Unless growth in Africa reaches an average of 7% per annum, the continent will fail to redress current poverty levels.
Although Africa is experiencing its highest growth levels in three decades, it will fail to meet the Millennium Development Goal of halving poverty by 2015 unless growth accelerates, says the Africa Competitiveness Report, a first-time joint initiative of the World Economic Forum on Africa, the World Bank and the International Monetary Fund (IMF).
The recent rise in African economic growth is fuelled, the report says, by “a confluence of external events and interventions, including high commodity prices, debt relief, and a favourable economic environment”.
The report’s authors are quick to explain that just because higher economic growth has been driven by what is essentially a fortunate confluence of events, it does not mean that the trend is unsustainable. However, they do warn that economic growth “must be based on solid domestic foundations rather than on cyclical or exogenous circumstances.”
These, they argue, are gradually being put in place, although much works remains to be done.
John Page, the chief economist for Africa and the director of the poverty reduction group at the World Bank, is upbeat about the long-term outlook: “A decade of growth is not a growth spurt. We have not had this since the Seventies. Much of this growth is the result of the controversial policy reforms of the Eighties and Nineties that have led to greater macroeconomic stability. Structural reforms and creating space for the private sector have also helped.”
He adds that there is no reason to underestimate the impact of exogenous factors such as high commodity prices, which are fuelling much of the growth, not only because high prices could last for some time, but also because they allow commodity-exporting countries to build up crucial foreign reserves. Page cited the example of oil exporter Nigeria, which has accumulated $45-billion in foreign reserves.
Robert Corker, a senior adviser in the IMF’s Africa department, also points to key macroeconomic policy improvements such as below-10% inflation rates in most African countries, increased foreign reserve holdings and declining budget deficits as signs of improved economic governance in many African countries. “These are substantial steps forward … and are indicative of better management at the government level.”
The report points out that if substantial improvements in the living standard of most Africans are to be sustained, African countries must stimulate economic growth by becoming more competitive. One way to achieve this is by establishing a sound policy framework to underpin the business environment. This, the report says, is more closely linked to strong economic growth than resource endowment or geographical location.
Inadequate access to finance is another constraint to economic development and firms’ competitiveness. Newly introduced technology, such as mobile phone banking, could help to overcome location and cost barriers, but the regulatory environment must also be enhanced by increased transparency and auditing.
Not surprisingly, poor infrastructure also makes it on to the list of top constraints that need to be redressed. The main areas of concern are energy, transportation and underdevelopment, with firms losing as much as 8% of sales to power outages, while transportation delays account for as much as 3% of lost sales. Few African businesses have the capital to cope with these costs, which undermine any labour efficiency advantage that African companies might have. Life expectancy has declined across sub-Saharan African mainly because of HIV/Aids. This impacts on health and education, both key determinants of competitiveness and economic growth.
Corruption — ranging from frequent bribes to political favours for special interest groups — is identified as the fourth main obstacle to enhanced competitiveness, hitting small businesses particularly hard.
Finally, the report says that not all is bad news; certain countries in Africa outperform their global competitors on issues such as technology readiness and efficiency, but almost all lag behind on infrastructure and development.
A sane club
- The African Development Bank has introduced the latest development-related acronym to the world in the form of Sane, which stands for South Africa, Algeria, Nigeria and Egypt, the continental heavyweights.
- Together the Sane countries represent the strongest economies on the continent, and account for just more than half of Africa’s total GDP.
- Sane accounts for more than half of Africa’s total exports, foreign direct investment and foreign reserves.
- More than two-thirds of the largest 1 000 African companies, and 30 of the 50 largest banks, are located in the Sane group.
- Average per capita income per annum is higher in the Sane group than in the medium-income Bric — Brazil, India, China and Russia — group, at $1 841 compared to $1 669.
- Sane countries are found to have a competitive advantage over other African countries as a result of good infrastructure, macroeconomic stability and openness to foreign trade. However, the development bank economists also recognise the role that natural resources — especially hydrocarbons — have played in economic growth in the Sane group.
- According to the bank, the four Sane countries have the potential to act as drivers of regional economic growth and integration, by acting as “growth poles”. The comparative advantages of these countries — strategic geographic locations, diversified resource endowments, market size — which facilitates economies of scale — and an active private sector — are ideal for stimulating regional economic integration and growth.