July 28, 2021

Global Economy and Development

US trade and investment in Africa

BY Testimony, Brookings Institute

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Originally published on by Brookings Institute. Link to original report

( 26 mins)
US trade and investment in Africa 1

Thank you very much, Chairman Van Hollen, Ranking Member Rounds, and distinguished members of the Subcommittee, for your extraordinary leadership on U.S. Trade and Investment with Africa. Your exemplary bipartisan work on Africa inspires many in the U.S. and abroad on how politics can be used to serve the greater good. I am incredibly honored and grateful for the opportunity offered to me by the members of the Senate Foreign Relations Committee’s (SFRC) Subcommittee on Africa and Global Health Policy to testify on U.S. Trade and Investment in Africa.

I am Landry Signé, Executive Director and Professor at the Thunderbird School of Global Management, Senior Fellow at the Brookings Institution’s Africa Growth Initiative in the Global Economy and Development Program, and a member of the World Economic Forum’s Regional Action Group on Africa, and the World Economic Forum’s Global Future Council on Agile Governance.

Advancing trade, investment, and technology in Africa offers enormous economic growth and increased prosperity for both regions and is best realized through value-based foreign policy and a market-based model of development, education, and accountability. There is no better time to accelerate U.S. trade and investment in Africa than now. Despite Africa’s tremendous economic potential, the U.S. has lost substantial ground to traditional and emerging partners, especially China. Indeed, while recent trends indicate that the U.S. engagement with the region has fallen, it has not and should not cede its relationship with the region to other powers.

Importantly, the U.S. can build on new regional momentum to revive and strengthen its partnership with Africa for mutual prosperity, including building on the recent launch of the African Continental Free Trade Area (AfCFTA), and given the promise of the initiatives of the DFC, Prosper Africa, and the post-AGOA 2025 options. To do so means a shift in emphasis in the relationship to one more focused on value-based foreign policy,1 and also building upon the areas of strength and convergence with African citizens’ preferences;2 such as trade, investment, technology, education, accountability, and a market-based model of development.

“Borders frequented by trade seldom need soldiers.”

-William Schurz, second President of the American Institute for Foreign Trade (now the Thunderbird School of Global Management)

Trade and investment are not just about money and prosperity. They also bring and support peace, stability, and security. In my book Unlocking Africa’s Business Potential,3 I explore key trade and investment trends, opportunities, challenges and strategies, that illustrate the tremendous potential of Africa, and explain the complex competition between emerging and established powers on the continent. The following key trends are critical for policymaking given their implications for trade investment, economic transformation, inclusive prosperity, geopolitical dynamics, and mutual U.S.-Africa interests.

1. Africa’s economic transformation and business potential are more substantial than most people think: the world’s next growth market. Considered a hopeless continent in 2000 by The Economist, Africa has seen the two best cumulative successive decades of its existence in the 21st century. Trade in and with Africa has grown 300 percent in the last decade, outperforming global averages (196 percent).4 It has become home to many of the world’s fastest-growing economies, offering unique opportunities for U.S. trade and investment. Moreover, Africa has tremendous economic potential and offers rewarding opportunities for local and global partners looking for new markets and long-term investments with some of the highest returns, but also the potential to foster economic growth, diversification, job creation, including for women and youth, and improved general welfare.

2. The fast population growth on the continent could be turned into demographic dividends, or threats to global prosperity and stability. Africa was home to 17 percent of the world population in 2020, and is expected to have 26 percent of the global population in 2050 (2.53 billion people).5 If Africa is not successfully integrated into the global economy, there could be a major threat to global prosperity and stability. Citizens could be further subject to extreme poverty, fragility, violent extremism, illegal immigration, health challenges, among others—challenges that many already face on the continent. If our goal is a prosperous and safe world, Africa must not be left behind.

3. The growth of household consumption and business spending: a unique opportunity for U.S. trade and investment. By 2050, Africa will be home to an estimated USD 16.12 trillion of combined consumer and business spending.67 And Africa’s prosperity can be good for the U.S.: Such growth will offer tremendous opportunities for U.S. businesses in household consumption (USD 8 trillion) in areas such as food and beverages, housing, hospitality and recreation, health care, financial services, education and transport, and consumer goods, but also business to business spending (construction, utility, and transportation, agriculture and agri-processing, wholesale and retail, etc.).

4. The rise of global partnerships and the competition between traditional and new players: an opportunity for the U.S. to build on its sustainable competitive advantage. In 2009, China became the region’s prime trading partner. In fact, between 2006 and 2016, China’s trade with Africa surged, with imports increasing by 233 percent and exports increasing 53 percent, as they did for several other global players as well.8 During the same period, the U.S. lost ground in exports to Africa (-66 percent).9

China’s influence goes beyond the trade relationship: It is also the top investor in infrastructure, and now is the first destination of English-speaking African students, outperforming the U.S. and the U.K.10

Change (increase) in imports from Africa,

2006 – 2016

Change (increase) in exports to Africa,

2006 – 2016

Russia 142% 168%
Turkey 192% 61%
India 181% 186%
Indonesia 107% 147%
World 56% 18%

Source: IMF, Direction of Trade Statistics, 2017.11

But the U.S. remains a critical player on the continent, as I mentioned in a recent article: “Successes in the past decades—initiatives such as the African Growth and Opportunity Act (AGOA), the President’s Malaria Initiative, the President’s Emergency Plan for AIDS Relief, the Millennium Challenge Corporation, and U.S. trade and investment hubs—have generated tremendous opportunities for millions of Africans and Americans. But the current era—and competition from other global powers—will require new ideas and a new approach to several key issues.”12 In fact, African countries would often prefer to work with the U.S. given local content regulation rules, more investment in on-the-ground resources, and standards about hiring/training locals. In other words, the U.S. is less extractive and more transparent than numerous other partners.

5. Fast urbanization but also fast rural population growth: By 2030, Africa will be home to 5 cities of more than 10 million inhabitants and 12 other cities of more than 5 million inhabitants.13 Cities in Africa are becoming powerful economic centers, and a city-based approach to foreign policy, but also trade and investment, will be critical to outperform competitors and build mutual prosperity. Contributing to the prosperity of African cities will also make a difference in addressing security challenges.

6. Africa has made tremendous progress in mobilizing resources for infrastructure development, working hard to bridge gaps in ICT, energy, water and sanitation, and transportation. Despite the remaining deficits, the Infrastructure Consortium for Africa (ICA) reported that between 2013 and 2017 the annual funding for infrastructure development in the region was USD 77 billion, about twice as much as the annual funding average of the first six years of the 2000s.14 However, many of these gaps persist. In 2018 the African Development Bank (AfDB) found that Africa’s infrastructure requirements are between USD 130 and 170 billion a year, leaving a financing gap of USD 68 to108 billion.15 China has played a key role in financing, and has become the largest bilateral infrastructure financer in Africa (Chinese FDI grew 40 percent annually from 2010 to 2020).16 However, the U.S. has the chance to make a monumental difference when it comes to investing in infrastructure development in Africa.

In fact, Africa has one of the fastest-growing, and is the second-largest, mobile phone market in the world.1718 In sub-Saharan Africa alone, there were 477 million mobile subscribers in 2019; by 2025, the region will host 614 million cell phone subscribers, and 475 million mobile internet users.19 The internet is also expected to contribute to at least 5 to 6 percent of Africa’s total GDP by 2025.20 While the Information and Communication Technology sector is making incredible advancements, water and sanitation, transportation, and energy infrastructure development still needs significant investment. However, this is indicative of positive and extensive investment opportunities that can be undertaken on the African continent.

7. Fast digitalization, increased technological innovation, and an accelerated Fourth Industrial Revolution (4IR): The Fourth Industrial Revolution is characterized by the fusion of the digital, biological, and technological world, and technologies such as artificial intelligence, big data, 5G, drones and automated vehicles, and cloud computing.21 As a world leader in technological innovation, digital transformation, and the Fourth Industrial Revolution, the United States is well-positioned to play a leading role in the African digital space and contribute to Africa’s pursuit of now-vital technologies.

Indeed, advanced technology can have beneficial spillover effects: For example, in health, countries such as Rwanda and Ghana are using an American drone company Zipline to deliver, in record time, medication, blood, and medical supplies to remote rural areas with limited road accessibility.22 In agriculture, African farmers now have access to affordable precision farming tools that use sensors, satellites, smart devices, and big data technologies to inform every decision. The lending, insurance, and e-commerce opportunities provided by the fintech industry are transforming the lives of all Africans, and not just those in urban centers. These advancements are just the beginning too, as African entrepreneurs are increasingly seeking partners to bring transformative businesses to life. African tech startup funding increased over 40 percent in 2020 to over USD 700 million, a fraction of tech startup funding outside of Africa.  Despite such progress, the digital divide remains important and must be bridged to allow inclusive development. During the pandemic, for example, access to school and business on the continent was more complex given the level of internet connectivity, among other limitations. Bridging the digital divide represents an opportunity to both advance U.S. trade and investment in Africa while addressing some of Africa’s key priorities.

8. Fast regional integration and the African Continental Free Trade Areas: opportunities for a continental engagement. With the signing of the African Continental Free Trade Area (AfCFTA) in 2018, ratification in 2019, and an official launch in January 2021, African growth prospects and business opportunities have been magnified. The continent is giving the world just one more reason to invest in it with the creation of the largest new free-trade zone per number of countries in world, since the creation of the WTO. The AfCFTA will accelerate Africa’s industrialization as well as incomes, which will lead to the increase of both household consumption and business spending, generating unique opportunities for U.S. trade and investment. Per a World Bank study, the AfCFTA has the potential to lift 30 million people out of extreme poverty, increase the income of 68 million Africans, increase Africa’s exports by USD 560 billion, and generate USD 450 billion of potential gains for African economies by 2035.23

9. The sustained demand for accountability, democracy, and stability of African citizens, and policy priorities aligned with U.S. core values. Per Afrobarometer surveys, 7 out of 10 Africans support democracy and accountable governance, and approximately two-thirds are opposed to a single party or military government.24 Importantly, areas in which the U.S. has a sustained competitive advantage, given its global leadership in democracy and human rights, and its support for such issues as health and education, are priorities for Africans too.25 Given China’s leadership in infrastructure, the U.S. could grow its footprint in this area but by partnering with other players such as the G7 and the European Union countries. This approach will be welcomed by African citizens, who prefer the U.S. model of development (32 percent) over the Chinse one (23 percent).26

II. U.S. policy recommendations for bolstering trade with Africa by increasing investment, bridging the digital divide, and addressing the continent’s energy and infrastructure needs.

The pandemic has created unique momentum for engagement with Africa. The U.S. should seize this momentum and build on Congress’ historical bi-partisan support for the region to develop and successfully implement a long-term comprehensive Africa strategy that effectively coordinates action around trade, investment, commerce, and economic growth. This strategy should draw from consultations with African partners and multilaterals, building on areas of sustainable competitive advantages. The strategy should:

a) be rooted in the American values and principles that are aligned with the priorities of African citizens and U.S.-Africa mutual trade and investment interests

b) protect American, African, and global interests by advancing security, stability, and peace through strategic partnerships with African organizations

c) utilize U.S. strengths (digital transformation, Fourth Industrial Revolution, education, creative industries, health, democratic values, etc.) in the context of the new continental trade dynamics brought about by the African Continental Free Trade Areas (AfCFTA).

Importantly, these are areas where the U.S. can still outperform its main competitors such as China or Russia. More specifically, my recommendations to the Subcommittee are as follows:

1. Build on multilateralism and strategic alliances in concert with African partners to advance U.S. and African interests.

Given Africa’s own emphasis on regionalism, the U.S. would do well to support those efforts and align its own strategy with this perspective in mind. Core African partners include: the African Union, the African Continental Free Trade Area, the Africa Centres for Disease Control and Prevention, the African Union Development Agency, the African Development Bank, among others.

African leaders are looking for partners, especially in terms of trade and investment, more than they need aid. Initiatives from the Millennium Challenge Corporation and the DFC should further support African regional and continental projects, when possible, through regional compacts (MCC, through the 2018 AGOA and MCA Modernization Act, allows investments to be made across borders in Africa, creating opportunities for trade and investment by fostering regional integration and integrated markets).27 For the U.S. to outperform its competitors, it must be on the ground engaging with Africa both at the base but also at the highest levels, building on the Trade and Investment hubs, but going much further.

2. Enhance the effectiveness and better coordinate the action of U.S. agencies acting around trade and investment in Africa by adopting the principle of agile governance.

 The U.S. already has phenomenal tools, which in principle, could make a monumental difference if successfully implemented. Prosper Africa holds a lot of potential in terms of trade, investment, shared prosperity, and effective coordination of U.S. agencies, which is not yet realized. The goal of Prosper Africa is to coordinate the tools from across government agencies28 and to foster trade and investment between the U.S. and Africa. Although it is a great idea, many players, especially on the African side, are still hoping for it to achieve its full potential. It will be extremely important to have major wins to reinstate trust with African partners.

I recommend making Prosper Africa more agile in its ability to manage complexity and competition, and appoint a dedicated full-time Chief Executive Officer to assist the current Executive Chairman and Chief Operating Officer, who are doing tremendous work. This new position should have the authority needed to fix the pacing (appropriate speed of action), coordination (legitimate and appropriate coordination), and representation challenges (uniqueness of the voice, communication, and acceptance of the credibility), to deliver exceptional outcomes for U.S. and African businesses, and investors, to achieve mutual prosperity.

3. Redefine the base for new engagement with Africa by appointing a U.S. Special Presidential Envoy for Africa to represent the U.S. at high-level meetings and multiply presidential and high-level visits in Africa.

To stop ceding ground to other powers in Africa, it is crucial that the U.S. reiterate the respect it has for Africa, Africans, and their leaders. Appointing a Special Envoy and reinstating high-level meetings, including presidential visits to the region, between the United States and Africa will send a strong signal. Regular visits by senior U.S. officials, including the President and his cabinet, will help to shift perceptions around Africa, highlighting the continent as a safe, reliable destination for investment. Creating a forum for dialogue between government officials and the SME community will create the opportunity to engage in a systematic and coordinated way.29

Advancing such levels of engagement, with specific actions, will substantially advance mutual interests. The U.S. should build on this to further institutionalize relations with Africa and engagements at the highest level. The success of the U.S.-Africa Business Forum, which did contribute to deals around USD 14 billion between 2014 (first edition) and 2016, with additional deals and commitments of USD 9 billion at the 2016 edition, illustrate the importance of high-level meetings, which should be reinitiated (The first edition of the U.S.-Africa Business Forum was attended by about 50 heads of state and governments, and 150 global CEOs).

This is not just important for African leaders, but also for African citizens who prefer the U.S. model of development compared to any other country.30 Strategically seizing such as opportunity to build a long-term sustainable advantage will be critical.

4. For the successful implementation of the AfCFTA and other critical initiatives (post-2025 AGOA, among others) the U.S. should be involved in regular high-level consultations between the United States Trade Representative, the AfCFTA, and the African Union, creating a working group which could define the critical steps forward.

It is important to engage with Africa on the way forward about U.S.-Africa relations, through regular consultations. The AfCFTA offers new opportunities for U.S. businesses to use Africa as a global platform, not just to capitalize on the large African market, but to benefit from the unique advantage provided to sell around the world. The U.S. will also gain market shares, etc. Africa can become the base for U.S. companies to trade not just with Africa, but with the world as well. Africa is not just a market, but also a platform to manufacture and export in other regions of the world. The AGOA Forum provides a platform to discuss these questions in partnership with Africans, but it remains underutilized.

5. The U.S. should capitalize on the AfCFTA that provides the opportunity for the U.S. and the world to finally address the global macroeconomic imbalances which have been reflected in structurally large U.S. current account deficits with a handful of countries largely on account of excessive concentration of supply chains.31

The growth opportunities associated with increasing economies of scale and productivity growth under the AfCFTA provides the path to reorder and diversify the supply chains for greater resilience and while also sustainably addressing the macroeconomic imbalances which have dominated the world economy over the past decades.

Already several countries and corporations are taking advantage of growth opportunities offered by the AfCFTA in the automotive industry. Volkswagen has opened its first car plant in Rwanda.3233 Groupe Peugeot Société Anonyme has established its first plant to assemble up to 5000 cars a year in Namibia, taking advantage of the free market area to target customers in other countries across the region.34 With its population growth and rising middle class, Africa could well become the largest market for the automotive industry in the coming decades.

These are tremendous opportunities that U.S. carmakers, including those manufacturing less polluting new energy vehicles should be targeting, especially with Africa’s excess reserves of lithium and coltan which are some of the most important raw materials for a rapidly changing industry.

6. Focus policy action on impact, and on the effective implementation and delivery of initiatives, not just on big policy announcements.

The U.S. should distinguish itself by focusing on successful implementation of existing or new initiatives. For example, the G7 countries and partners have announced an USD 80 billion dollars commitment for Africa’s private sector for the next five years. How will it be implemented? It is critical to have a clear mechanism for successful implementation that includes sufficient details about the projects. For example, the U.S. and partners should engage with African multilaterals (AfCFTA, AU, etc.) and governments during the policymaking and implementation processes to strategically identify and align objectives. An implementation unit may be created, and a multistakeholder working group to assess and decide on mutual priorities. Similarly, how could the Build Back Better World initiative be successfully implemented, and to what extent will Africa benefit from it? The administration needs to appoint a leader to strategically engage and to have consultations with allies. Bringing the allies together, and giving teeth to the plans that have been put together, will be critical to build sustainable competitive advantage for the U.S.

7. The U.S. should promote commercial diplomacy through an economic strategy that goes beyond the traditional vision of trade and investment. Domestically, the U.S. should increase efforts to document and disseminate the tremendous potential Africa can have for U.S. businesses.

Given that a central goal of Prosper Africa is to double two-way trade, the United States should play a better role in identifying and sharing business and investment opportunities with its domestic businesses and corporations. As large corporations are already better resourced when dealing in Africa, American SMEs are the most likely beneficiaries of Prosper Africa—whether through market access or on the supply side—and the DFC should provide them with resources to help trade and invest in a timely manner. For Prosper Africa to benefit both the U.S. and Africa, each side needs to feel confident in the trading process and consider each other a friend.

Prosper Africa should focus on specific mechanisms aimed at ensuring that American SMEs better understand the dynamics in Africa, to develop a specific interest and attraction on the continent and make others more eager to invest and do business there. This goal can be achieved through business promotion and facilitation activities encouraging business development as well as corporate diplomacy.

8. The U.S. should capitalize on the African Diaspora, which is heavily represented and active in the U.S., by specifically adopting diaspora commercial diplomacy to foster trade and investment between the U.S. and Africa.

President Biden has made steps in strengthening this relationship through early engagement with the community, but this strategy can be pursued further in regard to trade and investment with Africa in order to distinguish the U.S. from other competitors and accelerate its competitive advantage. The collaborations between African innovators on the continent and African and African-American innovators based in the U.S. have the potential to advance U.S.-Africa relations on several levels.35 Members of the African diaspora have an incredibly valuable understanding of Africa-U.S. cross-cultural engagement, not to mention existing relationships and networks on the continent, making them perhaps the best suited to Prosper Africa’s efforts to support and facilitate business I mentioned above. Prosper Africa should formalize a relationship with the African diaspora’s SME community and the continent’s SME community, and routinely engage as a group, to support the formulation of strategies and mechanisms to increase two-way trade. It has started such an effort, but can do more: For example, in 2019, Brookings hosted a conversation between USAID and members of the diaspora’s SMEs. It brought to light specific, actionable ways to enhance the program’s mechanisms, including the need to expand staff support at trade hubs, expedite DFC loans, and improve data collection and analysis.36 SMEs in Africa are crucial to include in these conversations so that all stakeholders are involved to ensure Prosper Africa designs effective, efficient policies.

9. Accelerate the COVID-19 vaccine strategy and partnerships, and aggressively pursue vaccine diplomacy beyond COVID-19 by supporting the development of a vaccine manufacturing industry in Africa, including investments in human capital and technology development.37

 According to the Africa Centers for Disease Control and Prevention (Africa CDC), only 3.19 percent of Africans have received at least one dose of the COVID-19 vaccine as of July 21, 2021.38 A Duke University study estimated that most Africans will not have had an opportunity to receive the COVID-19 vaccine until 2024.39 The devastation of the COVID-19 pandemic, as well as other epidemics in recent years like, has revealed the urgent need for investment in Africa’s national and continental healthcare systems. Vaccine diplomacy is a crucial first step towards helping Africa recover from the pandemic and prevent the emergence of new variants that might damage the recoveries in other nations.

While it is the right thing to do, it will also support U.S. businesses. Poor healthcare systems threaten Africa’s industrialization and workforce development, and now is the opportunity for the U.S. to help build equitable health systems and ensure preparedness for future health emergencies. This support should not be limited to loans or donations. Partnerships with academic institutions or public-private partnerships between U.S. and African agencies and firms that create avenues for collaboration, knowledge exchange, and skill and technology development will all be instrumental in strengthening the soft power of the U.S.

Specifically, the U.S. should provide broad technical and financial support for the new African Union-Africa CDC initiative, Partnerships for African Vaccine Manufacturing (PAVM), which aims to build five vaccine-manufacturing research centers over the next 10-15 years. The success of this PAVM initiative would open doors for a transformation of Africa’s pharmaceutical industry in Africa, a sector that has enormous growth potential. The development must go beyond “fill and finish” manufacturing, which does little to truly decrease Africa’s overreliance on foreign suppliers.40

10. Contribute to closing the gap in the physical and digital infrastructure by leveraging existing programs supporting African countries’ digital transformation strategies.41

The U.S. already has established infrastructure and technology development programs, but is underutilizing them. Such initiatives, especially those that focus on electricity and internet penetration, should be prioritized and fast-tracked.42

Most importantly and prior to even leveraging these existing initiatives, the U.S. should consult and act in partnership with African countries for the investments in major infrastructures, including 5G. For example, an opportunity is within OPIC [now DFC]’s “Connect Africa” initiative, which was launched with a fund of USD 1 billion for transportation, ICT, and value chain development projects.43 The Power Africa initiative has been successful, and augmenting the program now would contribute to repairing and strengthening the U.S.-Africa relationship.44

Furthermore, several African countries are developing and implementing a multi-stakeholder Fourth Industrial Revolution (4IR) national task force or commission to assess country readiness and adopt a comprehensive national strategy. Initiatives such as the Centers for the Fourth Industrial Revolution (South Africa and Rwanda), or the Presidential Commission on the 4IR (South Africa) should be supported and replicated across the continent.

11. The U.S. must continue and increase its support to bridging the infrastructure gap in Africa while advancing trade and investment for mutual prosperity.

This, simultaneously, represents both a way forward to enhance trade and investment while achieving the global public good. In fact, in Sub-Saharan Africa, over 50 percent of people live without access to electricity, more than 70 percent of people live without access to safe drinking water, 69 percent of people live without basic sanitation,45 and 53 percent of the roads are unpaved.46 China has been playing a central role by investing in these areas.

Importantly, the U.S. should differentiate its approach from competitors by emphasizing engagement with African continental organizations (PIDA, the AFDB, the African Development Fund, among others), bilaterally—and more importantly, transparently, with specific countries, and by partnering with allies. The U.S. also could better support capacity building and regional projects through investments, new projects, and partnerships. The U.S. could better partner with Africa to bring its own expertise and knowledge to serve at various phases of project development, such as studies and implementation.47 A long-term partnership will also be key to outperforming other players. The U.S. will see a high return for its investments, as well as geostrategic balance. The U.S. will fill an empty seat, that would otherwise be occupied by other players on the continent.

12. The U.S. can build on higher education, another area of comparative advantage, to provide technical training and reskilling programs through initiatives and agencies to close the digital skills gap and human capital gap (especially for youth and women).48

It is crucial the U.S. expand educational and training opportunities in Africa. The soft skills and development of academic institutions provide the opportunity for the U.S. to lay the foundation for a lasting win-win partnership with Africa, sustained by knowledge exchange and deepening business ties. U.S. policy needs to provide support that incentivizes American universities to open more campuses and degree programs, especially in STEM and technology, throughout Africa. Such programs provide skills in areas critical for the rise of manufacturing industry and effective decentralisation of global supply chains and will be equally beneficial learning opportunities for African students and American students who may study abroad. For example, Carnegie Mellon University has a campus in Rwanda that offers master’s programs in information technology and electrical and computer engineering.49 Morgan State University has recently launched a partnership with a university in Ghana, offering two graduate degree programs to students.50 Fast-growing SMEs will be far more likely to evolve and invest in areas where there is a skilled workforce or, at least, resources to support training workers, and added U.S. support could go a long way towards creating an attractive business environment for SME investment. It is indeed an opportunity to establish a long-term partnership of a new nature between U.S. and Africa.

Conclusion

In closing, it is time for U.S. to reverse the trend in the ground lost in Africa as many traditional and emerging global powers are racing to capture Africa’s tremendous economic potential. The U.S. has a sustained competitive advantage to partner with Africa, advance U.S. trade and investment with the continent, while meeting the majority of Africans’ priorities. It is up to the U.S. to pursue the recommendations above and seize this unique momentum to advance mutual U.S.-Africa trade and investment interests. By acting promptly, and forging transformative partnerships aligned with African values, the U.S. has the opportunity to not only advance its own interests and contribute to the transformation of a continent that will make up nearly 40 percent of the world’s population by 2100, but also the opportunity to lead the way in building a more prosperous, democratic, secure, and stable world. As mentioned by William Schurz, “borders frequented by trade seldom need soldiers.”

Thank you very much for your attention and looking forward to your questions.

What’s next for poverty reduction policies in China?

( 6 mins) Earlier this year China’s government announced that it had eradicated absolute poverty, measured against a standard equivalent to $2.30 per person per day applied to rural areas. The latest Household Survey on Income, Expenditure and Living Conditions data by China’s National Bureau of Statistics, available for the year 2018, suggest that against an international poverty line of $1.90 per day, the poverty rate had declined to below 0.5 percent. This suggests China has reduced the number of poor people by close to 800 million since 1980. Whatever the specific numbers, China’s poverty reduction is a remarkable achievement. Yet, it cannot be the end of China’s efforts. As the country looks to the 2020s, what lessons can the authorities learn from the past 40 years and what should be the focus of policy?

Growth, mostly
China’s poverty reduction success since 1980 is primarily a story of sustained economic growth. The first decade of reform saw rapid income gains in agriculture, as China removed some of the biggest distortions of the Mao era. In the second decade, industry took the leading role, both in urban and rural areas, as reforms widened and deepened. During the third decade, the dynamism of China’s export-oriented coastal areas spread further inland, as migration to the urban centers accelerated, infrastructure investments (such as with the “Western Development Strategy”) multiplied, and a growing proportion of China’s territory became economically integrated into global value chains. This decade also saw an expansion of China’s social policies, including place-based interventions in the most backward counties and the creation of a basic safety net for China’s rural population. During the final decade, these social policies were widened, culminating in the targeted poverty eradication campaign of the past five years. Only during this final period did transfers become a more important driver of poverty reduction than labor incomes (see Figure 1).

Three lessons stand out:

The speed and scale of China’s poverty reduction since 1980 is partially related to the starting point. As Martin Ravallion points out, China in 1980 was one of the poorest countries in the world, and yet had a relatively healthy and well-educated population—comparable to other East Asian countries with much higher levels of income. China’s savings rates were also high and land distribution equal—initial conditions that allowed other East Asian countries to grow rapidly during the 1960s and 1970s. China in the 1980s and 1990s was thus to some extent catching up with its peers.
Market-oriented reforms drove the expansion of economic opportunities. China’s economic transformation from a largely rural and agrarian country to a predominantly urban, industrial powerhouse followed the country’s comparative advantage, using market signals to create appropriate incentives, and competition among regional governments to test policies and among companies to catalyze productivity gains. China introduced market incentives gradually. But its story of transformation and growth is consistent with classical economic theories of development.
Although markets and business played the leading role, government policy was also instrumental. China’s state is endowed with high administrative capacity and the government used this to provide public goods and overcome collective action failures. This is most evident in the expansion of public infrastructure that helped integrate rural areas with urban economies, and in the coordination of stakeholders in the targeted poverty reduction. High-powered incentives in the management of China’s civil service created a strong performance orientation, while a high degree of decentralization allowed policy to be responsive to local conditions.

What’s next?
China’s conditions today create mixed prospects for growth and income gains among the poor. China’s technological capabilities and the competitiveness of its leading companies are on par with high-income countries, and its best performing schools and students rank top in the world. But these capabilities are not broadly shared. The dispersion of productivity levels across Chinese companies is high. Average educational attainment of the labor force is low by comparison with high-income countries and access to good education remains unequal (Figure 2). China needs to pay more attention to these inequalities.

Market-oriented reforms could be an important catalyst for the greater diffusion of technological capabilities and for improved access to quality services. Among companies, leveling the playing field in access to finance and land could help promising small and medium businesses grow and create the jobs of the future. Lifting the remaining hukou related restrictions to labor mobility could help the current generation of school children access better education and health services in urban areas, improving social mobility and economic opportunities. This would over time help alleviate the risk of shortages of skilled labor, including in the urban service sector, which is likely to drive future productivity growth.

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China’s administrative capacity is an asset in its transition to high income, but the government’s role in supporting the poor and vulnerable will have to shift. China’s poverty line is below the level in most upper-middle-income countries, and less than half the $5.50 per day typical of upper-middle-income countries. Adopting a higher line would change the profile of the poor: At $5.50, around one-third of the roughly 180 million poor would be in urban areas, for example, and many of them would be informal, migrant workers outside of agriculture. Among these groups, poverty is more likely to be transient, associated with spells of unemployment and out of pocket health and education expenses. Social policies would need to recognize these differences, just as targeted poverty reduction was based on an evaluation of household needs in rural areas.

Following the eradication of absolute poverty, China has set the year 2035 as the target date to achieve common prosperity. This is understood as providing the opportunity for a decent standard of living to all Chinese citizens. Ensuring equal access to education, health care, and other services, leveraging market signals and competition to encourage innovation and the diffusion of technologies, and repeatedly adjusting government policies to ensure social transfers target key vulnerabilities and help China’s citizens manage the risk of a rapid socioeconomic transformation—these are the lesson of the past 40 years. They will continue to serve China well on the road ahead.

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The new child tax credit does more than just cut poverty

( 7 mins) With COVID-19’s disruptions in employment, child care, and education, it is unsurprising that child poverty substantially increased in 2020—roughly 1.2 million more children were living in poverty in 2020 when compared to 2019 (an increase from 15.7% to 17.5%). As child poverty is unequally distributed in America, so too were its increases—poverty rates grew the most among Latino children (4.2 percentage points), Black children (2.8 percentage points), and children from female-headed families (4.1 percentage points), while they remained flat for white and Asian children.

In response to these trends, President Biden signed a bill this March that restructures the child tax credit (CTC) for one year—making it larger ($3,000 per child between the ages of six and 17 and $3,600 per child under six), broader (gradual phaseouts start at $75,000 for individuals and $150,000 for those married filing jointly), and more periodic (monthly payments). This restructuring would allow the CTC to act like a child allowance, which has been used in a variety of other countries. While the new CTC officially launched in July of 2021, policymakers are already considering whether or not to extend the new CTC beyond 2021. Here, policymakers are not only considering the impact that the new CTC will have on child poverty, but also the impact that it could have on family social mobility.
Concerning child poverty and racial/ethnic equity, researchers from Columbia University estimate that the new CTC could cut child poverty by 45 percent and would have the largest impacts on Latino and Black children. Considering other outcomes, some scholars argue that the new CTC could disincentivize parental employment and thus curb social mobility, while other scholars argue the contrary: Cash payments can simultaneously decrease child poverty and increase mobility. Some scholars also suggest that policies like the CTC could increase birth rates, an important consideration given that recent declines in U.S. birth rates may pose both social and economic challenges such as reductions in GDP growth rates.
Our findings suggest that the child tax credit will not only act as a tool for decreasing child poverty in the short term, but also as a tool for increasing family social mobility in the long term.
As policymakers grapple with whether or not to extend the new CTC beyond 2021, it is important to understand how families will use the CTC payments. To inform these policymakers, we utilized a probability-based online panel to survey a nationally representative group of 1,514 U.S. parents eligible for the credit. The survey was administered immediately before the first CTC payments were delivered. One of the key questions we asked parents in this survey was how they planned to use their CTC payments. Our findings suggest that the CTC will not only act as a tool for decreasing child poverty in the short term, but also as a tool for increasing family social mobility in the long term.
Figure 1. Planned usage of the child tax credit

Source: Employment, Financial and Well-being Effects of the 2021 Expanded Child Tax Credit, Social Policy Institute. Notes: n=1,056 – 1,078 respondents who anticipate receiving the CTC. Responses differ slightly across categories as some respondents skipped answering yes/no for certain categories.
Overall, 64 percent of eligible parents anticipated receiving the CTC. We examine how these parents planned to use these payments in Figure 1. The most common planned use was building emergency savings (75%), followed by paying for routine expenses (67%), essential items for children (58%), purchasing more or better food (49%), starting or growing a college fund (42%), and paying for child activities (42%), moving or making home improvements (32%), health care expenses (29%), child care expenses (26%), spending more time with children (20%), and purchasing gifts or entertainment (20%). Relatively few parents planned to use the CTC to pay for tutors for children (7%), working less or changing jobs (6%), or sending their children to a different school (6%).

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In Figure 2, we look at the relationship between planned uses of the CTC and families’ income in 2020. Overall, we find that:

Families across the income spectrum planned to use the CTC to build emergencies savings at similar rates.
A greater proportion of lower-income families (76%) planned on using their CTC for routine expenses than middle- (64%) and higher-income (54%) families
A substantially greater proportion of lower-income families (75%) planned on using their CTC for essential items than middle- (52%) and higher-income (37%) families
A substantially greater proportion of lower-income families (66%) planned on using their CTC to purchase more or better food than middle- (44%) and higher-income (27%) families
A slightly smaller proportion of lower-income families (38%) planned on using their CTC to start or grow a college fund than middle- (42%) and higher-income (50%) families
A slightly greater proportion of lower-income families (45%) planned on using their CTC for child activities than middle- (44%) and higher-income (32%) families
A slightly greater proportion of lower-income families (29%) planned on using their CTC for emergency savings than middle- (24%) and higher-income (24%) families
A substantially greater proportion of lower-income families (28%) planned on using their CTC to spend more time with their children than middle- (16%) and higher-income (11%) families
A greater proportion of lower-income families (12%) planned on using their CTC to hire tutors for their children than middle- (5%) and higher-income (3%) families.

Figure 2. Planned usage of the child tax credit, by 2020 household income

Source: Employment, Financial and Well-being Effects of the 2021 Expanded Child Tax Credit, Social Policy Institute.Notes: n=1,049 – 1,071 respondents who anticipate receiving the CTC. Responses differ slightly across categories as some respondents skipped answering yes/no for certain categories.
There are four main takeaways from these results:

The results show that the new CTC will likely have the intended effect of alleviating child poverty, as seen in the relatively large proportions of respondents planning to use their CTC for emergency savings, routine expenses, essential items, purchasing more or better food, and paying for health care and child care expenses.
The results show that the new CTC will likely increase social mobility both for families and their children. For example, when considering family social mobility, a relatively large proportion of respondents planned to use their CTC for moving and making home improvements or starting/growing a college fund for their children.
While some fear that the CTC will disincentive work, this fear appears to be relatively unfounded, as only 6 percent of families planned on working less or changing jobs.
These results show that low-income families planned to use the CTC to both cover the essential expenses for their households and children, while also commonly planning to use the CTC to build their emergency savings. This is important for promoting the financial well-being of these families, who often struggle with severe budgetary constraints and have very minimal amounts of emergency savings.

U.S. families, and low- and middle-income families in particular, must often manage tight budgets that make it difficult to build even modest savings and put them at risk of taking on high (and often expensive) debt burdens. Based on these results, it appears that the CTC will help give families a little more slack in their budgets to help them meet their essential needs, while also allowing them to make important investments in their children’s future, such as college savings or paying for extracurricular activities. Both of these functions may help improve children’s well-being both now and over the long term, and policymakers should consider these benefits as they debate whether or not to make the CTC permanent.

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Can fintech improve health?

( 5 mins) Abstract
Access to electronic financial services, in particular digital money, has replaced the digital divide as an unintended yet significant barrier for low-income individuals to participate in new technologies, including those that lead to better health outcomes. This paper explores this problem in depth. It begins by describing and documenting the barriers, costs, and benefits to accessing and using digital money. Next, the paper turns to implications of the broader technological revolution on the nature of money and payment systems. This includes an examination into the structure of our banking and payment systems and their overlay into different demographic groups of Americans. The paper then explores the ramifications of disparity in access to digital money for physical health including an analysis of how the COVID-19 pandemic amplified existing problems. It concludes with a set of recommendations to ameliorate the problems identified.

The paper finds that access to digital money is an underappreciated vector by which technological innovation, both financial and non-financial, can be hindered in reaching certain populations. Accessing digital money is easy and free for those with money while for those without a lot of money, digital money is expensive. Digital money’s role as a barrier to accessing new technology, particularly in an app/mobile/online economy, will likely exacerbate existing inequalities and impede adoption of some new technology for lower-income people. To the extent that these new technologies offer health benefits and require digital money, existing public health inequalities will be exacerbated.  Fully realizing the potential health and wealth benefits of new technology requires a better solution to the digital payment divide than currently exists.
Key Findings
America’s payment system is designed to segregate people by income and wealth. Access to digital payments is more expensive and difficult to obtain for lower-income households and racial minorities despite decades of continuing growth of usage of digital money. This results in barriers to adoption of new technology, which increasingly requires digital payments. The response to the COVID-19 pandemic exposed several consequences of this problem, resulting in reduced effectiveness of pandemic response and potentially greater health risks due to a lack of access to digital payments.
Linkages between income, wealth, and physical and mental health have been documented. However, prior research has not generally considered the role of payments and access to digital money as impacting either income or health. This paper argues that access to digital money has a direct impact on financial well-being and consequently should factor into determinants of health. In addition, the inability to access digital money easily and cheaply may factor into other elements that have been studied as part of the broader social determinants of health, specifically the ability to access new technologies that require digital payments.
A specific new finding in the paper is that the majority of Americans who use check cashers and the majority of checks cashed are from people with bank accounts. This challenges the notion that being “unbanked” drives use of certain “fringe financial services” such as check cashers. Issues around cost, including the value of immediate payment, drive decisions on how best to access money, whether through bank products or non-bank products.
Table 1: Use of check cashing services, by banking status

The main policy solutions discussed center on enhancing access to digital payments through expansions of the provision of low-cost financial services. The goal is universal access to digital payments at low/no-cost, which should reduce the inequality effects of new technology. A set of policy solutions are being discussed, but more analysis is needed to ensure that proposed solutions correctly identify and address the key challenges, which are primarily centered around cost and timeliness rather than  physical locations, hours of operation, or the creation of new forms of digital currency. Inaction in solving these problems intensifies inequality, hampers responses to future pandemics, and reduces the efficacy of other solutions designed to improve public health. The status quo is not static. Technology continues to develop. Absent substantial reform of our nation’s banking and payment systems that lower the cost of accessing and transacting in digital money, millions of Americans will be unable to fully benefit from technological advancement, and that is likely to have health consequences.
Download the full report here.

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This report was funded by a grant from the Robert Wood Johnson Foundation. The Brookings Institution is financed through the support of a diverse array of foundations, corporations, governments, individuals, as well as an endowment. A list of donors can be found in our annual reports published online here. The findings, interpretations, and conclusions in this report are solely those of its author(s) and are not influenced by any donation.

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Figure of the week: Internet freedom in sub-Saharan Africa declines

( 3 mins) On September 21, Freedom House released its 2021 Freedom on the Net report, its annual survey and analysis of internet freedom around the world. This report assesses 70 countries from various regions (13 from sub-Saharan Africa) on obstacles to access, limits on content, and violations of user rights. The 2021 edition finds that, globally, internet freedom has been on a decline for the 11th straight year. Despite this however, Sudan, Gambia, and South Africa all saw increases in internet freedom since last year.

In assessing internet freedom, the report creates a total score based on its assessment of obstacles to access, limits on content, and violations of user rights. Based on those scores of 0-100, Freedom House then assigns ratings of free (scores 70-100), partly free (scores 40-69), and not free (scores 0-39).
Uganda, Rwanda, Sudan, and Ethiopia were the region’s highlights in this report. In fact, Uganda saw one of the greatest internet freedom deteriorations, with its score dropping from 56 out of 100 to 49 since last year. Freedom House attributes this decline to government forces implementing stricter internet restrictions during recent political events and crises, including a five-day shutdown during January’s elections. Another factor in the decline of Uganda’s score is the cost of internet access: Internet access, specifically on cellular phones, costs 5,000 shillings (about $45) per 1GB, making it unaffordable for many citizens. Despite these challenges, Uganda still ranks higher on the list than Rwanda, Sudan, and Ethiopia—the three sub-Saharan countries categorized as “not free” in the report.
Figure 1. Sub-Saharan Africa Freedom on the Net rankings 2021

Source: Freedom on the Net Report 2021, Freedom House.
Rwanda, which the report scored better than almost all African countries in terms of access, still received an overall score of 38 out of 100, largely due to limits on content. According to the report, the Rwandan government restricts content that strays from the government’s official narrative. Freedom House also found that the government has and continues to suppress political commentary through surveillance, arrest, and intimidation, especially against journalists, activists, and opposition leaders.

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Sudan received a total score of 33 out of 100, a three-point increase from last year. Sudan’s low score is largely due to limits on access. In fact, internet penetration in Sudan is very low: Only about 31 percent of the population was using the internet as of January 2021, likely due to unreliable electricity supply. Low access is not the only reason for the country’s low score: Internet users continue to face harassment and intimidation from the government for their online content.
The lowest-scoring country in the region was Ethiopia, with a total score of 27 out of 100. Like many other countries in the region, much of its low score is due to obstacles to access, for which it received only 4 out of 25 points. Indeed, the country struggles with unreliable electricity, a problem that has been exacerbated by conflict in the region. In fact, the conflict has impacted other aspects of the score: The report states that since the start of the recent conflict, Ethiopian citizens have experienced higher restrictions in human rights online.
For more on Africa and the internet see, “Nigeria’s twitter ban is a misplaced priority” and “Ethiopia, human rights and the internet.”

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What do we know about the effects of COVID-19 on girls’ return to school?

( 8 mins) At its peak in 2020, COVID-19-related school closures affected more than 1 billion learners around the world. Girls’ education advocates feared the worst: Prolonged school closures and lockdowns would harm girls’ health and well-being, not to mention the continuity of their learning. The 2014-2015 Ebola outbreak in West Africa foreboded a cocktail of threats including sexual and gender-based violence, unintended pregnancies, forced marriage, and early transitions to work. Estimates projected that between 11 million and 20 million girls would not return to school after COVID due to these and other factors.

Have these fears been realized?
We look at the evidence so far—including from within a portfolio of research funded by Echidna Giving’s COVID-19 response fund—to answer this question. While the evidence draws primarily from sub-Saharan Africa, we offer generalizable advice to education systems around the world grappling not only with when they will reopen fully, but also how many more times they may need to shut down and reopen as new waves and new variants of the coronavirus spread. (Note: Dana Schmidt, senior program officer, and Erin Ganju, managing director, are employees of Echidna Giving, which provides financial support for the Center for Universal Education. Brookings is committed to quality, independence, and impact in all of its work. Activities supported by its donors reflect this commitment.)
Recent evidence from Senegal and Ghana suggests good news when it comes to girls’ reenrollment.
Both countries saw surprisingly low overall dropout rates (1.6 percent and 2 percent, respectively) when schools reopened in November 2020 and January 2021, respectively. In Senegal, there was no statistical difference between the dropout rate for girls and boys, and in Ghana, boys—especially from poor and rural households—were more likely to have dropped out than girls. Similar findings have also been observed in Ethiopia, Liberia, and Sierra Leone.
Nonetheless, this good news (for girls) is coupled with bad news for everyone in terms of learning loss, as reflected by grade repetition.
In Senegal, grade repetition nearly doubled from pre-COVID levels (rising from 6.3 percent to 11.4 percent). This was especially pronounced for students in exam years, or the last grade level of primary and secondary school. Meanwhile, in Ghana grade repetition nearly tripled from pre-COVID levels (rising from 3.5 percent to 10.5 percent), again with boys more likely to be repeating than girls. And in terms of numeracy scores, learning gains for both girls and boys in Ethiopia have slowed, with the gender gap narrowing slightly.
Although the aggregate statistics suggest that decades of efforts to normalize girls’ education are paying off, when you zoom in on adolescent girls, a more somber story emerges.
For many girls, COVID-19’s associated economic crises exacerbated gender inequalities that are more acute among older adolescents—from increased limitations on their freedom of movement to the need to care for younger siblings and perform household chores to the likelihood of being married off to relieve pressure on sparse household resources. When schools reopened after six months of closure in Uganda, 10 percent of grade 10 girls failed to return compared to 8 percent of grade 10 boys. Worse, 18 percent of grade 12 girls did not come back compared to 2 percent of grade 12 boys. A survey of nearly 4,000 adolescents living in urban settlements and rural counties in Kenya found that 16 percent of vulnerable adolescent girls compared to 8 percent of adolescent boys did not return to school when schools reopened in the country in January 2021.
The primary driver of dropout for girls has been economic—compounded by pregnancy.
A study of nearly 400 of the hardest-to-reach rural adolescent girls in Kenya, Rwanda, Tanzania, and Uganda found that 34 percent had lost a parent or guardian to COVID-19, 70 percent had to pursue income-generating activities, and 86 percent could not afford to return to school. Such economic precarity can drive adolescent girls into transactional sex to meet their basic needs. One study of adolescents in Nairobi, Kenya found that COVID-19 has increased young women’s financial dependence on transactional sex by 49 percent. Beyond economic precarity, the study of the hardest-to-reach adolescent girls also found that 29 percent of girls had dropped out of school during COVID. More than half of these girls dropped out because they were or recently had been pregnant. And of the girls who were planning to return to school, 30 percent were pregnant.
The mental health and psychosocial well-being of adolescent girls has quickly become a concern.
School closures, barriers to distance learning, economic insecurity, food insecurity, gender-based violence, and the health risks of COVID-19 have all increased adolescent girls’ concerns and feelings of hopelessness about their own educational futures. An earlier study of COVID-19 in Kenya found that older adolescent girls (15-19 years) were less likely to be engaged in distance learning, less confident that they would return to school, and more likely to experience symptoms of depression than younger adolescent girls (10-14 years). The aforementioned study on the hardest-to-reach adolescent girls in eastern Africa indicates high levels of academic anxiety among girls concerning their learning loss, the degree of remedial learning they will need, and the likelihood of having to repeat a grade and thus be much older than their peers.
Social stigma against teenage pregnancy magnifies these anxieties for many girls.
Pregnant girls who feel ashamed and fear being mocked by peers self-isolate further. For those who experienced sexual violence, the added trauma of abuse—oftentimes by men in their own household—adds another source of psychological stress and distress. Social stigma around their pregnancy not only puts them at greater risk of depression, but also places them even further out of reach from social support. Although communities in eastern Africa largely support adolescent girls returning to school, the situation is different for pregnant girls. Adolescent girls report how social stigma around teenage pregnancy mixes with a toxic school culture to push pregnant girls and school-aged mothers out of school.
COVID-19 is far from over, but we know enough about its impact to suggest immediate actions governments can take in response.
It is unclear which of the trends (both the positive and negative) that have emerged thus far will be sustained through repeated school closures and successive waves of COVID-19 variants. What is clear is that governments should factor the following into their COVID-19 education response and recovery plans:

Disaggregate reenrollment data by gender, age, wealth, and other intersecting factors that may shape the consequences of COVID-related school closures. While aggregate studies point to a surprisingly low dropout rate among girls, those studies that looked specifically at adolescent girls point to a very different picture. Girls and boys of different ages, of different wealth strata, and from rural or urban households experience different risks and different expectations and pressures on their time. Decisionmakers must take seriously these intersecting constraints, vulnerabilities, and associated risks to education continuity and recovery.
Weigh the health benefits of school closures against the known education, economic, social, and health costs—including the cost to mental health. The impacts of school closures on vulnerable segments of the population are severe and costly. Governments should factor in these costs when making decisions about school closures and find other ways to serve these populations if/when schools must be closed.
Design and implement school reentry policies for pregnant girls. The Ministry of Education in Kenya has shown that school dropout need not be a pregnant girls’ destiny. During the first year of the pandemic, the country saw a 131 percent increase in the number of girls who completed their secondary school exams in the hospital after giving birth, rising from 282 girls in 2019 to 652 in 2020. Elsewhere, pregnant girls are de facto expelled from school.
Address the education, economic, social, and health needs (including physical, mental, sexual and reproductive health) of adolescents. Emerging evidence clearly indicates how these needs intersect in complex ways, creating vulnerabilities that are especially unique to adolescent girls. Addressing these needs holistically—including through government and nongovernmental support, like cash transfers, in response to COVID-related job loss and food insecurity—will mitigate against the pathways that lead to adolescent girls’ unintended pregnancies and school dropout.

We are no longer dealing with hypothetical impacts on girls’ education. The studies highlighted above point to the ways COVID-19 has already disrupted the educational trajectories of adolescent girls in long-lasting ways. As COVID-19 continues to evolve, we must marshal these insights to dampen its ongoing effects on girls’ education.

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Quantifying the impact on Nigeria of the African Continental Free Trade Area

( 10 mins) While there is a general optimism around the promise of the newly in-force African Continental Free Trade Agreement (AfCFTA), like any other free trade agreement (FTA), it will inevitably create winners and losers. This unequal distributional impact is a function of many possible factors, including manufacturing capacity, domestic costs of doing business, firm productivity, infrastructural capability, AfCFTA awareness levels, and access to loans and financing. Whether due to firm-level inefficiencies, information frictions, or the suboptimal business environments, some firms—or even sectors—within a country may be unable to expand market opportunities as competition from other continental economies rises. The AfCFTA drops 90 percent of tariffs and includes policies aimed at eliminating nontariff barriers, such as customs delays, so the aggregate long-term benefits of AfCFTA are likely to be substantial and larger than potential losses; however, some countries and sectors will likely be impacted negatively in the short term.

Nigeria—the largest economy in Africa—signed the AfCFTA on July 7, 2019, becoming the 34th member of the trading bloc. Under the AfCFTA, Nigeria stands to gain from increased access to cheaper goods and services from other African countries, as its intra-African trade is currently low: Indeed, as of 2018, Nigeria’s imports from the African region relative to total imports was at 3.2 percent while the share of Nigeria’s exports to the African region relative to total exports was 13.2 percent. Moreover, in 2020, Nigeria’s main trading partner was actually China.
Proponents of the FTA expect the AfCFTA to reduce poverty, increase firm competitiveness, and boost intra-African trade and investment. In fact, based on a recent survey of 1,804 Nigerian manufacturing enterprises, 6 out of 10 businesses expect the AfCFTA to lead to a reduction in material and labor costs, increase production capacity, expand market and consumer size, and reduce prices. Overall, Nigeria’s small and medium-sized businesses are optimistic about the opportunities created by AfCFTA, although with mixed feelings grounded in concerns about rising foreign competition and dumping of substandard goods.

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As the trade agreement kicked off in the middle of a global pandemic coupled with a global recession, it is still unclear how the reduction in tariffs on goods and services will impact Nigeria’s households and businesses. However, a 2020 piece by Nassim Oulmane, Mustapha Sadni Jallab, and Patrice Rélouendé Zidouemba argues that the AfCFTA’s boost to intra-African trade might actually mitigate the rapid decline in GDP caused by COVID-19 and subsequent social-distancing policies and border closures.
Estimating the impacts of the AfCFTA for Nigeria
A tariff reduction enacted by one country has implications for its partners, suppliers, and competitors as it spills over to the rest of the world through trade networks and to other industries through supply chains. (For instance, a reduction in tariffs on cotton products impacts the prices of textiles.) These cascading effects across sectors and countries can be captured using a tractable numerical framework that can simulate the effects of shocks to countries and sectors and its implication on global trade patterns. To identify these effects and the transmission mechanisms resulting from the change in relative prices from trade liberalization on producers and consumers of intermediate and final goods at home and abroad, we employ a multisector, multicountry, quantitative model with linkages across sectors.  A regional tariff reduction is modeled as a higher productivity, as it leads to a reduction in relative prices and has implications for the exchange of goods across countries and regions. In this framework, households and firms then purchase more imported articles at cheaper prices, raising trade volumes and increasing household welfare. For the same reason, changes in relative prices of exports and imports induce higher demand for non-Nigerian-made products, depending on the variation in prices across sectors and countries. Therefore, even though there is a presumption of a positive impact, that may not be the case.
Figure 1. Predicted aggregate real wage effects (%) of the AfCFTA on Nigeria and rest of the world

Source: Static computable, multisector, multicountry trade model version, authors’ simulations.
Notes: A country’s real wage effect is the percentage change in real GDP from 2014 level associated with free trade across the African region only. Tariffs for other non-AfCFTA countries/region are set at 2014 effective rates. Declines in GDP are shown in red, whereas increases in GDP are in orange and blue. The model provides results for 27 African countries, 13 OECD countries, 14 other emerging economies, and the “rest” of Africa, Asia, Europe, South America, North America, and Australia (60 countries in total including the rest of the world). Simulation results assume a full employment, perfect foresight, and absence of trade imbalances and household’s dynamic intertemporal choices.
Quantifying real wage, price, trade, and welfare effects
In our analysis, we calibrate a model of trade to countries’ macroeconomic performance as at 2014 and then simulate the potential impacts on macroeconomic indicators associated with trade liberalization across the African region. We estimate the impacts on all countries under a scenario where there is free trade only with continental countries. Figure 1 presents the estimated percentage change in real wage associated with moving from tariff rates in 2014 to those under the AfCFTA for African countries, while tariff rates on other regions/countries remain at 2014 effective tariff rates. Our results have implications on real wage and welfare effects for Nigeria, 52 countries, six other regions of the world, and the rest of the world. Overall, we find that Nigeria will experience a 1.43 percent gain in value added compared to 2014 levels. Notably, the effects for Nigeria, although positive, are modest relative to the gains in real wage for other African countries. Our findings show that the AfCFTA will deliver larger gains to African countries with prior larger shares of imports from the region. Moreover, impacts of trade liberalization on real wage across African countries will be uneven: For example, Botswana, Angola, and Ghana will experience percentage changes in real wage of 16.6 percent, 12.5 percent, and 6.5 percent (dark blue in map), respectively, due to the AfCFTA.
Nigeria gains 1.55 percent in welfare. Decomposing welfare effects into effects due to change in volume of trade (1.14 percent) and effects due to change in terms of trade (0.41 percent) highlights the sources of Nigeria’s positive gain by sector. As shown in Figure 2, agriculture and fishing and other manufacturing industries account for 73 percent of the gains from volume of trade. A decline in terms of trade translates to a larger decline in export prices relative to import prices. “Other manufacturing goods” accounts for most gains in terms of trade while the agriculture and mining industries combined dilute gains by 32.6 percent.
Figure 2. Effect of AfCFTA on Nigeria’s volume of trade and terms of trade by sector

Source: Static computable, multisector, multicountry trade model version, authors’ simulations.
Notes: Volume of trade is sectoral trade relative to Nigeria’s total trade. Terms of trade is calculated as difference in sectoral price of export and import as a share of total price differences in all sectors. Welfare effects is the sum of the volume of trade (VoT) and terms of trade (ToT) effects. A negative ToT means the sector dilutes the positive gains. Sectoral contribution for ToT and VoT adds up to 100 percent.
Prices for agricultural and manufacturing commodities will go down, but some others will go up
Based on our simulations, the AfCFTA will lead to reductions in prices of agricultural and manufacturing commodities. In fact, the decline in sectoral prices ranges from 0.8 percent in electrical and machinery to 8 percent in metal (Figure 3). Moreover, through sectoral linkages and changes in relative prices of imported goods, we find the AfCFTA will lead to an increase in prices of non-tradable services such as information services; transportation and warehousing; and finance and insurance services.
Figure 3. Price effects of AfCFTA on Nigeria’s economic sectors

Source: Static computable, multisector, multicountry trade model version, authors’ simulations.
Even with better infrastructure under the AfCFTA and the under-construction train networks between Kaduna and Lagos (the commercial center of Nigeria, which hosts the maritime ports for articles traded to/from the southern and western parts of Africa), intra- and international transportation costs remain high in the short run. A recent article in Nigerian newspaper The Punch finds that the price of shipping a container from the Apapa port in Lagos to the mainland (distance of just 20 kilometers) is almost the same as shipping one container from Nigeria to China. These types of costs will rise as the AfCFTA is implemented because of increases in the demand for inter-country haulage and shipping. In other words, intra-regional transportation cost variation impacts production costs and prices of traded articles as well as trade flows across countries. Changes in trade patterns then drive the uneven distributional impacts on consumption, real wage, and welfare across regions and countries, depending on changes in tariff rates on traded products.
Before the AfCFTA, 38 percent of Nigeria’s exports were in the mining and petro-chemical industries. Now, our simulations suggest a slight decline in exports for the following sectors: mining; wood and paper; petro-chemicals; metal products; and other manufacturing articles. Successful implementation of the AfCFTA will also induce a 6.3 percent increase in exports of agricultural products and 1.3 percent increase in food and beverage exports as shown in Figure 4.
Figure 4. Export effects of AfCFTA on the Nigerian economy

Source: Static computable, multisector, multicountry,  trade model version, authors’ simulations. U.N. Commodity trade database.
Notes: Before AfCFTA’s export share is based on UNCOMTRADE data, and After AfCFTA is based on simulation results.
As touted by policy experts, the AfCFTA has the potential to lift Nigerians out of poverty and raise manufacturing output. However, to realize this potential, Nigeria must follow targeted industrial policy and structural reforms; upgrade customs infrastructure; address the domestic cost of doing business; reduce bottlenecks, port processes, and transportation costs; promote digital marketing and e-commerce; and create targeted awareness about the AfCFTA policy. A survey of Nigerian businesses conducted by the Centre for the Study of the Economies of Africa (CSEA) shows that over 60 percent of Nigeria’s businesses are still unaware of the recently signed AfCFTA agreement. Even with potential benefits for firms, there are information costs reflected in different levels of awareness. Firms who don’t know AfCFTA exists are unable to take advantage of the tariff arrangements or even benefit from the policy. Until businesses are aware, the costs of trading under AFCFTA will remain high.
Note: The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis, the Federal Reserve System, nor the Brookings Institution.

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How Arkansas implemented its computer science education program

( 4 mins) Computer science (CS) education helps students acquire skills such as computational thinking, problem-solving, and collaboration, among others. It has been linked with higher rates of college enrollment (Brown & Brown, 2020; Salehi et al., 2020), and a recent randomized control trial study also showed that lessons in computational thinking improved student response inhibition, planning, and coding skills (Arfé et., 2020). As these skills take preeminence in the rapidly changing 21st century, CS education promises to significantly enhance student preparedness for the future of work and active citizenship. CS education can also reduce skills inequality if education systems make a concerted effort to ensure that all students have equitable access to curricula that provide them with the needed breadth of skills, regardless of their gender, ethnicity, or socioeconomic status.

Based on prior analysis and expert consultation, we selected 11 country, state, and provincial CS-education case studies with lessons that can apply broadly to other education systems. These cases come from diverse global regions and circumstances and have implemented CS education programs for various periods and to different levels of success. As such, we have examined information to extract lessons that can lead to successful implementation. This study will focus on the development of CS education in Arkansas.
While this U.S. state is not typically known for technological advancement, the governor’s strong leadership has led to a rapid and inclusive expansion of CS education, drawing praise from media and advocacy groups alike (Nix, 2017). Code.org, the Computer Science Teachers’ Association (CSTA), and Expanding Computing Education Pathways (ECEP) Alliance even noted in their 2019 “State of Computer Science Education” report that Arkansas has the largest share of high schools that teach CS (89 percent) of any U.S. state (State of Computer Science Education, 2020). The state also received the Frank Newman Award for State Innovation from the Education Commission in 2020 for its CS education initiative (CS for All, 2020). Given this recognition, the state’s CS education programs deserve close examination as other education systems work toward similar outcomes.
An overview of CS education in Arkansas
With regular funding, bipartisan political support, and strong executive leadership, Arkansas has made considerable progress at improving CS education since the beginning of the Hutchinson gubernatorial administration in 2015. To help guide key policy decisions, Governor Hutchinson appointed task force groups that included representatives from teacher associations, businesses, and government agencies. These stakeholders gave policymakers influential advice on teacher recruitment and training, student engagement activities, and curriculum standards.
The state set up incentives for participation in CS education programs. Since the 2015-16 school year, students have been able to use CS courses to fulfill high school science and mathematics requirements, which has contributed to Arkansas’s growing enrollment and improving diversity of CS classes (State of Computer Science Education, 2019; Associated Press, 2021). Arkansas has also developed CS certification for in-service and preservice teachers that encourage educators to participate in training programs (Code.org, 2017; Lang, Galanos, Goode, Seehorn, Trees, Phillips, & Stephenson, 2013). This is one of the more important aspects of this case study, as research has shown teachers to be one of the most important school-side factors in student learning in core academic subjects (Chetty Friedman, & Rockoff, 2014; Rivkin, Hanushek, & Kain, 2005). We posit that this applies to CS as well.
Lessons learned

Political leadership and stakeholder support are key to securing legislative approval and funding for activities that expand quality CS education.
Clear certification pathways, financial incentives, and professional advancement opportunities give teachers incentives to attend teacher training.
A full-time staff of administrators collaborating with a task force of industry representatives, teachers, and parents can enable decisionmakers to account for stakeholder needs and accelerate CS program improvement.
Offering CS in every school and allowing elective CS courses to satisfy high school graduation and university admission requirements can encourage students to explore their interest in CS.
By offering CS education to children at an early age, education systems can enable students to develop a strong interest in the subject and prepare them for advanced courses in high school. This progression throughout grades K-12 can inspire the most interested students to specialize in CS.

Read the full case study»

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Africa in the news: Vaccine, energy, and climate change updates

( 5 mins) New South African tech transfer hub to replicate Moderna vaccine
A tech transfer hub in South Africa established in June aims to replicate, with the aid of Moderna, the Moderna COVID-19 vaccine, according to a senior official with the World Health Organization. Moderna said in October 2020 that it would not enforce patents on its vaccine during the pandemic, but talks between the tech transfer hub and Moderna about disclosing the formula and the manufacturing process have yet to make significant progress. Regardless of whether the hub can rely on Moderna for assistance, the hub must still undertake requisite clinical trials, meaning it would not be able to distribute vaccines until the second half of 2022.

This new effort will supplement South Africa’s current production of mRNA vaccines. In July, Pfizer-BioNTech reached an agreement with South African pharmaceutical company Biovac to produce 100 million doses a year. However, the deal does not impart knowledge of the formula behind the vaccine, as the agreement is only to “fill and finish,” meaning Biovac will put the solution into vials and package them for shipping.
Expanded vaccine production is an urgent issue around the world, and Africa is no exception: According to the Africa CDC, only 3.3 percent of the continent is currently vaccinated against COVID-19 due to challenges in access, cost, and logistics, among other difficulties.
For more on Africa’s efforts to spur vaccine production and access, read, “Africa must produce its own vaccines.” Also consider listening to the Honorable Dr. Michel Sidibé, African special envoy for the African Medicines Agency of the African Union  and Dr. Agnes Binagwaho, vice-chancellor of the University of Global Health Equity,  share their thoughts on addressing vaccine inequity at the recent AGI event, “Accelerating COVID-19 vaccinations in Africa.”

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South Africa seeks international investment to shift away from coal; DRC attempts to renegotiate a 2008 minerals-for-infrastructure contract with China
On Thursday, September 16, South Africa’s Ministry of Environment, Forestry and Fisheries announced it will seek international cooperation around facilitating and financing the country’s energy transition away from coal, which generates over 80 percent of its electricity. As a first step, the British envoy to COP26, John Murton, announced an upcoming visit South Africa prior to the COP26 conference in Glasgow. The planned meeting follows a proposal from the state power company, and Africa’s largest source of emissions, Eskom, to raise $10 billion to replace most of their coal-fired power plants with renewable energy infrastructure by 2050. However, some South African government officials fear the transition away from coal, which supports more than 90,000 jobs in the country, will cause substantial economic disruption. Proponents of the plan suggest investing in decarbonizing South Africa’s electricity infrastructure offers magnitudes more impact than similar efforts in Europe: According to energy expert Clyde Mallinson, director of Virtual Energy and Power (VEP), “For every kilowatt hour of electricity you offset in South Africa, you get four or five times as much carbon reduction as you do in Europe.”
In related news, on September 11, Democratic Republic of the Congo (DRC) President Felix Tshisekedi proposed that the country review its $9 billion minerals-for-infrastructure mining contract, which it signed with China in 2008. In the announcement, Tshisekedi panned the contract, which was signed by former President Joseph Kabila, calling such agreements “exploitation contracts… [that keep the rich] getting richer while our people remain poor.”
Sudan and Kenya suffer from floods and droughts
According to a statement made Wednesday by the Kenyan National Drought Management Authority (NDMA), 2.1 million people in 23 counties across Kenya’s north and coast will be in urgent need of food aid in over the next six months as droughts continue to threaten livelihoods. Furthermore, on September 8, President Kenyatta officially declared the droughts a national disaster. In July, the Kenyan government, along with the Food and Agriculture Organization of the U.N. (FAO), established a drought response plan, which states that a total of 9.4 billion Kenyan shillings will be needed to support food and safety nets as well as non-food interventions to the drought.
As Kenya struggles to deal with droughts, Sudan is currently experiencing flash floods that have reportedly affected over 88,000 people in 13 of its 18 states since July. According to a report by the U.N. Office for the Coordination of Humanitarian Affairs (OCHA), more than 12,700 homes have been damaged and 4,800 homes destroyed. The latest flooding comes a year after the flooding in East Africa affected nearly six million people, including 1.5 million displaced. Sudan, according to the BBC, was one of the worst affected countries with 860,000 people having their homes damaged or destroyed.
As the region grapples with natural disasters, the World Bank released the 2021 Groundswell report The report projects that by 2050 sub-Saharan Africa could see as many as 86 million internal climate migrants due to climate-related losses in livelihoods and livability.

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Greening the AfCFTA: It is not too late

( 2 mins) Abstract
Environmental sustainability is a key component of Africa’s Agenda 2063: The Africa We Want. Yet, the recently launched African Continental Free Trade Area (AfCFTA) contains only minimal references to the environment.

This policy brief highlights various ways in which State Parties can strengthen the linkages between the AfCFTA and the environment, with a focus on concrete approaches and strategies. With respect to the AfCFTA protocols that have already been negotiated—including the Annexes on Technical Barriers to Trade, Sanitary and Phytosanitary Measures, and various Annexes on trade facilitation—strategic implementation can enhance the link between the AfCFTA and the environment. With respect to ongoing negotiations, including on tariff schedules and services concessions, as well as future negotiations on the Protocols of Intellectual Property, Investment, Competition and E-commerce, State Parties have the option of more clearly emphasizing the link between the AfCFTA and the environment.
The policy brief also encourages the AfCFTA Secretariat to explore the possibility of adding a Protocol on the Environment and Sustainable Development.
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Green trade under the AfCFTA: The role of AU-EU partnership

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COVID-19: How can the G-20 address debt distress in sub-Saharan Africa?

( < 1 min) Kathrin BerensmannGerman Development Institute (DIE)Hopestone Kayiska ChavulaUN – Economic Commission for Africa
Austin ChiumiaAfrican Economic Research Consortium (AERC)
Mma Amara EkerucheCenter for the Study of the Economies of Africa (CSEA)
Njuguna Ndung’uAfrican Economic Research Consortium (AERC)
Aloysius Uche OrduAfrica Growth Initiative (AGI); (The Brookings Institution)
Lemma W. SenbetUniversity of Maryland and Brookings AGI Distinguished Advisory Group
Abebe ShimelesAfrican Economic Research Consortium (AERC)

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Liberia improves in economic opportunity but still tax mobilization, infrastructure, and business environment struggle to see gains

( 6 mins) Good governance—according to the Mo Ibrahim Foundation, the provision of political, social and economic public goods and services that every citizen has the right to expect from their government—has been more crucial than ever before due to the COVID-19 pandemic. Indeed, good governance has been vital in ensuring that citizens are protected from any devastating impacts. It includes aspects of citizens’ participation, rights and inclusion, security and rule of law, human development, and economic opportunity.

To more deeply delve into these issues, on August 26, Brookings Africa Growth Initiative Senior Fellow and Director Aloysius Uche Ordu joined Jeanine Cooper, Liberia’s minister of agriculture; Bioma S. Kamara,  former minister of finance; Mawine G. Diggs, Liberia’s minister of commerce and industry, and Monie R. Captan, chairman of the board of directors at the Liberia Electricity Corporation for a conversation on trends in Liberia’s governance record utilizing the Mo Ibrahim Foundation’s Ibrahim Index of African Governance (IIAG). The discussion, one of many panels, was co-hosted by the Mo Ibrahim Foundation and the Ellen Johnson Sirleaf Presidential Center for Women and Development.
While the event featured many panels, including on human development and security and rule of law, Ordu moderated the panel on “Foundations for Economic Opportunity”—Liberia’s most-improved category in this year’s IIAG. Despite this progress, as the panelists discussed, Liberia ranks second-lowest in the IIAG “trade environment” and has room for improvement in several other related indicators. As such, Ordu led the expert panel in a discussion of Liberia’s improvements in its rankings as well as barriers to success for the country in enhancing economic opportunity. The main points of the discussion included:
Public administration. According to the United Nations, good governance, supported by strong public administration, is the heart of sustainable development. This year, Liberia made substantial strides in the “public administration” category of the IIAG, most notably in civil registration, Liberia was able to improve its civil registration score by 37.5 points from 2010 to 2019, owing largely to an increase in birth registrations. Birth registration is important because it gives children a legal identity, which enables their access to their fundamental rights as citizens.
Liberia still has a long way to go in other areas of public administration, though, as the panelists noted. In fact, tax and domestic revenue mobilization was a central theme of the panel discussion, as the  country’s score in this area declined precipitously between 2010 and 2019. Importantly, the World Bank recommends that, to effectively deliver sustainable and equitable growth, all countries should raise tax revenue equivalent or higher than 30 percent their GDP. In 2013, Liberia was reported at about 13 percent—showing urgent need for improvement. Panelists recommended a number of interventions including, making commitments to infrastructure, increasing public sector projects, and finding ways to collect taxes more efficiently.

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Business environment. Overall, Liberia’s performance also dropped in the category of “business environment.” More specifically, according to the IIAG, the country received high marks in regional integration but still suffers from onerous business regulations. For example, according to the World Bank’s Doing Business Report, bureaucratic compliance for trading across borders in Liberia takes an average of 193 hours to complete. Improving efficiency in compliance at its border is an important step in improving the ease of doing business in the country. Panelists agreed that border compliance is an issue and stated that Liberia needs to move into a digital space to fix this issue. With the processes at the border still being done manually, delays are inevitable, and compliance will continue to be a barrier for the country.
Infrastructure. Like in many sub-Saharan African countries, poor infrastructure in Liberia inhibits economic growth. Given the importance of technology for modern economic growth, the panel extensively discussed electricity access, reliability, and cost. Notably, Liberia has one of the lowest rates of electricity access in the world as well as some of the highest electricity tariffs, at $0.54 per kWh. Liberia also struggles with power theft rates of 55 percent, which are also the highest in the region. Power theft, defined by the Power Theft Act, is the tampering with meters, transmission and distribution lines, and general theft of meters, light poles, wires, and transformers. Indeed, a press conference in August of this year revealed that the Liberia Electricity Corporation (LEC) had lost $220 million to technical losses, commercial losses, and unpaid bills from this issue. Panelists were optimistic regarding the country’s ability to improve access and cost, though, arguing that the new Electricity Law of Liberia can better enable the country to build and regulate the electricity sector more efficiently.

Rural sector. Importantly, while Liberia’s performance in the rural sector (e.g., rural market access and rural sector support) improved since the last report, the panelists were keen to note how closely infrastructure and the rural sector are intertwined. With customary land ownership denied in some rural areas until the implementation of the 2018 Land Rights Act—which empowered rural communities by strengthening of rights of local, customary landowners—these communities suffered tremendously. According to one panelist, because 80 percent of the country’s citizens participate in agriculture in some way, this act has been a “game changer” for the rural sector. Panelists also noted that there have been uptakes in rural sector support as part of wider efforts to boost the rural economy through commercialization.
Gender equality. Another important aspect of the conversation was the role and rights of women, especially in rural areas. Indeed, one panelist noted that women do not have the same access to land as men in the country, despite about 70 percent of rural work being done by women. To truly strengthen the rural sector, the panel agreed, gender equality must be at the forefront of conversation, and women must be able to have autonomy over their own land.
Madame Ellen Johnson Sirleaf, former president of Liberia and founder of the Ellen Johnson Sirleaf Presidential Center for Women and Development, closed the full event by emphasizing the importance of good governance in bolstering economic development and inclusive growth as well as improving the livelihoods of all.

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