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Africa’s lion economies

by Linda Kleemann, Alexander Freese, Michael Grimm
Consumer demand is growing in cities: whiskey advertising in Nairobi

Consumer demand is growing in cities: whiskey advertising in Nairobi

Africa is witnessing rapid change. Urbanisation, a commodities boom and new communication technologies are increasingly marking day-to-day life. However, economic growth does not benefit all people, and manufacturing is still in its infancy. An interesting research agenda is how the continent should develop, and what is required to gear growth towards the right goals. By Linda Kleeman, Alexander Freese and Michael Grimm

Dominic Johnson (2011) sees “Africa between a new era and a sell-out”. His phrasing reflects a divide in expert opinions. For a long time, Asian tiger economies were regarded as role models for rapid economic growth and massive poverty reduction. Is an era of African lion economies dawning next?

It remains to be seen whether growth proves sustainable and to what extent the poorest people benefit. It is a matter of debate, moreover, whether success is rooted in reforms or whether fast growth merely results from the commodities boom. These questions will be discussed at this year’s annual conference of the Poverty Reduction, Equity and Growth Network (PEGNet – see box).

PEGNet convenes researchers from rich and poor nations, and puts them in touch with development agencies. In current debate, the careful optimists seem to be prevailing. One of them is Ernest Areetey of the University of Ghana. (Please note his contribution on p. 194 ff.) He speaks of opportunities in Africa, but equally of need for more reforms. The pan-African think tank CODERISA, which was founded in 1972, is considering what kind of action and what kind of research are necessary. PEGNet’s annual conference will tackle these issues in Dakar in early September.

Crisis, what crisis?

Development researchers have been interested in Africa for a long time, and now investors are too. High growth rates have become the norm in some parts of the continent, particularly in the south. Seven African nations are currently among the world’s ten fastest growing economies. McKinsey consultants recommend investment in Africa. The World Bank is predicting growth rates of over five percent for this year and next year in sub-Saharan Africa.

Africa is benefiting from its great wealth in natural resources. Nearly 40 % of the world’s natural re­sources are found in Africa. In many instances, the supply has not even been tapped yet. Currently, developing countries and emerging markets are experiencing fast growth in spite of the global financial crisis. Accordingly, demand for commodities remains high, and so do prices. Agriculture looks promising too.

The World Bank believes that processing agricultural raw materials is particularly meaningful in the fight against poverty. In Africa, investments in the food industry are increasing. Many African governments, moreover, are drafting new policies to promote agriculture.

After a period of stagnation in the 1990s, there has recently been impressive progress in terms of better governance, reform orientation, macroeconomic stability and fighting corruption. According to the World Bank, the quality of economic and political institutions has increased in Africa over the past 20 years, mostly due to better government policy.

In many Asian cases, broad-based primary education and strong government agencies were considered the base for economic progress. Africa has recently seen advances in these areas, not least thanks to rising public expenditure on education and healthcare. Rwanda’s government is making an effort to follow the example of Asian development regimes and is upgrading social services. According to the Bill & Melinda Gates Foundation, its healthcare system should serve as a model. Success is evident. Since 2010, the economy in Rwanda has been growing at rates of over seven percent.

The demographic trends are favourable in Africa. Fertility rates are falling, so before long a significant share of the population will be of working age. A similar sharp increase in the economically active population relative to the inactive population was among the ­driving forces of Asian economic miracles. Accordingly, there are now reasons to expect fast growth in Africa too. For this to happen, however, educational opportunities are needed. In any case, more than one fifth of the world’s population will be living in Africa by 2050.

Reasons for scepticism

Nevertheless, scepticism is being expressed too. Considerable growth differences between countries are one reason. So far, only a few countries are benefiting from the upturn, and in these countries, only small groups of people are becoming better off. The share of poor people is falling in Africa, but their absolute number keeps growing. Inequality is becoming worse in many places, for example in the oil-exporting nations of Angola and Nigeria. Pertinent questions therefore are whether growth is sustainable, and whether it has a broad impact.

Diverging growth results from unequal integration into the world market. The Ivory Coast recorded high levels of growth and poverty reduction in the 1970s, but it is now regarded as one of the problem cases because of internal strife and political instability.

The success of most of the fast growing economies is based on commodity exports. Researchers have for some time been investigating what makes mineral resources a blessing (for countries like Norway and Botswana) or a curse (for countries like Equatorial Guinea, Angola, the Democratic Republic of the Congo and Nigeria). Too few African governments take a sustainable approach to natural resource exploitation.

In agriculture, matters are similar. That is evident in the current debate on “land grabbing”, with multinational investors driving smallholder farmers off their plots (see comment on p. 219). Obviously, investments and growth do not automatically trigger broad-based development. There is still very little industrialisation in Africa, nor are many economies becoming diversified.

Most investments still concern the primary sector. Indeed, the share of manufacturing in Africa’s GDP has even fallen since 1990. Labour-intensive industries such as garments, for instance, do not play a major role. Trade within Africa is expensive because of poor infrastructure, corruption and bureaucratic obstacles. Regional integration in supranational economic communities must speed up. So far, productivity is low and growing slower than the global average. Competitors, particularly China and India, are moving ahead faster.

For productivity to rise, the macroeconomic conditions have to improve. There is a need to boost human capital and institutional capacities. Infrastructure and the investment climate can and must get better. Training young people is one side of the equation. Another important challenge is to create good jobs for the rapidly growing number of young adults. For a long time, authoritarian regimes in Tunisia and Egypt paid no attention to well-qualified, but unemployed young people. They ignored that these people will not tolerate poor prospects – and have become history. The emigration of skilled professionals, however, is still all too common.

Only capable states can trigger broad-based development, ensuring that everyone benefits from economic growth. In Africa, however, states tend to be weak. Many are not in a position to guarantee reliable infrastructure, social welfare and quality education. As a result, societies tend to be politically and socially fragmented – even up to the point of state failure.

Conclusion

There are reasons for both optimism and pessimism concerning Africa’s future. Experts agree that the continent has great potential. However, growth and investments are currently spread very unevenly. Some countries have a strong economic track record. In the same places, however, political stability is often challenged and good governance cannot be ­taken for granted. Accordingly, the sustainability and reach of the development process are at risk. Unequal distribution, lack of diversification and low regional economic integration, moreover, further jeopardise long-term growth.

Optimists see a historic opportunity for turning the current economic upturn into lasting and broad-based development. PEGNet has invited Mwangi S. Kimenyi, who points out many challenges, and Jean-Michel Severino, a more upbeat expert, to discuss these matters at the annual conference. Kimeyni is the founder of the Nairobi-based Kenya Institute for Public Policy Research and Analysis and has since joined the Brookings Institution in Washington. Severino is the former head of the Agence Française de Développement (AFD). Kimeyni has already promised to attend the event – and he is sure to meet many interesting people there.