Tapping diaspora capital for the post-COVID-19 economy
he COVID-19 pandemic has slammed the brakes on most activities globally, with business operations halted, initiatives postponed and some time-bound deals and events summarily cancelled. While this is clearly a drawback at all levels, it also provides an opportunity to reflect on and plan for a post-pandemic world. A potential area is the deepening of the involvement of the African diaspora via co-investment with African businesses and governments in sectors as diverse as healthcare and manufacturing, infrastructure and agro-processing, tourism and import-export, among others.
While some of the suggestions in this article have been discussed in the past, the current circumstances provide an opportune moment to reflect on developments over the past few decades. Let me start with a personal anecdote.
"There could be tangible benefits if connections were prioritised between Africans in the diaspora and those on the continent."
In 1991, as a young entrepreneur living in Washington DC, I was engaged by an organisation called the World African Network to write a thought leadership piece for the annual Congressional Black Caucus Leadership Conference. The theme of that paper was Toward a Global African Economic Community: One Billion People and a Trillion Dollar Market.
At that time, the then Organisation of African Unity, now the African Union (AU), had just formed the African Economic Community (AEC).
The premise that I put forth was that although it was laudable that the AU had formed the AEC with its then 53 member states, there could be tangible additional economic benefits if connections were prioritised for more engagement between Africans in the diaspora and those on the continent. I conceptualised the development of a broader “global African” economic community which would include Africans in the Caribbean, the Americas (particularly in Brazil, the United States and Canada) and Europe.
Nearly 30 plus years later, at the dawn of the launch of the African Continental Free Trade Area (AfCFTA), I now reside in Johannesburg, South Africa as a result of the ideas that were sparked then. Over the years, links between the African diaspora and Africa have grown but there is potential to enhance the engagements not just in redressing the challenges that the pandemic has caused but also in the pursuit of the AU’s Agenda 2063 as well as the United Nation’s Sustainable Development Goals.
Progress towards a global African economic community has been made, although admittedly without purposeful adoption of the overall concept as I saw and currently see it. In part, progress has been made because the AU began recognising the African diaspora as its “Sixth African Region” in 2003 complete with an administrative unit at the AU headquarters. While the manifestation of this recognition in terms of the development of strengthened economic linkages between the diaspora and the continent has been slow, relationships have undeniably improved and grown.
Consistently growing flows of remittance capital from African diaspora to the continent have also been observed over the years. In 2019, these funds ($49 billion in sub-Saharan Africa) were nearly equal to official development assistance ($52 billion) and more than foreign direct investment to the continent ($46 billion in 2018).
Diaspora remittances will be particularly important over the coming years, as it is likely that some of the traditional sources of project financing and foreign investment will be negatively affected by the economic shocks associated with the pandemic. To tap diaspora resources to support continental developmental activities, new approaches will have to be innovated and implemented.
Traditionally, most of the diaspora remittance capital flows through familial channels with far fewer of these funds being channelled through more formal financial instruments such as diaspora bonds. A focus on the development of more formal channels to capture remittances and diaspora contributions will be useful as these resources can be used to fund some of the policy objectives identified in the developmental frameworks of African governments, regional economic communities and the AU in more direct and targeted ways.
Fortuitously, rethinking the African diaspora-Africa intersection in the post-pandemic period doesn’t require reinventing the wheel. A growing number of initiatives have been undertaken toward deepening cultural linkages and bridging the physical divide between the African diaspora and the continent. From the broader African diaspora, there is the work of organisations such as the Constituency for Africa and the African Diaspora Network in the US, the Emancipation Support Committee in the Caribbean, and the African Diaspora Network Europe in Europe. Initiatives from the continent include the highly publicised Ghana Year of Return in 2019, the opening of Senegal’s Museum of Black Civilization also in 2019, the Global African Diaspora Summit held in South Africa in 2012 and the Ethiopian Diaspora Trust Fund. Indeed, these are but a sample of the African diaspora initiatives around the world.
"In 2019, remittance flows from the African diaspora were nearly equal to official development assistance and more than foreign direct investment to the continent"
There have been very few continent-wide efforts to attract the diaspora in three key economic areas: investments, knowledge and skills and trade facilitation. In terms of investments, mechanisms could be put in place to tap the diaspora as preferred foreign direct investors in continental development projects.
From the perspective of knowledge and skills, the diaspora could provide long- and short-term human capital support in strategic sectors driving Africa’s economic growth. From the trade access and facilitation dimension, the diaspora could serve as market entry facilitators, importers, distributors and co-investors for African export initiatives targeting global markets. Diasporans who are dual citizens are often well connected economically and politically and can potentially play a crucial interlinkage role.
Nurturing such initiatives to fruition will require an optimum mix of policies and strategic action from the AU and its member states with individuals, civil society and corporate entities in tow. A good example is the aforementioned Ghana’s Year of Return which saw to a significant increase in tourism from the diaspora for the West African country. Other African countries could roll out similar “return” initiatives. More importantly, such initiatives could be re-engineered to go beyond tourism and target foreign direct investment and business partnerships, focusing on untapped but potentially high-yielding economic sectors. It would help with the diversification of African economies many of which are heavily reliant on tourism, a sector that was hit hard by the pandemic.
A key approach would be the provision of incentives for the African diaspora-led development initiatives. A starting point would be initiatives that are already off the ground. These include the Mobilizing Institutional Investors to Develop Africa’s Infrastructure program which was initiated by the National Association of Securities Professionals and US Agency for International Development (USAID), the crowdfunding remittance-focused Movement Capital (formerly Homestrings Ltd.), the merchant banking and impact-focused Musa Capital Group, and the women-focused New Voices Fund which grew out of Sundial, a diasporan personal care products success story. Strong continental co-investment partners are also emerging and establishing initiatives, such as the AFRO-Champions Initiative that promotes the development of continental multinationals and boosts public-private-partnership. All these represent potentially catalytic partners if an enabling environment is established.
While enthusiasm for greater economic engagement between the African diaspora and the African continent was budding three decades ago, today the landscape is far more fertile for collaboration and co-investment. The silver lining in the current pandemic is that the appetite for collaboration can be tapped with alacrity. For instance, the growing communities of returned diasporans across the continent can catalyse the linkages. These communities are to be found in the regional economic engine countries such as Nigeria, South Africa and Kenya and strategically important nations such as Ghana (headquarters of the AfCFTA) and politically important ones such Ethiopia (headquarters of the AU). Virtually all African countries have diaspora policies and mechanisms in one form or another. However, as Africa comes out of the COVID-19 pandemic, the countries that will do well in terms of a diaspora-led economy will be those that look at their diaspora strategies afresh and energetically move to tap the African diaspora as a resource.
For diasporans, the continent is enticing as an investment destination on many fronts. It remains the continent with the fastest growing economies as well the youngest globally. The continent’s youth dividend will also make the continent attractive as a potential global manufacturing base. Intra-continental supply chains are likely to come in vogue to ensure input security, working in tandem with envisaged roll out of the AfCFTA. The mobile telephone revolution will facilitate not just intra-Africa trade but also enable real-time communications with diasporans. Enhanced travel within the continent and between the continent and its diasporic regions will equally boost business connections in the post COVID-19 period.
While it may have been an idea before its time in 1991, today the concept of a “global African economic community” is one that is timely and potentially beneficial to both diasporans and to the continent of Africa.
(Main image: People walk past a logo of remittance bank Western Union on 12 October 2010 in Addis Ababa, Ethiopia - Miguel Medina/AFP via Getty Images)
The views in this article are written in a personal capacity and do not necessarily reflect the views of the organisation with which the author is associated. Similarly, the opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of SAIIA or CIGI.