Has Africa’s economic growth performance passed the turning point?

IN RECENT years, analysis and discussions of Africa’s economic growth performance has tended to occupy centre stage in the various news headlines during the annual meetings of the major international development and financial institutions and organizations such as the African Development Bank, the International Monetary Fund, the World Bankand the World Economic Forum as well as during the launching of the global and regional reports of the various UN agencies, especially the UN Secretariat, UN Economic Commission for Africa, UNDP, UNCTADand the OECD.All of these tend to come in quick succession.The year 2013 had seen its fair share of such discussions and the process has already started in earnest in 2014, with the UN ECA meeting in Kinshasa in February 2014 and the IMF/WB Annual Spring Meetings last month in Washington DC, and it will certainly be prominent during the imminent 2014 Annual Meeting of the AfDB Group in Kigali later this month. A common narrative that has taken shape in all these meetings and associated reports is that Africa’s current growth episode, which started in the second half of the 1990s,has been remarkable as it has been uninterrupted for close to a decade and a half. This is seen as notable because it contrasts sharply with the preceding two decades (1975 – 1995), during which the continent experienced almost continuous economic, social and political decline. Before proceeding, it is useful to try to address the question that often crosses the minds of ordinary people, academics and policy makers alike: Why this obsession with economic growth when probably we ought to be more concerned with poverty reduction and equitable distribution of the wealth of nations? The simple answer is that though in itself, economic growth does not necessarily impact positively the welfare of large sections of populations (which underpins UNDP’s Human Development Concept), it is essential for meaningful poverty reduction, if “certain conditions” are met. It is the elusive nature so far of meeting those conditions in a significant number of countries that have tempered the optimism in Africa’s recent very encouraging growth performance. Thus, the question or concern as to whether the continent’s growth performance has reached or passed the turning point is related to two considerations: the first is the sustainability of this positive growth trajectory, given the prolonged declines experienced in the earlier growth episodes, and the threats posed by the continuing difficult overall global economic environment; and the second is the limited impact so far of the growth on transformation, employment creation, inequalities and poverty reduction. This is what the economists refer to as the low poverty reduction elasticity of Africa’s growth so far. Improving this “elasticity” has important policy implications and I will touch upon them later in this article. Africa’s contrasting economic growth performance between the late 1970s and mid 1990s on one hand and during the past decade and a half on the other is best illustrated through the growth figures for the two periods: Since the late 1990s, the continent’s annual average growth rate has been maintained at 5 per cent through 2012, with per capita income growth rising from 1.6 per cent in the latter half of the 1990s to 2.1 per cent since 2000. Although growth weakened slightly to 4.8% in 2013, due to the continuing weak recovery in the developed countries, combined with rising energy and food prices, it is expected to increase to 5.3% in 2014. This positive economic performance contrasts sharply with the economic decline between 1975 and 1995 during which averageeconomic growth hardly exceeded 2.5% per annum, resulting in significant declines in per capita incomes, human development and deterioration in productive capacities across the continent (African Economic Outlook, 2013). As a result of this uninterrupted strong growth performance, Africa has emerged as the second fastest growing region in the world, next to Asia. An additional reason why the growth acceleration over the past decade and a half is remarkable is that it has not been restricted to only natural resource-rich countries, such as the oil- producers, but it also occurred in a significant number of “resource poor ones”. For instance, the 12 fastest-growing economies in Africa in recent years (Rwanda among them) did not have a significant natural resource and extractive sectorsbase. Six of these countries experienced GDP growth rates of at least 5% a year on average from 1995 to 2013, and a per capita GDP growth of more than 3% a year. This is attributable mainly to better quality leadership and maintenance of sound macroeconomic and sectoralpolicies, reinforced by notable improvements in business regulatory practices, reformed tax systems, institutional development and increased investments in human and physical infrastructure. Seven out of the current top 10 economic growth performers in the world are from Africa, again including Rwanda. The renewed optimism in Africa is thus warranted. These very positive developments on the growth front in Africa notwithstanding, the question as to whether the continent’s performance in this regard has passed the turning point is still very much pertinent.The concept of “turning point”, which is derived from the notion of the “point of inflexion” in calculus, and Economists use it to determine whether recoveries have reached or been put on sustainable paths, is relevant for Africa’s current growth dynamics and outlook. The question could be posed in simpler terms as follows: as a whole, is the continentfully out of the woods regarding the recovery from the prolonged economic and social decline it experienced during the 1980s and 1990s despite its relative recent strong economic performance? So far the evidence could only support cautious optimism, owing to the following reasons. First of all, the average rate of growth is still well below the rates of 7-8%,deemed essential for sustained deeper poverty reduction and attainment of MDGs. The rate of economic transformation, which is key to resilience, inclusiveness and sustainability, has been slow. Agriculture remains Africa’s main source of productive activity, employing 60% of the labour force, and generating around 25% of GDP, whilemanufacturing remains underdeveloped, contributing less than 10% to GDP, far below the 25% deemed necessary for economic transformation. Savings and investment rates are low (presently at around 15 -17% of GDP compared to the desired 35%), further limiting efforts to diversify economic structures, boost growth and accelerate poverty reduction. Income inequalities are also still quite high and significant unemployment persists, particularly among the youth and women, underlying the problem of jobless growth across the continent. As a result, economic and social circumstances remain fragile and vulnerable to domestic and external shocks. Added to all this are new threats posed by climate change and persistently rising energy and food prices, rapid urbanization, combined with resurgent civil strife in countries such as South Sudan, Mali, CAR, Libya, Guinea Conakry and Egypt and growing threats of terrorist violence in countries such as Kenya and Nigeria.. It is, therefore, urgent for African leaders and their development partners to identify the critical drivers for pushing the continent’s economic growth performance into a truly inclusive transformational mode,that will propel the performance of the economies into zones well beyond the tricky turning point they have reached as well as ensure better distribution of economic opportunities and assets. Critical to this is the adoption by African countries, individually, but also collectively, of well thought out and broad-based visions forsustainable development and inclusive transformation. In this regard, it is encouraging that the African Union has adopted a long term vision for the continent, called Africa Vision 63. What is, however, crucial is effective and sustained implementation of this vision, underpinned by transformational and innovative capacity development as well as dynamic and mutually reinforcing interactions between the states and the private sector. Countries such as Botswana, Ethiopia, Ghana, Mauritius, Rwanda, Burkina Faso and Senegal, whose leaders have tried to follow visionary and innovative paths to development, have witnessed remarkable progress in recent years. It is also essential that Africa as a whole, contain and reverse the recent disturbing trend of resurgence ofviolent conflictsand acts of terrorism in a steadily increasing number of countries cited above. Sustainable long-term investments, both foreign and domestic, economic growth and poverty reduction cannot be achieved in the face of prolonged and violent conflicts. There is consensus that armed conflicts were a key factor in declining investments, rising poverty and human misery in a majority of African countries in the 1980s and 1990s. An active stance towards conflict resolution and prevention should be at the heart of Africa’s renewal and transformational agenda. Sustaining and pushing Africa’s growth beyond the 7-8 % threshold,requires strategies that enhance investment attraction, boost domestic productivity,diversify the productive base and enhance the external competitiveness of the economies. Economic diversification will require effective programmes that close the infrastructure gap, develop human capital, lower the cost of doing business and deepening regional integration. Strategies should promote entrepreneurship and small- or medium-sized enterprises (SMEs) in order to enhance competitiveness, productive job creation and incomes will also be needed. Embracing in a more aggressive manner innovation, new technologies and the green growth approaches, as Rwanda is doing, should also be an integral part of this strategy. Achieving a truly transformational change and meaningful poverty reduction requires removing the structural and socio - cultural and legal barriers that continue to constrain realization of women’s huge potentials and capabilities. More gender-responsive policies and programmes are needed to enhance women’s political participation and representation in decision making at all levels as well as improve their economic empowerment through equal access to skills development, education, decent jobs, finance and growing businesses. In conclusion, there can be no doubt by now that Africa’s recent sustained positive economic growth performance is remarkable, and it should be celebrated. It contrasts sharply with the economic and social declines the continent experienced during “the two lost decades” of the 1980s and 1990s. It is also notable that this growth has not been generated by only the resource-rich countries, but also by relatively natural resource-poor countries such as Rwanda, Mauritius, Ethiopia and Burkina Faso. All this notwithstanding, there is still significant fragility about Africa’s economic growth performance, its sustainability and deficits regarding transformation and inclusiveness. What is, therefore, required in the continent as a whole is higher quality and levels of growth and meaningful structural transformation, accompanied by deeper poverty reduction and reduced inequalities. Attaining these important objectives will require a combination of policies that has so far been elusive in a majority of the countries in the continent. As ECA recently noted, “In Africa, regrettably, there are so far few examples of good practices to draw on in terms of (transformation) and reducing inequalities. The first country in the region to do so robustly will clearly win accolades and would deserve to be emulated”. I believe that Rwanda is on the path towards attaining such a status, and in my next article I will endeavor to appraise the contributing factors to that.