, security and gardening for public-sector companies.Lamloum says such “precarious” low-paid work was also common under Ben Ali’s regime. “There was no break with the past,” she says. “These are structural problems that relate to social and regional inequalities and that require new development strategies, new public policies and a real redistribution of wealth.”She says the temporary jobs “do not solve any problem” and are just aimed at soothing public anger. “Democracy is only real if it extends to social and economic areas,” she argues. “It’s not just about having elections every five years.”

Shutdown: protesters have twice halted production of oil and gas at the Kamour plant © Fathi Nasri/AFP/Getty Images

Marks and others are sceptical that Saied will be able to tackle the entrenched social and economic problems. He is seeking a loan from the IMF that will require austerity measures, which are likely to run into popular resistance.Meeting expectations for jobs and development will be his “Achilles heel”, says Lamloum, pointing to the protests of the past decade.Bouhawash, who was handed a two-year sentence by a military court for his role in the Kamour protests, says he aims to leave Tunisia once he has successfully appealed against the ruling.“I know governing a country in these economic conditions is very difficult, but going back to one-man rule is even more dangerous,” he says. “To muzzle the press and every free voice will not be accepted by young people and the educated. They won’t accept it from their own fathers, let alone the state.” More

When KY Amoako was growing up in 1950s Ghana, he hung on every word of Kwame Nkrumah, the liberation leader and, later, the country’s first prime minister and president. Amoako, who spent a lifetime working in “development”, remembers the heady feelings that Nkrumah inspired in a young man whose country and continent were on the verge of throwing off colonial oppression.“Africa was going to be prosperous, strong, united, and respected,” he wrote of Nkrumah’s project to “raise up the lives of our people” in what would become 54 independent nations.Amoako built a career at the World Bank in the 1970s and became head of the UN Economic Commission for Africa — two institutions he believed could help realise Nkrumah’s vision. Writing in his memoir some five decades later, he was clearly disappointed: “So why is Africa still poor?” he asked.The answer to that question is complex and disputed. Much research points to factors such as poor leadership, weak institutions, corruption, and lack of infrastructure. But these proximate causes fail to explain why those elements are present or lacking — and why similar obstacles have been at least partially overcome elsewhere, particularly in Asia.The depredations of the transatlantic slave trade and the short, brutal history of European colonialism go some way to explaining subsequent disappointments. New countries with random borders struggled to build modern nation states and to break free of the extractive economic models they had inherited.Yet such analysis goes only so far. As Stefan Dercon, professor in development economics at Oxford university and author of Gambling on Development, says: “The only lesson here is: get a better history.” The key to breaking free, he argues, is what he calls an “elite bargain” in which those who control the levers (and wealth) of their new states agree to roll the dice in favour of development and expanding economic opportunity.

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In Dercon’s view, development is primarily a matter for countries themselves. Outside assistance in the form of overseas development aid, loans, or technical transfer can only play a peripheral role, he says, bolstering nation-building projects that are already under way. In some cases, he argues, overseas assistance can warp incentives and actually do damage.Whatever the reasons, Africa remains the world’s poorest continent by almost any measure — a picture that did not seem inevitable when leaders like Nkrumah were fighting for independence.According to the World Bank, in purchasing power parity (PPP) terms, which adjusts for local costs, oil-rich Equatorial Guinea, at $18,000, has the highest per capita income of any continental African country, though highly unequal distribution renders that figure near meaningless. The poorest country is the Central African Republic which, along with others such as South Sudan, Niger and the Democratic Republic of Congo, barely clear income levels of $1,000 per capita.To take another measure, the average gross domestic product per capita in sub-Saharan Africa, again in PPP terms, is $4,120. But that compares with south Asia’s $7,000, east Asia’s $20,300, and a world average of $18,700. Nkrumah’s Ghana, though a relative African success story, is often contrasted unfavourably with South Korea — which was equally poor at independence but now has a per capita income of $47,000, making it nearly eight times richer.

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“From that point of view, African development has been disappointing,” says Akihiko Tanaka, president of the Japan International Cooperation Agency, which administers Tokyo’s overseas development budget. “But, since the beginning of the 21st century, many sub-Saharan countries have registered quite significant economic growth, with a 5-6 per cent growth rate fairly common.” Growth, Tanaka adds, is not the sole measure of success, though it helps to raise tax and improve services.“Development is the expansion of freedom,” he says, referring to the definition of Amartya Sen, the Indian Nobel Prize-winning economist. Sen has argued that the definition of success is when people can live their lives as they please, not as poverty or other constraints dictate.By this measure, some progress has been made. In August, the World Health Organization reported that healthy life expectancy in Africa had risen by a remarkable 10 years since 2000. At 56, it is still eight years below the global average, but it has caught up five years since 2000, an indication that some countries may have turned a corner.Among the new factors in that time are improved democratic accountability, debt forgiveness and the arrival of new investors, notably China.

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This rise in healthy life expectancy — and other improved indicators, such as big falls in child and maternal mortality — are described by Matshidiso Moeti, WHO regional director for Africa, as “testament to the region’s drive for improved health and wellbeing of the population”.But such development gains, she warned at a recent conference, were now being threatened by multiple shocks. The Covid pandemic damaged health programmes, closed schools and squeezed economies, while the war in Ukraine has sharply raised food prices. “Progress must not stall,” she said.A further threat to progress, however, is a lower appetite among some richer countries, the UK chief among them, to provide development aid. Although experts such as Dercon argue that external assistance plays only a marginal role in development, in areas like health it has had an outsized impact.Foreign governments, multilateral institutions, and private organisations, such as the Bill & Melinda Gates Foundation, have funded vaccination and anti-malaria campaigns, provided antiretroviral medicines for HIV patients, and helped build bottom-up health services in many countries.Organisations such as the UN World Food Programme have provided essential food aid in regions including the Horn of Africa, the Sahel, and Madagascar, where a three-year drought has badly affected the south of the country.But while the assistance has helped stave off crisis, it has not had a lasting impact, says Lalaina Rakotondramanana, prefect of Ambovombe in Madagascar’s south. “We don’t need emergency support any more, we need development,” he says, noting that international agencies have pumped billions of dollars into Madagascar in the past 30 years. “Where has that money gone?”A suspicion that international assistance may be wasted has allowed the UK to cut its development pledge from 0.7 per cent of gross national income (GNI) to 0.5 per cent with little public outcry. In July, the British government blocked non-essential development payments on concerns that the cost of relief work would breach that lower spending cap.Advocates of development assistance fear the UK is setting a dangerous precedent. Japan, which is organising the Tokyo International Conference on African Development in Tunisia in August, spends 0.34 per cent of GNI on overseas development assistance, according to Tanaka of JICA — a sum he would like to increase. “Now the UK has decided to do this, I worry if those anti-ODA [official development assistance] people could use this as an excuse to not to agree on the expansion of development co-operation,” he says. “I hope that others will not follow the UK.”

Under Emmanuel Macron, France has been edging in the opposite direction, seeking to raise the proportion of money it spends. “France has probably surpassed the UK government with 0.55 per cent of our [gross national income] in ODA,” says Rémy Rioux, president of the French Development Agency, a government-owned financial institution.Of Paris’s push to bolster assistance to Niger, a poor country that is threatened by growing insecurity, Rioux says: “The work of development is to identify something we can support. It is not about decrees from outside. It is: do we have the tools to unlock the dynamism and positive developments in the countries themselves?”Not long before he died, Kofi Annan, former UN secretary-general, told the FT: “I think aid is important, but no nation can expect to develop on the basis of assistance from outside. My own view is that Africans would prefer to stand on their own.” More

For Navalayo Osembo, the “Made in Kenya” tags on the running shoes her company produces are a hard-won source of pride.“It has been an extremely difficult job,” says the founder and chief executive of Enda, the first manufacturer of professional running shoes in Africa. “I was saying: ‘I want to create this product, there’s no infrastructure to create it, there’s no skillset to create it.’”Enda — Swahili for “go” — started out in 2017 making whole shoes in China. But it has since moved much of the work to Kenya. Depending on the model, between 40 and 80 per cent of work is now done in the country, which is home to some of the world’s greatest runners.But, after six successful years — taking annual production to 24,000 pairs of trainers, creating 80 direct and 2,500 indirect jobs in Kenya — Osembo is considering outsourcing most production to China again, leaving only the design and marketing in Kenya. “I think we can be a Kenyan brand without necessarily being made in Kenya, because the business has to survive,” she explains.Many countries globally have pursued economic development through manufacturing and exports. In east Africa, for example, Kenya, Ethiopia and Rwanda have all sought to emulate approaches taken by South Korea or Mexico.However, manufacturing has recently gone backwards in many African countries, as local producers such as Osembo face being overwhelmed by rising costs, infrastructure problems that hamper logistics, high energy prices, unreliable power grids, tax and customs burdens, as well as cheap Chinese imports.

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In Kenya — despite the country’s reputation as a freewheeling business environment — manufacturing has struggled to sustain a transformative rate of growth. As a sector, its share of GDP almost halved from a peak of 13 per cent in 2007 to 7 per cent in 2021, according to the World Bank.Osembo cites high import taxes on supplies, customs bureaucracy and supply chain disruption among reasons to move manufacturing to Asia: “I am such a big believer in development, but also from a practical perspective, I need to be able to plug in the global supply chains.”Rajan Shah, chair of the Kenya Association of Manufacturers and of Capwell Industries, a food processor, says that “low competitiveness, regulatory burden, and then tax unpredictability are probably the three major challenges”.He says corporate taxes and levies raise manufacturing costs by about 45 per cent. “If you compare that with other developed economies, that’s probably where they are — but, in a developing economy, where we are still building a middle-income class, it’s high.”

In some countries, such as Rwanda — where, four years ago, Volkswagen rolled out the country’s first domestically built car — manufacturing has gained ground. Nevertheless, it still represents just 12 per cent of GDP across sub-Saharan Africa, according to World Bank data. That compares with 16 per cent in Latin America and 15 per cent in South Asia.A growing specialised workforce and a focus on renewable energies offer fresh advantages, however. Roam, founded by Swedish entrepreneurs in Kenya, has launched an electric motorcycle and bus made in Nairobi and developed alongside Kenyan engineers. For the motorbike, sophisticated components including the power train and batteries are currently imported from China and India, but other parts are made locally.William Ruto, Kenya’s president-elect, has told the Financial Times he wants to boost manufacturing, especially the textile and leather sectors, as his country currently imports most fabrics, including the local kitenge staple, from Asia. “We can produce that in Kenya with our cotton farmers,” he says. “Strong manufacturing also goes along the chain of leather — we’re talking about the whole chain from production all the way to value addition and manufacturing at the very end.”In Ethiopia, since 2016, manufacturing has been underpinned by a garment sector fuelled by state-led investments. To develop a strong textile and leather sector, Ethiopia built industrial parks able to manufacture at lower costs. This initially attracted global investors such as PVH Corporation, owner of the Calvin Klein and Tommy Hilfiger brands.

But local inefficiencies and political uncertainty spilled over into manufacturing. In November, PVH closed a facility in Ethiopia, transitioning to a local manufacturing partner, soon after the country lost duty-free access to the US over the conflict in the Tigray region.“Behavioural response from investors and buyers that are sourcing in Ethiopia is one of the challenges,” says Ethiopia’s industry minister, Melaku Alebel. “Buyers are choosing to place new orders outside Ethiopia, investors have temporarily scaled back operations, and manufacturers like PVH have exited.”He says the government is negotiating with the US, and believes the African Continental Free Trade Agreement offers a “new opportunity”. Analysts say it could establish Africa as a global manufacturing centre and smooth cross -border trade.“It is often cheaper to import from China,” says Landry Signé, a Cameroonian senior fellow in the Africa Growth Initiative at the Brookings Institution. But he adds: “Trading between African countries will contribute to unlock Africa’s manufacturing potential.” More