For the past decade, Africa has been one of the fastest growing regions – the Economist
It is not too long ago since the Economist declared that were Africa to disappear, nobody would notice. The “nobody” must surely exclude geologists, those involved in the disappearing act, the African Diaspora, the many friends of Africa and, of course, Western Union, the London Metal Exchange and FIFA. The current tone used by such a prominent news outlet is much more optimistic of Africa’s future.
A few months ago, the Economist published an article that was titled “The Lion Kings?” In the article, the Economist pointed out that quite much has been written about the rise of the BRICS comprised of Brazil, Russia, India, China and South Africa (the original article does not contain South Africa) and the shift in economic power eastward as Asia (especially the South East) outruns the rest of the world. The Economist reckoned that the attention has been predominantly on the BRICS and Asian Tigers despite the fact that success story of the past decade lies elsewhere. The article noted that, “an analysis by The Economist finds that over the ten years to 2010, no fewer than six of the world’s ten fastest-growing economies were in sub-Saharan Africa (see table above)”.
In fact, the only country among the BRICS to make the top ten was China, in second place behind Angola. The other five fastest growing African economies were Nigeria, Ethiopia, Chad, Mozambique and Rwanda, all with annual growth rates of about 8% or more. In the two decades leading to 2000 only one African economy (Uganda) made the top ten lists of the world’s fastest growing economies, against nine from Asia. The Economist also pointed out that the IMF forecasts show that Africa will grab seven of the top ten places over the next five years (these ranking excludes countries with a population of less than 10m as well as Iraq and Afghanistan, which could both rebound strongly in the years ahead).
The previous two decades 1980 – 2000 had Africa’s Real GDP growing at an annual average of 2.4%. Currently Africa’s real GDP is growing at 5.2% average according to data from the IMF. That beat Latin America’s 3.3%, but not emerging Asia’s 7.9%. Asia’s stunning performance largely reflects the vast weight of China and India; most economies saw much slower growth, such as 4% in South Korea and Taiwan. According to the Economist, the simple unweighted average of countries’ growth rates was virtually identical in Africa and Asia.
The average African economy will outpace its Asian counterpart over the next five years. And looking even farther ahead, Standard Chartered projects that Africa’s economy will grow at an average annual rate of 7% over the next 20 years, slightly faster than China’s.
And this, as it should be. Poorer economies have more potential for catch-up growth. The problem however was that Africa’s real GDP per head fell for so many years. In 1980 Africans had an average income per capita almost four times bigger than the Chinese (the Economist). Today the Chinese are more than three times richer. Despite Africa’s fast growing economic growth, Africa’s rapidly rising population continue to dampen its growth in real income per head although that, too, has risen by an annual rate of 3% since 2000—almost twice as fast as the global average.
For Western firms Africa’s economy still looks tiny, accounting for only 2% of world output. Emerging Asia’s is ten times larger. But Africa’s share is rising, not only because of brisker growth but because GDP has been seriously understated in many economies – it is refreshing to see the Economist recognize this. In November the size of Ghana’s economy was revised up by a massive 75% after government statisticians improved their data and added in industries such as telecoms. Other countries are likely to revise their GDP levels and growth rates upward over the coming years. It may well be true that African economies are much larger that is perceived. The Chief Economist at the World Bank, Africa Department, has repeatedly stated that it is difficult to know how large African economies are and that the new statistical systems would help revise most GDP projections in Africa.
Africa’s changing fortunes have largely been driven by China’s surging demand for raw materials and higher commodity prices, but other factors have also counted. Recent studies have shown that institutions just as much as commodity boom explain the recent growth levels seen in Africa. Africa has benefited from big inflows of foreign direct investment, especially from China, as well as foreign aid and also debt relief. Urbanization and rising incomes have fuelled faster growth in domestic demand.
Economic management in most countries has improved tremendously. High commodity prices and rapid growth have bolstered government revenue. But instead of going on a spending spree as in the past some governments, such as Tanzania’s and Mozambique’s, have put money aside, cushioning their economies in the recession. Nigeria is also on the same path.
On the other hand, Africa’s biggest economy by far, South Africa posted average annual growth of only 3.5% over the past decade. Not too bad for an economy of its size. Nigeria may overtake South Africa within ten to 15 years if Nigeria’s bold banking reforms are extended to the power and the oil industries (this is a big if though). But the big challenge for all mineral exporters will be providing jobs for a population expected to grow by 50% between 2010 and 2030. Youth unemployment is expected to rise should governments delay in enacting the necessary policies.
Commodity-driven growth does not generate many jobs; and commodity prices could fall. So African governments also need to diversify their economies. In this, there are some twinkles. Countries such as Uganda and Kenya that do not depend on mineral exports are also growing faster than before, partly because they have increased manufacturing exports. Standard Chartered thinks that Africa could become a significant manufacturing center. This position is shared by McKinsey and Company.
The Economist might have never seen it coming, but the African lions are clearly on the rise. Formidable obstacles to Africa’s continued progress loom, among them political instability, the weak rule of law, chronic corruption, infrastructure bottlenecks, and poor health and education. Without reforms, Africa will not be able to sustain faster growth. But its lion economies are earning a place alongside Asia’s tigers.