The European Business Council for Africa

Security is a public good that cannot be disentangled from sustainable economic development. Conflict and violence are major drivers of intractable fragility in many areas in Africa, undermining good governance, economic development, and social cohesion, and resulting in long-term negative impacts on human and physical assets. Addressing the root causes of insecurity, conflict and violence is critical for inclusive growth and sustainable development.

Conflict and violence have been increasing in Africa over the years with spillover effects across regions. Over 250 million Africans are affected by fragility and conflict. In the last twenty years, more than 469 thousand people lost their lives due to conflict and human insecurity. In 2021, the continent was affected by over 18,000 conflicts and the number of refugees and Internally Displaced Persons (IDPs) reached 32 million people. Beyond national boundaries, regions such as the Horn of Africa, the Sahel, the Lake Chad Basin, and northern Mozambique have become hotspots for organized violence and terrorism.

Drivers of insecurity are complex, multi-dimensional, and often interlinked. They evolve over time and include political, social, economic, environmental and regional factors. The “Disaster Triangle” of rural poverty, youth unemployment, and environmental degradation represent structural vulnerabilities that increase insecurity and conflict. These extreme deprivations, combined with inequality, exclusion and marginalization of segments of society, are often among the root causes of conflict. Poor governance and weak state capacity are also important drivers of conflict, while corruption, lack of transparency and accountability, and mismanagement of resources lead to poor service delivery and increased inequality and grievances that can trigger violence.

In response to heightened insecurity and violence, many African governments have increased military and security expenditures, diverting resources away from other development priorities. Military expenditure in Africa was an estimated US$39 billion in 2021, 7 percent higher than in 2018 and 16 percent higher than in 20113. Over the past decade, the biggest percentage increases in military expenditure occurred in the Sahel countries of Mali, Burkina Faso, and Niger. Coastal countries in West Africa, including Nigeria, Ghana and Senegal also observe the largest percentage increase in military expenditure over the past year. High military expenditures reduce the capacity of countries to make critical investments in human capital, infrastructure, energy, and agriculture required to deliver on global development ambitions such as the UN Sustainable Development Goals (SDGs). In addition to crowding out public investment in critical sectors, insecurity deteriorates the business environment and limits private investment and private sector development, with significant and persistent consequences for development.

Countries experiencing fragility and conflict are also faced with recurrent public financing deficits, ballooning debt levels, and limited inflows of private capital and FDI to meet domestic financing needs. COVID-19 has placed further strains on budgets, as governments try to accommodate the unprecedented spending needed to mitigate the adverse social and economic effects of the pandemic. The AfDB Group estimates that additional financing needs to deal with the pandemic in Africa were about US$154 billion in 2020-2021. Such increased spending levels are putting unsustainable pressures on fiscal balances, shrinking national and regional investment space, threatening debt sustainability, and adversely affecting people and livelihoods.

Countries affected by conflict and insecurity are characterised by limited FDI inflows, low and volatile economic growth, and poorer development outcomes. Conflicts and insecurity undermine the mobilization, management and efficient distribution of public resources. Beyond the loss of lives, the economic cost of violence for the continent was estimated at US$515 billion in 2019. Countries experiencing conflict situations are less attractive to domestic and foreign investors and unlikely to participate in international capital markets. Due to large financing deficits, the grant and concessional financing they are able to access meets only a small fraction of their needs in most cases. Consequently, these countries face a vicious circle of underdevelopment, fragility and conflict, exacerbated by adverse climatic shocks and fluctuations in global demand and supply.

The political geography of African countries and the number of shared borders heighten the risk of cross-border spillovers, both in terms of conflict and its consequences on investment, growth and development. Fourteen African countries are classified as medium and high-intensity conflict-affected situations. These countries share 80 land borders with other African countries, meaning that 85 percent of the continent’s 1.3 billion people are either living in or sharing land borders with a conflict-affected country. Apart from the population, a significant share of the continent’s GDP is coming from countries that are exposed spillover risks of conflict across borders. In 2020, conflict-affected countries and their immediate neighbours accounted for 77 percent of the continent’s GDP and 68 percent of all FDI.

The AfCFTA presents a significant opportunity, but conflict and insecurity remain threats to trade and investment. A more integrated continent presents a significant opportunity for trade to spur development in conflict affected communities, but countries and regions encountering conflict may be severely disadvantaged as the choice of investment location becomes more competitive. Due to spillover effects and perceptions of risk, conflict in African countries undermines the continent’s share of Global FDI, which remains below 5 percent. Africa’s success in translating the AfCFTA into benefits will hinge on its ability to present the continent to the rest of the world as a secure, peaceful, and profitable destination for trade and investment.

Financing peace and security is mainly through national budgets. Despite the increase in military and security expenditures, resources are still insufficient to address the continent’s security challenges and the COVID-19 pandemic has further strained national budgets. In this context, continental and regional institutions and bilateral and multilateral development partners have been promoting and supporting peace, security and conflict prevention. While these initiatives present opportunities for building peace on the continent, lack of coherent strategies and limitations in both resource availability and predictability have constrained progress and sustainability. Security issues must be factored into investments and development interventions.Financing targeted at addressing insecurity to protect investment and consolidate development gains should be both predictable and reliable. This is essential to ensure responsiveness to the magnitude and diversity of circumstances, and the time-sensitiveness of interventions to protect lives, livelihoods, and investments. Accordingly, Security-Indexed Investment Bonds (“SIIBs”) initiative being explored by the African Development Bank Group would need to mobilize adequate scalable, adaptable, and flexible resources to effectively address the root causes of insecurity, enhance the capacity of formal institutions, and rehabilitate communities and infrastructure adversely impacted by insecurity. The initiative would be an opportunity for the African Development Bank Group and its partners to minimize the high-risk premium associated with investments in the continent, and leverage their positions to address the structural causes of conflicts in Africa, reduce growth volatility, and consolidate development outcomes for a more secure and resilient continent.

Read the full report here.