Africa’s economic development is growing faster than the world's

May 29, 2006 02:00 AM

by William Church

Sub-Sahara African economic development grew steadily over the last three years at a faster pace than world economies, according to the recently released Survey of Economic and Social Conditions in Africa. Despite the steady economic growth and improvement in human development many Sub-Saharan nations would miss their Millennium Development Goals (MDGs).
The report, released by The Committee of Experts at the 39th Session of the Commission/Conference of African Ministers of Finance, Planning and Economic Development in Ougadougou, Burkina Faso, paints both a positive and negative picture of Sub-Sahara development. It stressed that the current 5.3 % growth for all of Africa represents a major turnaround from decades of economic decline and stagnation.

A key driver of this recovery was the improvement in macroeconomic management in many African countries, which has resulted in controlled inflation rates and consolidation of fiscal balances. This positive news contrasts a less optimistic assessment that many African countries would fail to meet their MDGs. Only four countries achieved an economic growth rate of 7 % or higher between 1998 and 2005, which was the growth rate required to achieve the MDGs. However, three other countries were within one percentage point of achieving this target growth rate.
Equatorial Guinea (22.3 %), Chad (9.7 %), Mozambique (8.9 %), Angola (8.2 %) grew at the fastest medium-term rate. Significantly, three of the top four economic performers are oil exporters, which drove their growth. This contrasts six other nations that are not oil exporters.

“Growth in these countries -- Botswana (6.2 %), Ethiopia (5.5 %), Mozambique (8.9 %), Rwanda (6.0 %), Senegal (5.6 %), Uganda (5.4 %) -- was driven by the effect of comprehensive and sustained economic reforms as well as political stability in post-conflict countries such as Mozambique, Rwanda, and Uganda, “ says the report.
”Despite these gains, Sub-Sahara Africa faces a series of cascading problems in terms of long term growth. This includes low levels of foreign direct investment (FDI), low job creation, slow progress on the human development issues of reducing poverty, illiteracy, endemic diseases, and gender inequality.” In addition, the report emphasizes that Sub-Sahara Africa is the only region in the developing world where the poverty headcount has increased since 1980.

Africa as a region trails in international and domestic investment. It received less than 2 % of the worldwide FDI and only 10 % for FDI targeted at developing countries; however, some African regions outperformed in terms of FDI. East Africa saw a 54.1 % increase, which was the largest in Africa, but this contrasts a decrease in Southern Africa at 31.5 %.
Natural resource-rich countries continued to dominate in FDI inflows with oil exporters capturing some 65 % of the annual FDI inflows to the region between 2002 and 2004. This is coupled with low domestic investment, which is among the factors explaining the slow growth in many African countries.

“Average gross domestic fixed investment for the continent,” according to the report, “was only 20 % between 2000 to 2003. Out of the 46 countries with adequate data, only nine achieved high investment rates of at least 25 % of GDP. This is coupled with the important constraint of the high costs of credit and the general lack of access to credit.”
Both of these factors affect the important job creation engines of medium and small enterprises. The FDI that does arrive in Africa tends to be concentrated in the extractive industries, which raises concerns regarding its impact on employment and poverty reduction.

This fact is displayed in two important trends.
First, extractive production technology is highly capital intensive and accompanied by low job creation because it reduces the dependence on manual labour or restricts or replaces small scale, informal mining operations.
Second, production in these sectors carries insufficient spill-over affects on the rest of the economy as output is exported with little value added.

However, some countries have moved forwards despite lack of investment and oil revenues and their progress has been attributed to other factors like the economic and social reform. Rwanda leads Sub-Sahara Africa in the human development category with a 34.3 % improvement and is also in the top 10 of economic growth.
This contrasts Chad scoring second place in economic growth, but it does not even appear in the top 10 in terms of human development. The same is true for Angola at fourth place in economic development, but also missing from the top developers of human capital.

This disparity can be explained by the fact that economic growth in Chad and Angola has not been accompanied by significant job creation because of a concentration of growth in capital-intensive sectors and a shift away from agriculture without the growth of job creating manufacturing or resource refining industries.
Therefore, displaced labour has contributed to further job losses and deteriorating living standards.

Rwanda may also be used as a model as a non-extractive industry oriented country with a combination of high medium-term economic growth and the highest increase in human development. In the last six years they have gone from a ratio of 94.5 % of girls to boys in primary school to today having more girls than boys in primary school.
This is also reflected in the ratio of girls completing primary school versus the lower % of boys. It also includes some 2 013 additional classrooms with a comparative growth in the number of teachers.

In the short term, the economic outlook for Africa remains positive. The survey sees Africa’s growth rate at 5.8 % in 2006 compared to 5.3 % in 2005. Some 34 countries would post higher growth and this is in addition to a growing number of African countries that operate with a balanced budget or a reduced deficit.
Positive factors affecting African growth include increased oil demand, higher global demand for exports, reduced inflation through improved macroeconomic management, and increased political stability. With the forecasted increases in economic growth, these factors should outweigh the negative factors.

Source: BiA Online
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