Financial Mail - Investors Monthly
AFRICA’S GROWTH STORY
How realistic are expectations about Africa’s economic prospects? There are several reasons why we should be both optimistic and cautious about the continent’s future economic performance,
The world’s eyes have turned to Africa, attracted by its economic performance. Even the most cautious analysts are so sanguine about the continent’s economic prospects that they are willing to bet on its rosy future.
The International Monetary Fund expects sub-Saharan Africa to grow at an average annual rate of 5,7% between 2014 and 2019. This would make the subcontinent one of the three fastest-growing regions in the world over that period. It would also mark the first time that Africa would have maintained a robust growth rate continuously for more than a decade.
Are these forecasts realistic? Can Africa’s growth resurgence be sustained? There are several reasons why we should be both optimistic and cautious about the continent’s future economic performance.
Reasons for optimism
While military dictatorships, autocracies and one-party systems have overseen impressive growth before, these are the same governments whose policies have resulted in unsustainable budget deficits, price controls, haphazard trade protection and wasteful subsidies which harmed sustainable growth.
There is a lot of work still to be done, but there are countries that have made substantial improvements in their policy environments.
An era of accountability
One reason that growth stalled in the past was that leaders were not held to high standards of performance. This has changed; there are now higher levels of accountability. The Arab spring has made leaders realise the era of impunity and insensitivity to citizens’ plight is over.
Shift from cronyism to entrepreneurship
The continent has witnessed the emergence of entrepreneurs willing to invest in productive sectors like manufacturing, information technology, agribusiness, aviation and services.
These entrepreneurs can infuse new dynamism into African economies.
This contrasts with the post-independence era’s “comprador” bourgeoisie, who depended essentially on government contracts and largesse.
Discovery of resources
Prospects for growth are likely to be enhanced by recent and future discoveries of new resources, particularly oil and gas.
During the past five years or so, significant oil and gas reserves have been found in Côte d’Ivoire, Ghana, Madagascar, Mozambique, Uganda, Tanzania, Kenya and Ethiopia. Mozambique is expected to become the third-largest producer and exporter of liquefied natural gas in Africa, after Nigeria and Algeria. Vast iron ore reserves have also been discovered in Guinea and Sierra Leone.
200 million Africans are between the ages of 15 and 24, making the continent’s population the youngest in the world
Why caution is warranted
Future economic growth depends on whether widespread youth unemployment is addressed. Of Africa’s 1,033bn people, 200m are between the ages of 15 and 24, making the continent’s population the youngest in the world.
Globally, almost a third of this age group will be African by 2050. Youth unemployment will continue to threaten growth, as jobless youngsters in Africa are drawn into unproductive activities like terrorism and other forms of violence.
Violence and instability
The level of violence is dropping in the region but still affects a swathe of the continent. Because of Africa’s porous borders, conflict and violence in one place can easily spill into neighbouring countries.
Al-Shabaab, Al-Qaeda and Boko Haram continue to be forces of violence and instability in northern, eastern and western Africa. The prolonged conflict among various militant groups in the Democratic Republic of Congo has destabilised the economies of Rwanda and the Republic of Congo.
Unexpected shifts in the global economy
Most economic forecasts expect growth to be anaemic in developed economies in the short to medium term, especially in the eurozone and even the US. Slower growth will affect African economies in various ways.
Aid-dependent countries may face declining aid flows as developed countries grapple with domestic fiscal problems. Demand for commodities and energy will also weaken, leading to declining export revenues for Africa’s commodity exporters.
Adverse environmental and climatic conditions
US Secretary of State John Kerry has described climate change as perhaps the world’s most fearsome weapon of mass destruction.
Though most Africans are not aware of this weapon, they do feel the pangs of climate change. One of the major causes of climate change in Africa is rapid deforestation. Other causes include gas flaring from oil exploration, coal-fed electricity plants and unsustainable agricultural practices.
Because of its dependence on agriculture and natural resource extraction, the continent suffers more from the effects of climate change and environmental degradation. It also has the least capacity to deal with the challenges. Fourteen out of the world’s 20 countries most at risk to climate change are in Africa. Advisory firm Maplecroft notes that “climate change may pose a serious obstacle to sustainable economic growth" in the world’s most commercially important cities.
Inequality and relative deprivation
Africa is one of the most unequal regions in the world. Almost one out of every two Africans lives in extreme poverty. Poverty rates have been declining, but not as fast as expected.
In the midst of this poverty one finds sprawling mansions, several posh cars for one household and elites leading opulent lifestyles. This wealth would not be a threat to growth if it was the result of hard work, innovation and entrepreneurship. Instead, it is the fruit of unabashed graft, cronyism, criminal activities and outright theft of public funds.
Lessons from China
China has managed to sustain high growth rates of GDP for more than a decade. One reason for this is that its growth is driven by exports of manufactured goods.
China’s growth has also been sustained by an investment boom, especially in infrastructure. But Africa has been doing the opposite: it exports mainly agricultural and mineral products; shifts resources towards consumption rather than investment; and fails to invest in infrastructure. If the region’s growth momentum is to be sustained, African countries need to reverse these trends.
Africa suffers more from the effects of climate change and environmental degradation. It also has the least capacity to deal with these challenges
This article is based on Stephen Onyeiwu’s book, Emerging Issues in Contemporary African Economies — Structure, Policy, and Sustainability (Palgrave-Macmillan, 2015). Onyeiwu is a professor of economics at Allegheny College, Pennsylvania, US.