Has Africa’s economic growth performance passed the turning point?
21 May 2014
IN RECENT years, analysis and discussions of Africa’s economic growth performance has tended to occupy centre stage in the various news headlines during the annual meetings of the major international development and financial institutions and organizations and it will certainly be prominent during the imminent 2014 Annual Meeting of the AfDB Group in Kigali in May 2014.
A common narrative that has taken shape in all these meetings and associated reports is that Africa’s current growth episode, which started in the second half of the 1990s, has been remarkable as it has been uninterrupted for close to a decade and a half.
Why this obsession with economic growth when probably we ought to be more concerned with poverty reduction and equitable distribution of the wealth of nations? The simple answer is that though in itself, economic growth does not necessarily impact positively the welfare of large sections of populations (which underpins UNDP’s Human Development Concept), it is essential for meaningful poverty reduction, if “certain conditions” are met.
The question or concern as to whether the continent’s growth performance has reached or passed the turning point is related to two considerations: the first is the sustainability of this positive growth trajectory, given the prolonged declines experienced in the earlier growth episodes, and the threats posed by the continuing difficult overall global economic environment; and the second is the limited impact so far of the growth on transformation, employment creation, inequalities and poverty reduction. This is what the economists refer to as the low poverty reduction elasticity of Africa’s growth so far. Improving this “elasticity” has important policy implications.
These very positive developments on the growth front in Africa notwithstanding, the question as to whether the continent’s performance has passed the turning point is still very much pertinent. The question could be posed in simpler terms as follows: as a whole, is the continent fully out of the woods regarding the recovery from the prolonged economic and social decline it experienced during the 1980s and 1990s despite its relative recent strong economic performance? So far the evidence could only support cautious optimism, owing to the following reasons.
First of all, the average rate of growth is still well below the rates of 7-8%, deemed essential for sustained deeper poverty reduction and attainment of MDGs. The rate of economic transformation, which is key to resilience, inclusiveness and sustainability, has been slow. Agriculture remains Africa’s main source of productive activity, employing 60% of the labour force, and generating around 25% of GDP, while manufacturing remains underdeveloped, contributing less than 10% to GDP, far below the 25% deemed necessary for economic transformation. Savings and investment rates are low (presently at around 15 -17% of GDP compared to the desired 35%), further limiting efforts to diversify economic structures, boost growth and accelerate poverty reduction. Income inequalities are also still quite high and significant unemployment persists, particularly among the youth and women, underlying the problem of jobless growth across the continent.
As a result, economic and social circumstances remain fragile and vulnerable to domestic and external shocks. Added to all this are new threats posed by climate change and persistently rising energy and food prices, rapid urbanization, combined with resurgent civil strife in countries such as South Sudan, Mali, CAR, Libya, Guinea Conakry and Egypt and growing threats of terrorist violence in countries such as Kenya and Nigeria..
It is, therefore, urgent for African leaders and their development partners to identify the critical drivers for pushing the continent’s economic growth performance into a truly inclusive transformational mode, that will propel the performance of the economies into zones well beyond the tricky turning point they have reached as well as ensure better distribution of economic opportunities and assets
Sustaining and pushing Africa’s growth beyond the 7-8 % threshold, requires strategies that enhance investment attraction, boost domestic productivity, diversify the productive base and enhance the external competitiveness of the economies. Economic diversification will require effective programmes that close the infrastructure gap, develop human capital, lower the cost of doing business and deepening regional integration. Strategies should promote entrepreneurship and small- or medium-sized enterprises (SMEs) in order to enhance competitiveness, productive job creation and incomes will also be needed. Embracing in a more aggressive manner innovation, new technologies and the green growth approaches, as Rwanda is doing, should also be an integral part of this strategy.
Achieving a truly transformational change and meaningful poverty reduction requires removing the structural and socio - cultural and legal barriers that continue to constrain realization of women’s huge potentials and capabilities. More gender-responsive policies and programmes are needed to enhance women’s political participation and representation in decision making at all levels as well as improve their economic empowerment through equal access to skills development, education, decent jobs, finance and growing businesses.
In conclusion, there is still significant fragility about Africa’s economic growth performance, its sustainability and deficits regarding transformation and inclusiveness. What is, therefore, required in the continent as a whole is higher quality and levels of growth and meaningful structural transformation, accompanied by deeper poverty reduction and reduced inequalities. Attaining these important objectives will require a combination of policies that has so far been elusive in a majority of the countries in the continent. As ECA recently noted, “In Africa, regrettably, there are so far few examples of good practices to draw on in terms of (transformation) and reducing inequalities. The first country in the region to do so robustly will clearly win accolades and would deserve to be emulated”. I believe that Rwanda is on the path towards attaining such a status.