Development in Africa is on a firm footing – here’s how to take it to the next level

2016-12-22 10:00
File: AFP

File: AFP

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Mills Soko, University of Cape Town

The end of 2016 provides an opportunity to take stock of Africa’s recent economic performance and future prospects. It’s been a tumultuous year for some African countries largely due to a commodities crisis and a global economic slowdown.

Yet there were still pockets of good growth which displayed the huge potential of the African continent. And 2017 looks to be the year the countries hardest hit by the crisis seek to recover from the economic reversals of the past few years.

Since the start of the new millennium average economic growth across Africa has been stronger than the global growth rate. Growth across the continent averaged 5%. This fuelled the “Africa Rising” narrative that permeated public discourse.

Among the growth drivers were a commodity supercycle that powered the economies of resource-rich countries. And political and economic reforms paved the way for a growth in foreign investment.

Urbanisation and a burgeoning middle class expanded consumerism while growing mobile phone and internet penetration spurred the services sector. Increased innovation influenced investment and private consumption.

The economic optimism of the past two decades has, however, been tempered by a combination of factors. These include a worldwide decline in commodity prices; the slowdown and rebalancing of China’s economy; widespread drought, especially in the east and the south; and rising insecurity and instability in the Horn of Africa.

As they chart the way ahead in 2017 and beyond, African countries have to contend with what has been termed the reality of a “double challenge”. There are five that stand out.

  • The first is that African economies must increase productivity while creating and driving employment.

  • The second is that they must ensure they are both producers and consumers.

  • The third is to reduce extraction while simultaneously growing local industrialisation.

  • Fourth, African governments must build infrastructure for intra-Africa integration while controlling state-budget spending.

  • And finally, countries must grow African consumer spending while encouraging household savings.

Quality of growth

Resource-dependent countries – such as Ghana and Zambia – have regressed since the onset of the commodity crisis. In particular, oil exporters such as Nigeria have been the hardest hit. Oil exports account for close to 90% of Nigeria’s government revenues and export earnings.

Even so, Africa still has some of the fastest-growing economies in the world, including Ethiopia, the Democratic Republic of Congo, Tanzania, Côte d’Ivoire, Rwanda and Kenya.

This shows the commodity prices crash has not affected all countries equally. On the contrary, fuel importers such as Kenya have benefited from the commodity slump because of lower fuel prices which have helped to drive their economies.

But has this growth stemmed poverty and inequality?

It is clear that African countries have not done enough to reduce inequality and turn growth into economic development.

Life expectancy and literacy rates have improved and infant malnutrition is being tackled, but poverty and inequality have continued to blight the African political economy. About 43% of Africans still live on less than US$1.25 a day.

Corrupt and exploitative deals, authoritarian regimes that suppress democratic expression, and atrocious working conditions for many workers continue to stifle economic development and economic change.

Industrialisation is key

The primary sector, including agriculture and extractive industries will remain vital for most African countries. But shoring up Africa’s industrial base is vital to economic transformation and job creation.

Achieving this will require, among other things, modernising agricultural production.

And to become sustainable, extractive industries must contribute to local industrial processing.

A key lesson of Africa’s recent growth story is that African countries must wean themselves off their reliance on resources. They must prioritise export production and diversification.

Although many countries experienced growth over the past decades, this growth took place in the context of limited economic diversification and structural change. Africa’s share of global manufacturing fell from 3% in 1970 to less than 2% in 2013. Manufacturing, at 10% of total African economic output, is lower than that of other developing regions.

Diversification of African economies is necessary to drive growth, build market resilience and withstand shocks in the face of challenging global economic conditions.

Infrastructure development is critical. There is a significant demand in Africa for adequate roads, ports, pipelines, railways and information, communication and technology infrastructure. Poor infrastructure – such as unreliable electricity supply – hinders productivity and drives up cost. According to the World Bank, poor infrastructure reduces productivity by 40%.

Managing the money

Improving the macroeconomic environment is central to sustaining regional growth. This requires that African countries manage debt adequately.

Several countries benefited from the 2005 multilateral debt relief initiative, which reduced $100 billion worth of debt in 30 African countries. This contributed to countries being able to manage their debt levels better. In addition, many countries, such as Botswana, were careful not to raise debt levels to unmanageable levels.

As a result of this better macroeconomic climate, some of them successfully issued bonds on international financial markets, signalling growing internal and external confidence.

The case of Ghana, however, underlines the need for good debt management and fiscal discipline. When Ghana’s main exports declined – following a fall in the prices of cocoa, gold and oil – the country’s public debt grew to 70% of gross domestic product and the currency lost 31% of its value in 2014.

This was due to the government borrowing heavily on private markets to finance energy subsidies and public sector salaries at the expense of investing in development.

Road ahead

The African continent faces numerous challenges, but it has a lot of opportunities to sustain growth and development. Its advantages include a growing labour force, urbanisation and technological advances.

Africa’s progress has been uneven and has been marked by achievements, regressions and setbacks. It is clear, nonetheless, that a firm foundation for sustained growth and development exists.

Building on this foundation is vital to ensuring that the continent fulfils its vast untapped potential.

The Conversation

Mills Soko, Associate Professor, Graduate School of Business, University of Cape Town

This article was originally published on The Conversation. Read the original article.

Read more on:    africa

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