From our November LDESP Africa News Update.
In recent years, optimistic reports have emerged regarding Africa’s economy:
“Over the past decade six of the world’s ten fastest-growing countries were African. In eight of the past ten years, Africa has grown faster than East Asia, including Japan. Even allowing for the knock-on effect of the northern hemisphere’s slowdown, the IMF expects Africa to grow by 6% this year and nearly 6% in 2012, about the same as Asia.
The commodities boom is partly responsible. In 2000-08 around a quarter of Africa’s growth came from higher revenues from natural resources. Favourable demography is another cause. With fertility rates crashing in Asia and Latin America, half of the increase in population over the next 40 years will be in Africa. But the growth also has a lot to do with the manufacturing and service economies that African countries are beginning to develop. The big question is whether Africa can keep that up if demand for commodities drops.” (The Economist)
In fact, reported figures show that Africa’s growth is imminent, especially in Sub-Saharan regions:
“Sub-Saharan Africa’s economic growth is expected to increase to six percent in 2014, from five percent this year, supported by investment in infrastructure and production capacity, the International Monetary Fund (IMF) said on 31 October.
The IMF had predicted in May that the region would grow 5.7 percent this year and 6.1 percent in 2014.
It said the slight downward revisions were due mainly to weaker global economic conditions, while budget delays in oil producer Angola and oil theft in Africa’s top crude exporter Nigeria also hurt growth.
Inflation on the continent is expected to be less than six percent next year, its third year of decline due to benign prospects for food prices and the continuation of prudent monetary policies, the IMF said.
It expects growth to pick up next year.
“The improvement relative to 2013 reflects higher global growth, especially in Europe, and other expected favorable domestic conditions,” the IMF said in its regional report, giving Nigeria’s electricity reforms and hopes of improved oil output there as an example.
“The main factor behind the continuing underlying growth in most of the region is … strong domestic demand, especially associated with investment in infrastructure and export capacity in many countries.”
Despite the strong growth outlook, the region remains vulnerable to lower commodity prices and a slowdown in developed and emerging economies, the report said.
The strongest growth will be felt in mineral-exporting and low-income countries, the IMF said, highlighting examples like the Ivory Coast, the Democratic Republic of Congo, Mozambique and Sierra Leone.
Africa’s top economy South Africa is expected to grow 2 percent this year and 2.9 percent in the next, as it lags the broader region due to the relative maturity of its industrial, extractive and services sectors.
South Africa has suffered this year from industrial strikes, slowing private investment and disposable income growth and weakening consumer confidence, the IMF said.
The World Bank sees growth of 5.3 percent for sub-Saharan Africa in 2014, underpinned by strong private and public investment.” (Reuters)
However, more recently experts have expressed skepticism about this growth, popularly referred to as “Africa’s Rise.” In early October 2013, the Organization for Economic Cooperation and Development, an international economic organization founded in 1961 as an extension of the original effort to implement the Marshall Plan, held its 13th Africa Forum on the continent’s future. The theme, “Harnessing Natural Resource Wealth for Economic Transformation,” dealt with a range of issues related to Africa’s rise, including why it might not be as hopeful as some had previously predicted. Edward Paice, Director of the Africa Research Institute, provides some useful snapshots of the forum:
On economic models
Donald Kaberuka, President, African Development Bank: “We can learn much from Asia, but no country’s economic model can be transposed to another. There is no escalator or lift to development. Asian countries have made many mistakes. But the role of institutions is critical, the state being one of them. In Africa, dismantling the state [during structural adjustment] was catastrophic. Latin American countries missed the demographic dividend and are paying the price. We must get it right in Africa and must use natural resources to do it. But countries that do not have abundant natural resources are not condemned to failure”.
Carlos Lopes, Executive Secretary, United Nations Economic Commission for Africa: “Think of piracy in the Straits of Malacca, Kashmir, Myanmar, elections in Vietnam. Asia is very good at marketing and Africa is not”.
On economic growth and structure
Lamido Sanusi, Governor, Central Bank of Nigeria: “Is Africa’s average GDP growth really fantastic? China grew at 10% plus for 30 years. The question we need to ask is: at what rate does Africa need to grow to alleviate poverty? From its low base, Africa should be growing much faster. The growth in recent years has also been driven largely by external demand, so any shock will create huge fiscal and growth problems”.
Donald Kaberuka: “Social inclusion will be critical for the sustainability of economic growth. In my opinion, the best way of all to do this is to get the children – male and female – of the poor into education.”
Mario Pezzini, Director, OECD Development Centre: “Even if FDI in Africa were twice as high, it would not be sufficient to absorb the number of people coming onto the job market annually. If agricultural productivity improves, there will be a need to absorb all those who lose rural employment and livelihoods. Urban centres are not up to the job”.
Donald Kaberuka: “Do not confuse economic growth with economic transformation. Transformation is about jobs, jobs, jobs”. (Africa Research Institute)
Beyond the realities of Africa’s less-than-ideal rise, a closer look at the statistics leading to the economic figures might indicate a deeper flaw in analysis regarding Africa. In 2013, Morten Jerven, professor at Canada’s Simon Fraser University, published the book Poor Numbers: How We are Misled by African Development Statistics and What to Do About It–
“One of the most urgent challenges in African economic development is to devise a strategy for improving statistical capacity. Reliable statistics, including estimates of economic growth rates and per-capita income, are basic to the operation of governments in developing countries and vital to nongovernmental organizations and other entities that provide financial aid to them. Rich countries and international financial institutions such as the World Bank allocate their development resources on the basis of such data. The paucity of accurate statistics is not merely a technical problem; it has a massive impact on the welfare of citizens in developing countries.
Where do these statistics originate? How accurate are they? Poor Numbers is the first analysis of the production and use of African economic development statistics. Morten Jerven’s research shows how the statistical capacities of sub-Saharan African economies have fallen into disarray. The numbers substantially misstate the actual state of affairs. As a result, scarce resources are misapplied. Development policy does not deliver the benefits expected. Policymakers’ attempts to improve the lot of the citizenry are frustrated. Donors have no accurate sense of the impact of the aid they supply. Jerven’s findings from sub-Saharan Africa have far-reaching implications for aid and development policy. As Jerven notes, the current catchphrase in the development community is “evidence-based policy,” and scholars are applying increasingly sophisticated econometric methods—but no statistical techniques can substitute for partial and unreliable data.” (Cornell University Press)
More recently, Afrobarometer, a research project self-described as “an African-led series on national public attitude surveys on democracy and governance in Africa,” released a report that possibly lends support to Jerven’s analysis about the potential for misrepresentation in Africa’s economic status. The Afrobarometer policy brief “Africa a Decade of Growth in Africa, Little Change in Poverty at the Grassroots”:
“New data from Round 5 of the Afrobarometer, collected across an unprecedented 34 African countries between October 2011 and June 2013, demonstrates that “lived poverty” remains pervasive across the continent. This data, based on the views and experiences of ordinary citizens, counters projections of declining poverty rates that have been derived from official GDP growth rates. For the 16 countries where these questions have been asked over the past decade, we find little evidence for systematic reduction of lived poverty despite average GDP growth rates of 4.8% per year over the same period. While we do see reductions in five countries (Cape Verde, Ghana, Malawi, Zambia and Zimbabwe), we also find increases in lived poverty in five others (Botswana, Mali, Senegal, South Africa and Tanzania). Overall, then, despite high reported growth rates, lived poverty at the grassroots remains little changed. This suggests either that growth is occurring, but that its effects are not trickling down to the poorest citizens (in fact, income inequality may be worsening), or alternatively, that actual growth rates may not match up to those being reported. The evidence also suggests, however, that investments in infrastructure and social services are strongly linked with lower levels of lived poverty. (Afrobarometer)
Diptesh Soni, writing for the Council on Foreign Relations’ blog on Africa (Africa in Transition), unpacked “Africa’s Growth Forecasts: Potentials and Risks”:
“Recent statistics by the Economist Intelligence Unit forecast growth in sub-Saharan Africa–specifically South Africa, Angola, Kenya, and Nigeria–to increase from 3.7 percent to 6.0 percent within the next five years. Indeed, there are many reasons to be chirpy about the continent’s growth trajectory: improved fiscal management, sustained crude oil prices, and the high start-up costs for mining ventures mean that the slow shift from export-led to consumer-led growth in China will not be devastating to African economies. Others have cited rapid urbanization and a “demographic dividend” as further reasons to expect big things in upcoming years.
But much of the optimism surrounding future growth rests on weak assumptions. The “demographic dividend,” for example, caused by a “youth bulge” that will provide cheap labor is a huge hypothetical. African economies already suffer from a severe shortage of adequate skills in the labor force, and while countries have made strides in increasing access to basic education, the quality of the instruction that students receive in the classroom remains poor. As the 2013 Human Development Report highlights, high fertility rates within Africa were likely a direct consequence of expenditure cuts in education. If Africans are not given a proper education, fertility rates will remain high and the “demographic dividend” will become a youth burden.
The belief that rapid urbanization will yield rapid development is also suspect. While it may be true that “large urban centers allow for innovation and increase economies of scale,” as Wolfgang Fengler of the World Bank claims, African urbanization has been ad hoc and chaotic. Governments and donors across the continent have been unable to provide growing urban populations with basic services, let alone viable employment, and as a result many of the poor are stuck in slums. Khayelitsha in South Africa and Kibera in Kenya serve as merely two examples out of far too many.
The purported rise of the African “middle-class” also warrants clarification: The African Development Bank deems as “middle-class” anyone earning between $2 and $20 a day, 60 percent of whom fall into the “floating” middle-class between $2 and $4. These people could easily slip back in to poverty. Others such as Citigroup’s David Cowan cite high levels of inequality, which leaves opportunities for businesses to cater either to the emerging wealthy elite or the consuming poor, with little room for a middle-class.
American giants such as IBM, WalMart, and General Electric are making inroads into African markets, to say nothing of Chinese investors. While these movements might be harbingers of growth to come, the danger of assuming big growth figures lies in the possibility for complacency. Demographic trends will not yield dividends, nor will large urban centers yield attractive economies of scale, if governments and donors do not step up to Africa’s problems of human and physical development.
Africa is well positioned for a grand takeoff, but transforming deeply agrarian economies into global manufacturers will entail transforming large urban and youth populations into productive assets. This will require greater and more innovative investments in infrastructure, energy, education, and social services.” (Council on Foreign Relations, Africa in Transition)