Figure of the week: The rise of African tech startups
Technology startups and the venture capital ecosystem that transforms ideas and fledgling companies into disruptive businesses are growing globally—a phenomenon that the Boston Consulting Group (BCG) explores in a recent report on the expansion and maturation of African tech startups. According to the authors, Africa enjoys a fertile environment for tech entrepreneurs due to the continent’s youthful and growing population, rising internet penetration, and the application of emerging technologies that have the potential to improve access to healthcare, financial services, education, and energy. As such, the research paper focuses on the meteoric growth of tech startups throughout the continent, persistent challenges and structural barriers stymying these firms’ further growth, and policy recommendations to overcome these obstacles and develop Africa’s innovation hubs.
Securing venture capital funding, according to BCG, is an important milestone for startups and is an important step that enables them to scale and develop novel products. In the study, BCG found that the number of African tech startups accomplishing this significant step experienced exponential growth between 2015 and 2020. In fact, over that time period, growth in the volume of African tech startups receiving financial backing was nearly six times faster than the global average (Figure 1).
Figure 1. Number of tech startups securing funding in Africa
Source: “Overcoming Africa’s Tech Startup Obstacles,” Boston Consulting Group, 2021.
The trends in financing, though, do not reflect the overall performance of startups, as the continent’s record of scaling up and sustaining such businesses is not as promising. As shown in Figure 2, the vast majority of African tech startups do not survive beyond Series B venture capital funding—the second round of venture capital financing and the third stage of start-up financing (typically initiated by pre-venture seed and angel investor funding). As an indicator of their underperformance versus startups in industrialized countries, such as the United States, this trend suggests that African startups suffer from long-term instability, according to the authors. Indeed, compared to the United States, a greater proportion of African tech startups have yet to progress beyond early-stage seed funding—a trend that remained constant between 2014 and 2019. Figure 2 also reveals that, since 2014, some African tech startups have managed to progress beyond Series B VC funding—a positive trend that signals the maturation of African tech startups. However, as seen in Figure 3, only a few (though growing) African tech startups have successfully evolved into mature companies, as BCG’s analysis indicates venture capital investment in Africa suffers from relatively low average returns compared to other regions.
Figure 2. Percentage of startups receiving venture capital funding, by funding stage, in Africa and the United States
Source: “Overcoming Africa’s Tech Startup Obstacles,” Boston Consulting Group, 2021.
Figure 3. Average return for venture capital investors after five years – by region
Source: “Overcoming Africa’s Tech Startup Obstacles,” Boston Consulting Group, 2021.
According to the authors, a variety of factors make Africa an inhospitable startup environment, as the continent’s business environment is marred by pervasive structural barriers such as:
Low consumer purchasing power
Complex and inconsistent regulations
Inadequate data communications infrastructure
A fragmented marketplace of 54 countries
Scarce capital and digital talent
In addition to these structural barriers, startups face strong competition from large, established national firms and state monopolies. According to BCG, this concurrence of the continent’s structural barriers and entrenched competition risks “depriving [African countries and competing businesses] of crucial sources of innovative technologies, products, and business models.”
In order to unleash innovation that drives job creation, economic opportunities, and expansive access to finance, education, and health care throughout Africa, BCG advocates for corporate partnerships and government reform to generate strategic alliances with local startups. From the perspective of the private sector, strategic partnerships with local tech startups can introduce cutting-edge digital technologies and novel business models that benefit the firm, the startup enterprise, and consumers. From the perspective of the public sector, financial incentives for investors and large national companies to nurture and collaborate with fledgling startups have the potential to develop innovation hubs that draw foreign investment and talent to the country. In addition, BCG calls on African governments to improve the regulatory environment so that countries can better cultivate hospitable investment ecosystems for startups and venture capitalists.
For more on investment in Africa, read “Figures of the week: Venture capital trends in Africa,” “Figure of the week: Trends in mergers and acquisitions in Africa,” “Placing investment at the center of Africa’s development strategy,” and Africa Growth Initiative (AGI) Senior Fellow Landry Signé’s book, “Unlocking Africa’s Business Potential.”
Fiscal policies for a low-carbon economy
Global warming is real and climate disasters are believed to be occurring with higher frequency. The heightened risks and sizeable setbacks can move economies onto trajectories characterized by lower growth rates, greater financial and fiscal instability, and even poverty traps. This is especially true for more vulnerable developing countries. Our recent report, Fiscal Policies for a Low-Carbon Economy, suggests how a mix of carbon taxation and green bonds can address climate-related risks, improve economic recovery plans, and facilitate a transition to a low-carbon economy.
Research on climate economics finds that green bonds can accelerate a low-carbon transition, may have a positive impact on aggregate output and employment, help to advance renewable energy technology, address better the issue of fair transition, and be a stabilizing force on the financial market compared to conventional, in particular fossil fuel-based, assets. Our research confirms these findings.
Figure 1. Global renewable energy investment and green bond issuance, 2004-2019
Source: Bloomberg and Bloomberg New Energy Finance.
The growth of green bonds
New green bond issues reached over $250 billion globally in 2019, up from about $30 billion in 2014 and now on par with global renewable energy investment (Figure 1). The impressive increase in and diversification of green bonds since the first issuance by the World Bank in 2008 confirms the potential of this instrument to help finance the low-carbon transition. These assets are in high demand in many countries: Oversubscriptions, for example, were reported in 2020 for German as well as Egyptian green sovereign bonds and in 2019 for Chilean green bonds.
Green bonds help meet the financing requirements of the low-carbon transition but can also help accelerate the transition itself. In practice, green bonds can mobilize private capital and act as bridge financing at the project level to increase the availability of low-carbon technologies, filling the gap until carbon pricing initiatives can be sufficiently scaled up. One of the largest solar plants in the world, Noor-Ouarzazate Solar Power Station, leveraged more than $2.5 billion in financing, in part through green bonds. This project will substantially help Morocco reach its climate targets, increasing the share of renewable energy in its total energy mix to more than 40 percent with 2624 GWh of clean energy generation. By providing additional financing, green bonds can accelerate the mitigation process. This mobilization has been the most impressive in China, where the green bond market has grown to about $120 billion, quadrupling in size over four years.
Green bonds also have several characteristics that make them attractive to financial market investors and issuers. In particular, green bonds can act as a stabilizing force on the financial market compared to conventional (e.g., fossil fuel) assets. The report presents initial evidence that issuing green bonds may have favorable effects on risk control for asset and portfolio holdings, as well as broaden and diversify the investor base. For example, Figure 2 shows that a larger share of green bonds leads to lower variance in portfolio returns during recessions (or negative oil price shocks), confirming their benefit as a hedging instrument, in particular in recessions or periods of declining fossil fuel prices.
Figure 2. Portfolio variance of different shares of green and fossil fuel bonds
Source: Author calculations based on S&P data.
But while Figure 1 shows that green bond issuance has increased together with renewable energy investment in recent decades, green bonds still represent a tiny share of financial market assets.
Price carbon better, and add green finance
To accelerate the low carbon transition, carbon pricing has been widely proposed, with many researchers and policymakers supporting this approach. Carbon pricing supports a low carbon transition by making fossil fuel energy more expensive and subsidizing renewable energy production and use. In practice, carbon pricing has come in different forms such as an Emission Trading Scheme (ETS) and a carbon tax.
Financial market instruments have also been used to encourage the growth of renewable energy to achieve climate objectives. There has been an extensive flow of financial equity funds geared toward climate mitigation and adaptation policies, for example through alternative energy Exchange Traded Funds (ETFs). There is evidence that green assets have recently outperformed carbon-intensive assets (Figure 3). The report adds evidence confirming the benefits of issuing green bonds and investigates the combination of carbon taxes (e.g., a Pigouvian tax imposed on carbon-intensive goods and services) with green bonds (a market debt instrument to fund low-carbon investments).
Figure 3. Market performance of MSCI financial market indices
Source: MSCI.
There are three benefits of combining carbon tax and climate bonds to accelerate climate mitigation and adaptation efforts:
Carbon pricing relies on substitution effects, but substitutes may not be currently available and need to be produced through private or private-public partnership investments. Green bonds can work as bridge finance for low carbon substitutes.
Whereas carbon taxes can reduce negative externalities (and incentivize investments to reduce them), green bonds help to generate positive externality effects – both appear to be needed.
Green bonds can bring about more financial stability when held as an asset class in portfolios and reduces the problem of “stranded assets.”
But in developing countries, carbon pricing and green bond initiatives are still in the initial stages (see Figure 4).
Figure 4. Countries with carbon pricing initiatives or green bonds
Source: Bloomberg Terminal data and World Bank Carbon Pricing Dashboard.Note: Data for 2017-2020. Countries in green are those which have implemented both green bonds and carbon pricing at the federal or local level; countries in light blue have implemented green bonds only; countries in dark blue have implemented carbon pricing only.
The demand for green bonds is quickly rising in middle-income countries, but there are significant roadblocks for green investment even in advanced countries such as short-termism, small markets, liquidity, and governance problems. The report finds, however, that sustainable finance in the form of green bonds is on a steep learning curve and is potentially complementary to carbon pricing—in particular to carbon taxation.
The market is still learning
The green bond portion of the asset market is still small, market participants are heterogeneous, and people are still learning. Though green bond performance depends on many factors—such as the issuer, rating, currency, bond maturity, and sector—our report provides some encouraging messages:
Green bonds appear to be less volatile than conventional bonds and assets, in particular those based on fossil-fired energy). Green bonds also appear to sell at a (negative) premium (see Kapraun and Scheins, 2019), while their Sharpe Ratio (the return-risk trade-off) is similar or even higher than that of conventional or fossil fuel-based bonds.
The literature and our study suggest a strong co-movement between oil price fluctuations and carbon-intensive security returns. Green bonds exhibit lower volatility and little co-movement with fossil fuel-based asset prices and returns, and can therefore be a good hedge for investors.
Lower volatility and yields may provide private as well institutional investors with superior asset diversification opportunities and steady returns for the investors, as well as lower capital costs for issuers. Whereas with fossil fuel-backed assets, co-movement with oil price fluctuations makes carbon-dependent countries’ income vulnerable and increases financial volatility in certain sectors and countries.
Given the potential benefits of green fiscal instruments, governments should consider including them in their economic recovery plans. The combination of carbon taxes with green bonds allows long-run climate externalities to be addressed, and possibly even incentivizes the emergence of positive externalities. Though, during business cycle downturns a carbon tax levy might be less advisable while green bonds (and green assets in general) appear to be a useful portfolio and macroeconomic stabilizer.
Minding the gap: The disconnect between government bureaucracies and cultures of innovation in scaling
Many contemporary practitioners and researchers tasked with bringing proven education innovations to scale around the world know that scaling is less a technical activity, but a mindset as much as an implementation process. As an adaptive mindset, scaling shares myriad characteristics with its close cousin: innovation. Both are complex and demand creative thinking, their outcomes are never fully predictable, and both require flexibility and engagement with the “what-ifs?” of life.
And, yet, to be supported at scale by government, most education innovations first must be adopted by public-sector decisionmakers—a group that lives within a decidedly bureaucratic culture.
The contradiction between the government mechanics of adopting innovations and the culture of implementing them becomes a central barrier to education innovations being adopted at scale.
Barriers to scale
Nayer, Saleh, and Minj (2016) point out that many governments decentralize power, which therefore requires that a new intervention gain acceptance across several sectors and personnel within a bureaucratic system. Decentralizing power is necessary for democracy, but for the logistics of implementing social science innovations it can be challenging. The authors also argue that government bureaucracies prioritize routines, precedent, and decision-trees, but innovations need flexibility and some organizational freedom to flourish. “By conforming to bureaucracies’ design and following the decision-making priorities that result,” they write, “civil servants can internalize and institutionalize a risk-averse behavioral culture. This is not conducive to scaling innovation (p. 5).” Similarly, Al-Ubaydli, List, and Suskind (2019) note that bureaucracies centralize efficiency, but innovators centralize effectiveness.
So, there lies the rub: The very conditions that social science innovations need in order to flourish are the conditions that public bureaucracies repel.
Generally speaking, policymakers tend to be failure-avoidant, linear thinkers while innovators in social sciences work in an atmosphere of experimentation and learning-by-doing. Successful innovations often need a few failures along the way as they’re implemented, adjusted, and embedded into widespread practice.
So, there lies the rub: The very conditions that social science innovations need in order to flourish are the conditions that public bureaucracies repel.
Compounding this disconnect is decades of technical-rational social science innovators who falsely promised governments that “scaling up” was a simple process. Suskind and List (2020) point out that previous generations of implementers in education, public health, and poverty alleviation convinced policymakers that “rolling out” an intervention was straightforward—and yet that was rarely true. The resulting failures cost policymakers significant money and reputational capital over the years. As a result, government decisionmakers are now reluctant to trust social science innovators, implementers, or researchers. As Suskind and List tell us: Each generation of errors makes it harder for contemporary innovators and implementers to get policymakers to listen to them.
We offer a few recommendations.
Closing the culture gap
For policymakers and other public-sector decisionmakers: Don’t hold the mistakes of old scaling paradigms against the newer models. Many contemporary teams working to implement proven education innovations at scale have learned from the past and see scaling as complex, contextualized, in need of widespread support, and unpredictable—but absolutely necessary if we’re to ameliorate intractable social problems. This new generation of scaling impact deserves a chance.
Additionally, public-sector decisionmakers can push against an understandable but sometimes self-defeating bureaucratic machinery that craves technical-rationality and risk-aversion. Finding the political will to go against the grain and inject some tolerance for unpredictability, course correction during implementation, and managed risk might be just what is needed to pry open rigid decisionmaking structures. We’re not advocating that governments gamble on untested innovations but rather that decisionmakers understand that if you are to trust a proven innovation, you will need to accept that implementing and scaling it for deep impact won’t be a quick, linear, error-free process.
For implementers and researchers of education innovations to scale: Recognize that national and regional decisionmakers don’t always share your mindset. Rather than reinforcing the binary, perhaps consider yourself teachers as much as implementers: What do decisionmakers need to know to feel comfortable supporting your innovation? What would it take to develop a scaling strategy from the beginning that foregrounds a continuous learning system, ongoing data collection, and realistic goals at each step? One that treads that middle path between being too tight (breaking like a branch that can’t bend in a storm) or too loose (sacrificing too much fidelity to the original innovation)? And how could you articulate the innovation to decisionmakers in new ways to get past the research jargon or technical details and adopt user-friendly, politically appealing, community-minded language? There is value to building personal relationships across the gap, prioritizing informal dialog (not only technical presentations), and acknowledging the bind into which bureaucracies often put decisionmakers.
If each side took some responsibility for the lacuna between the two cultures and consciously moved a few paces toward the middle, we might improve things. Government decisionmakers could accept that changing education systems requires some risk and a different procedural approach. Innovation implementers and researchers could thoughtfully plan for unpredictability; study and learn from scaling effects at all phases; and cultivate a broad network of partners and allies both before and during the scaling process.
Maybe, just maybe, this new generation of scaling impact as recursive and mutually adaptive can meet a new generation of public decisionmakers ready to loosen the nuts and bolts of their bureaucracies, and together, can ensure that promising interventions and education programs flourish.
Related Content
The Center for Universal Education at Brookings is proud to be partnering with the Global Partnership for Education’s (GPE) Knowledge and Innovation Exchange (KIX), through the Research on Scaling the Impact of Innovations in Education (ROSIE) project, to explore scaling-related issues with national decisionmakers. In advance of our own research on the topic, we’ve been exploring the literature. In previous blogs, we considered how public-sector decisionmakers adopt innovations to scale and limitations of using pilot data We will continue sharing with you what we learn through ROSIE in the months ahead. In the meantime, we’re interested in hearing from those of you with experience in these matters: What have you tried and what’s worked best?
Argentina: Of Economic Programs, Jobs, and Exchange Rates
Become a member to read the rest of this article Username or E-mail Password Remember Me Forgot Password
Argentina: Special Analysis on the Equilibrium Real Exchange Rate
Become a member to read the rest of this article
Will Biden deliver for rural America? The promise of the American Rescue Plan
Despite having carried the vote in only 10 percent of rural counties and 15 percent of rural counties that are in economic distress, President Biden has publicly made it a priority to rebuild rural America. For political observers, this may reflect political savvy—cutting losses in just a few rural counties will be key to statewide races, whether to win the electoral college, Senate seats, or state government offices—or tangible evidence that the president is serious about unifying the country. For policy wonks, it is a recognition that the fortunes of rural Americans are inextricably intertwined with key administration priorities, such as addressing climate change and the legacy of racism. Over 50 percent of rural Black residents and 45 percent of rural Native Americans live in economically distressed counties, persistent poverty counties are over 85 percent rural, and rural places will play a central role in transitioning to a clean energy economy. and rural places will play a central role in transitioning to a clean energy economy.
The administration is intent on following through with policy and resources: Susan Rice, director of the Domestic Policy Council, has suggested that the American Rescue Plan, approved and signed into law on March 11, and the proposed American Jobs Plan, the administration’s basis for the current negotiations with Congress on infrastructure, will represent “historic levels of public investment” in rural America.
Grants to local governments: A step forward
Designed as both relief and stimulus, a significant portion of the already approved $1.9 trillion American Rescue Plan represents a one-time injection into the country’s social safety net programs. These include direct payments to families, unemployment benefits, child tax credits, and assistance for housing and health care. By definition, these programs do not offer special treatment to rural Americans, but the amount that will reach rural people will be significant. Some rural regions may ultimately benefit at higher rates because of disproportionate levels of poverty and unemployment.
At the community level, the $350 billion relief fund for states and local governments offers rural places a chance to mitigate the effects of the pandemic while laying the groundwork for future development efforts. Of the $65.1 billion set aside for counties, $15.33 billion—over 23 percent—will go to non-metropolitan counties.
Rural towns, municipalities, and townships will not fare as well as out of the other $65.1 billion directly committed to city governments and local jurisdictions. While $19.5 billion is reserved for smaller jurisdictions—that is, non-county governments with a population less than 50,000—most of these will be within the boundary of a metropolitan area.
Nonetheless, the flexibility of these grants represents a step forward. Our recent analysis of federal assistance highlighted the void in this type of community investment for equitable rural development. This funding will allow local leaders the ability to make their own decisions within a set of broad parameters.
Many will seek to fill fiscal holes left by the pandemic and other economic transitions (as a group, rural areas still had not returned to pre-2008 levels of labor rate participation by the time the pandemic hit). The grants also offer an opportunity to enable locally-led strategies and get local solutions underway that could have a lasting effect. However, while the overall federal investment through this fund is substantial, the grants themselves are unlikely to be large enough to cover the types of cornerstone projects that local leaders have in mind. Many communities will also feel the need to strengthen their capacity with people, expertise, and more robust organizations to be successful with such efforts.
Increasing the return on investment for equitable rural development: A three-point plan
These dynamics highlight the importance of making sure that other resources within the administration’s legislative actions and proposals are friendly, or even intentionally designed, to meet the unique needs of rural communities, especially those in persistent poverty counties or experiencing significant economic distress. Improving the effectiveness of this federal aid and increasing its development “return on investment” will be important if these resources are to have lasting, meaningful consequences for rural communities over the long term.
Since quick action was a top priority when putting the American Rescue Plan together, it depends upon existing programs and mechanisms to funnel the resources. Not all programs have the discretion or flexibility to intentionally target and enable equitable rural development, but several—such as the $4 billion to support local food systems, the $1 billion to offer technical assistance and capacity building to socially disadvantaged farmers, and the over $7 billion for broadband access—have rural built in.
Related Content
Another major opportunity lies in the $3 billion appropriated for the Economic Adjustment Assistance grants managed by the Economic Development Administration (EDA), which represents a ten-fold increase over EDA’s typical annual appropriation. This is EDA’s most flexible program, but it is unlikely to reach the rural communities that would benefit most without shaping its uses accordingly. The commitment of $10 billion of financing for the State Small Business Credit Initiative (SSBCI) could also be transformational, since small businesses make up about 90 percent of the businesses in rural areas.
Several key principles can enable the administration to maximize the impact of these resources and make good on the pledge to advance equitable rural prosperity:
1. Rural-conscious rulemaking: As we pointed out in our earlier analysis, rural areas are often faced with eligibility requirements, scoring criteria, or other program parameters that unintentionally result in a structural urbanism that disadvantages less densely populated places.
Making the resources in the American Rescue Plan meaningful for rural may mean making modifications. For EDA, for example, it would be helpful to reduce the typical 20 percent funding match required by recipients down to zero at certain levels of distress or size, especially since many rural areas—especially those in persistent poverty or with majority-minority communities—have limited access to other types of resources such as philanthropic funding. USDA can maximize its food systems funding by seeking to achieve multiple objectives, such as strengthening local food hubs and regional markets while increasing the supply of food assistance to those economically affected by COVID-19.
Greater flexibility will be important to address other critical issues such as housing and respond to other social concerns, like dealing with substance abuse within workforce training and development programs.
2. Strategic follow-on: While the American Rescue Plan represents significant investment overall, for many underserved rural places determined to strengthen their long-term resilience and remake their economies, it will simply be a start. Much can be done to optimize the outcomes through the specific resources made available by the American Rescue Plan; nonetheless, it will be crucial for the administration to recognize the importance of following it with further intentionality.
The proposals in the American Jobs Plan currently under discussion thus loom large. For example, it contains a suggestion to create the $5 billion Rural Partnership Program, which specifically seeks to meet rural communities where they are at and offer flexible support to build their capacity and consistency to successfully carry out locally-led strategies and solutions.
Other actions such as President Biden’s executive order on equity will also be important to maintain a focus on underserved communities. As part of its implementation, OMB recently issued a request for information for tools that can enable departments and offices to improve their effectiveness and reach by changing their program design and parameters.
3. Transparency: While it seems basic, merely updating data regularly about the financing flowing from the American Rescue Plan and making it public, easily accessible, and easily mapped geographically will be critical to understanding its effectiveness. For example, while EDA often states that 60 percent of its funding reaches rural areas, there is no easy way to verify this, nor identify which rural places it served and what effect it purportedly had. While approximately 15 percent of the original iteration of SSBCI landed in rural areas overall, differentiating among rural areas shows that the program struggled to reach places with fewer financing options, such as those in persistent poverty. Getting the program parameters right depends on having good data and responding to subsequent accountability nudges.
USASpending.gov, the website created by Treasury to meet the mandate of the Federal Funding Accountability and Transparency Act of 2006 (FFATA) and the Digital Accountability and Transparency Act of 2014 (DATA), has created a special COVID-19 site to follow the implementation of the CARES Act and the American Rescue Plan. While the site has a map for users to drill down to the county or Congressional district, the mapping function does not allow users to differentiate among programs. The map also does not distinguish between the CARES Act and American Rescue Plan funding, nor differentiate between rural and urban. It should be as easy for U.S. taxpayers to view this information for domestic programs as it is for them to view U.S. investments made internationally—especially since this money is being spent in their own backyard.
A key objective: Clarifying national rural policy
Ultimately, creating a national rural strategy would enhance the effectiveness of federal resources as they start to reach rural, enabling the kind of sustained attention that will be necessary to generate widespread progress in rural communities across the country. Establishing clear and coherent policy priorities for rural resilience, priorities unambiguously understood and taken seriously across the federal government, would increase the chances of success as federal resources are deployed. This is a major opportunity for the administration over the next four years, to pursue systemic reforms and improvements in how federal investments are made and outcomes achieved in rural America.
While still early, the administration is off to a good start, pursuing concrete actions that could translate into investments useful to everyday people and local efforts. Spending the political capital to stay on course will be critical in the coming months.
Fed: Same game, different rules
Become a member to read the rest of this article
What does a common agenda for global public goods in education look like?
Last July, the U.N. secretary-general called for a focus on delivering more global public goods. Yet, 15 years after the International Task Force on Global Public Goods wrote its summary report, much work remains to shape debate and action in the education sector on this. Is education so heterogenous that each government must develop bespoke solutions? Or could some standards and systems be created globally and tailored for national and local implementation?
In 2016, the Education Commission found that only 3 percent of overseas development assistance for education was being spent on global public goods, compared with a full fifth in the health sector.
And yet the case for investment is strong. The global learning crisis is severe and expensive, and COVID-19 has exacerbated existing issues. Last year we estimated global losses in students’ future earnings as a result of school closures, finding they will impact those most in low-income countries. The World Bank has predicted a triple funding shock for investment in the sector as a result of the pandemic. Many school systems, particularly those in settings with limited connectivity and access to data and devices, have struggled to harness basic tech effectively in the last year. And the most vulnerable students, even in high-income countries, are least likely to benefit from online learning when they do have access to it.
We also know the sector can work toward meeting common global goals. For example, concerted government and NGO efforts for girls’ education has led to steady (if uneven) progress toward gender parity. Global and regional standards and assessment systems are increasingly strengthening our collective understanding of what learning looks like. And global research programs and groups like the Global Education Evidence Advisory Panel are now emerging with a focus on global public goods. Last year the Save Our Future Coalition explicitly called for donors to invest in public goods that can support and leverage reforms at the country level.
Current lack of investment—and the need to work collectively in the wake of a seismic shock for education—has inspired us to consider what a common agenda for global public goods in education might look like. We offer three foundational principles and a set of possible actions as a starting point for international education institutions, multilateral and bilateral donors, foundations, and corporations with global reach—all of whom should see this as part of their core business:
1. Put children, parents, and the education workforce at the center. Learning is about people, not institutions. Global public goods will have most impact when they put children at the center of an ecosystem of learning opportunities.
Making the shift from talking about the right to education, coined over 70 years ago, to the right to learn will help us focus on what matters most. We could put children at the center by creating unique learner identities (that they can access), allowing us to create personal learning records. Access to open-source tools—harnessing technology increasingly to personalize these—could transform foundational literacy and numeracy levels, as well as deliver stronger, better tailored teacher professional development. And a global qualification or standard could be used to recognize and celebrate excellence in novice teachers.
2. Provide digital platforms for education systems. While global businesses rely on an ecosystem of digital platforms to run increasingly complex supply chains (tailored but seldom developed in-house), education systems are still largely built from scratch. Open-source digital platforms could help countries strengthen governance, cut waste, improve interoperability, and drive up standards.
Actions in this area might include access to an open-source information management system that meets a global benchmark for providing the data needed to make evidence-based decisions. Meanwhile, a shared global standard to assess whether children are learning foundational skills would help systems target children at risk of being left behind with specialized interventions. And teachers will continue to need quality-assured lesson plans, instructional materials, coaching, and other support to help them.
3. Create a new compact with technology companies. The sector has profited significantly during the pandemic and played an increasingly important role in the provision of education. But companies’ support for learning can be piecemeal and seldom benefits the children who need it most. A global ed-tech compact could increase basic connectivity, drive up standards, and plow a share of private revenues into children’s learning.
Any such compact should include investment in universal connectivity, given the sector’s responsibility under the “Contract for the Web.” In the short term, the private sector should commit to working with governments to connect every school to the internet. At the same time, it will be important to create quality assurance for the growing number of platforms that offer search and distribution of digital educational resources.
Related Content
Finally, we call for the establishment of a global ed-tech fund, with Gavi as its inspiration. By investing in a model, technology companies could help transform access to quality tech-enabled learning for children who would otherwise be excluded. At the same time, the sector would be involved in shaping markets so that they work for the people who need them the most.
We offer these ideas to set out a possible common agenda for global public goods in education. As the U.N. secretary-general prepares to launch his priorities for a second term of office, we call on the education and technology sectors in particular to work closely together to shape, invest in, and deliver to the benefit of learners worldwide.
The Economy’s Response to Potential Climate Policy
Stephie Fried, Kevin Novan, and William B. Peterman
Charting a new course in US-Africa relations: The importance of learning from others’ mistakes
This is an exciting time for Africa. In early January 2021, the first shipments traded under Africa Continental Free Trade Area (AfCFTA) preferences left Ghana bound for Guinea and South Africa. Since its signing in March 2018, the rapid implementation of the agreement raises hopes of a more inclusive and prosperous future for the continent. How global trading partners support this project could set the tone of relationships for decades to come.
New times require a fresh approach…
The Biden administration is applying a healthy dose of fresh thinking to a number of Africa-relevant policy areas, from global taxation to intellectual property. In terms of trade, United States Trade Representative Ambassador Katherine Tai has already signaled a welcome new direction, stressing multilateral solutions over bilateral ones and emphasizing the importance of incorporating climate action in discussions on trade policy.
When it comes to U.S. trade with Africa, two linked items are on the agenda:
The administration has inherited plans to negotiate a stand-alone free trade agreement (FTA) with Kenya. The new Biden administration initially announced a review of all trade negotiations started under President Trump, and, in April 2021, Secretary of State Antony Blinken confirmed that talks with Kenya would proceed.
The Kenya agreement was conceived (by the Trump administration) as a blueprint for an FTA initiative designed to succeed the African Growth and Opportunity Act (AGOA), a trade preference scheme that has offered enhanced market access to qualifying African countries since 2000 but is due to expire in 2025.
For both geostrategic and economic reasons, the United States has a vested interest in ensuring the success of the AfCFTA and should avoid moves that might hinder that success. As the U.S. trade team weighs its options and fleshes out a new approach toward the African continent, we argue that, in light of the AfCFTA, bilateral FTAs with African countries should be reconsidered in favor of a continental approach. This recommendation chimes with the Biden administration’s preference for multilateralism and will, in turn, have implications for the future of AGOA.
For both geostrategic and economic reasons, the United States has a vested interest in ensuring the success of the AfCFTA and should avoid moves that might hinder that success.
The underlying problem with FTAs between African and high-income countries
The European Union’s and United Kingdom’s experiences of trying to negotiate FTAs with countries or regions in Africa offer some useful lessons for the United States to consider.
The EU has been trying to secure economic partnership agreements (EPAs) with Africa for over two decades. In principle, these agreements were supposed to be signed on a regional basis, but because of disparate economic interests within regional blocks and concerns in Africa over the ability to compete with firms in the EU on a level playing field, the process was met with considerable reluctance by African partners. The EPAs offered no additional market access for least developed countries (LDCs)—and simply obliged those countries (albeit over a generous timeframe) to open their markets to the EU.
As a consequence, beyond a handful of single-country deals (Cameroon, Côte d’Ivoire, Ghana), just two regional deals were signed—one with East and southern Africa in 2009 and one with southern Africa in 2016. None of this messy patchwork of deals coincided with existing regional economic communities. The seed was thus sown for considerable difficulties in implementation. The EU itself has gradually shifted the discussion toward a different, arguably more accommodating, framework: the Africa-EU partnership.
Related Content
To many commentators’ surprise, given the country’s post-Brexit political rhetoric, the U.K. missed a golden opportunity to chart a new course. Instead, for reasons of expediency and the desire to sign up quickly as many new trade deals as possible, it opted to roll over the unpopular EPA deals. This exercise has not proven at all straightforward and the newly inked U.K.-Kenya FTA faced hurdles in both the U.K. House of Lords as well as the Kenyan parliament. A legal case brought by small-scale farmers in Kenya is still pending.
On the part of African partners, bilateral deals have been seen as the product of necessity rather than forward-looking policy design. If we take the example of the U.K.’s deals with Kenya and Ghana, both countries are classified as “non-LDCs” and so, unlike neighboring countries in the East African Community (EAC) or Economic Community of West African States (ECOWAS), they do not qualify for the generous Everything But Arms preference scheme. The deals were signed not because they were seen as a gateway to accelerated export growth or diversification, but rather to protect existing market access for a handful of traditional, largely low value-add exports (flowers and vegetables for Kenya, bananas and tuna for Ghana).
FTAs between countries at vastly different levels of development are risky
In a well-argued piece, Brodo and Opalo (2021) recently claimed that the U.S. should make deals with Africa’s regional economic communities (RECs), an intermediate solution between bilateral trade agreements and a U.S.-Africa continental trade agreement. This approach is certainly preferable to signing bilateral FTAs, but also presumes that all countries within a REC feel both ready and prepared to enter into an FTA with the world’s preeminent high-income, high-productivity economy. Arguably, this presumption was the underlying mistake made by the EU when it embarked on EPAs with the African continent nearly two decades ago.
In reality, Africa’s RECs contain countries with different economic priorities, interests, and levels of development. LDCs across the continent have been extremely reluctant to sign FTAs with developed economies for fear that their nascent domestic industries will not be able to survive the competition—particularly in sectors like agriculture where levels of domestic support in developed countries are high. The majority of countries on the continent already have to sustain major structural trade imbalances with high-income countries, and signing FTAs, even if the liberalization is gradual, is only likely to exacerbate those imbalances, entrenching patterns of dependence on low-value commodity exports.
In considering its new policy toward the African continent, the U.S. administration should also take fully on board the lessons to be learned from the Free Trade Area of the Americas (FTAA), a megaregional trade agreement over a broad range of countries with very different levels of development and economic structures, which ended ignominiously without agreement in 2005 after over a decade of negotiations (Herreros, 2019).
FTAs with single countries undermine regional customs unions and create headaches for ACFTA implementation
Bilateral FTAs may be allowed under the terms of the AfCFTA, but this does not mean they are without cost. Regional-level customs unions such as that of the EAC and ECOWAS are extremely important building blocks toward wider continental trade integration. The practice of signing side deals with individual member states—especially if it becomes common practice—could undermine their common external tariffs and exacerbate division and tension.
Such side deals also complicate the implementation of the AfCFTA, which would lead to a heavy reliance on rules of origin to prevent trade deflection. It is also noteworthy that, as soon as its own customs union was formed in 1968, the EU no longer allowed member states to negotiate with third parties. Instead, in order to maintain internal coherence, the EU Commission took “exclusive competence” of external trade policy (Baldwin and Wyplosz, 2015).
The continental route—the preferred African option
Looking to the future, countries like Ghana and Kenya seeking to grow their industrial bases and increase their share of manufactures in exports may consider pivoting away from a reliance on these oversaturated and mature developed-country markets that are often fickle and already dominated by powerful multinational companies.
Instead, they should prioritize trade with the African continent through the AfCFTA, which, as UNECA Executive Secretary (and AGI Nonresident Senior Fellow) Vera Songwe (2019) observes, is much more likely to stimulate industrialization and much-needed creation of quality jobs. Despite the existence of preferential schemes to high-income markets like AGOA and the EU’s Everything But Arms, over the last two decades intra-African exports in manufactured goods have expanded by a factor of more than 5, much more rapidly than extra-African manufactured exports (Figure 1). By removing tariffs and reducing nontariff barriers on intra-African trade, the AfCFTA will provide a new impetus to this already ongoing process.
Toward a new US approach to trade relations with Africa
Rosa Whittaker, one of the architects behind AGOA, has recently claimed that:
“There is no appetite in Washington for AGOA’s unilateral trade benefits. In preparation for its 2025 expiration, AGOA needs to be renewed with smart trade reciprocity—pillar one. Some sectors have matured in specific countries thanks to AGOA and should, therefore, be considered for graduation from duty-free treatment.”
We beg to differ. AGOA has certainly proven to be an imperfect trade instrument: Outside fuels and minerals, the bulk of the export gains have accrued only to a small minority of countries, in a small range of industries—principally textiles. Nonetheless, at this juncture, that is no reason to adopt a “throw out the baby with the bathwater” approach and shift to fully reciprocal trade deals with Africa. The risk is that such policies will meet with the same resistance and opposition as the EU’s EPAs.
Instead of replicating the EU’s or U.K.’s flawed approaches, we argue that the Biden administration’s priorities would be better served by working with the African Union to design a fresh, forward-looking comprehensive partnership arrangement. An intermediate position would to be to start by addressing some of the flaws in existing AGOA market access (Laurence, 2013), and improving upon it—in other words, an updated, AGOA-style trade preference scheme made more predictable and with full continental cumulation in support of the AfCFTA. This policy would provide the necessary “breathing room” for Africa to consolidate its own process of regional integration first, after which a U.S.-Africa FTA could be explored.
This trade pillar could be embedded in a wider, new U.S.-African trade and development partnership that could include joint commitments on climate change and foreign and security policy, as well as ensure U.S. development support is coherent with Africa’s Agenda 2063 plans.
Reversing the retrenchment of US economic interests on the African continent
Finally, the U.S. has a long-term strategic interest in making sure that the AfCFTA is a success. The U.S. is a major investor on the African continent, and although foreign direct investment (FDI) stocks have been declining in recent years (principally because of low mineral and fuel prices globally, which have led to a degree of divestment in these sectors), in 2018, U.S. firms still held more than $44.4 billion in FDI stock in Africa, controlling assets worth $370 billion, making sales of $116.3 billion, and employing 370,000 people across the continent (U.S. Department of Commerce, 2021) (Figure 2). Yet, in recent years, China has been the most active investment partner, accounting for around double the estimated FDI flows to Africa compared with the United States (Madden, 2019).
The AfCFTA represents an opportunity to turn this trend around. Reflecting the vibrancy of the U.S. investor community on the continent, the U.S. has an extended system of chambers of commerce and business associations across 21 countries on the continent. Much as they did in Europe in the postwar period (Mold, 2000), U.S. firms could help act as cheerleaders to the AfCFTA, integrating their operations across borders and shifting the focus of their activities away from the extractive sector and toward higher-value added activities in services and manufacturing. Ford’s recent decision to invest $1 billion in its operations in South Africa is a sign of the confidence in the continental market. In aligning both its trade and investment policies toward Africa with the AfCFTA, the United States thus has a unique opportunity to support African unity and economic prosperity. It is an opportunity that should be seized.