Economic prospects for Africa

4 July 2006

EPC Senior Advisor Eberhard Rhein introduced what he described as the “challenging but dismaying topic” of Africa’s economic development, and described the statistics as “particularly telling”.

John Page, Chief Economist for the Africa Region at The World Bank, reminded the audience that 2005 had been “the year for Africa”, as it had featured highly on the agenda of international meetings and financial support for the continent had doubled from $25 billion to $50 billion a year. But despite this raised profile, growth in Africa still lagged behind other regions and was only expected to rise by 1% a year for the rest of this decade. Additionally, the proportion of those living in poverty in sub-Saharan Africa was rising.

Africa’s progress towards achieving its Millennium Development Goals (MDGs) poverty-reduction targets by 2015 is also lagging behind the rest of the developing world. African governments need to make more rapid progress in reducing poverty and child mortality, and improving primary education, sanitation and the supply of piped water, if they are to reach these goals.

However, despite this litany of problems, Mr Page said it was not all “doom and gloom” throughout Africa. Per capita income is increasing by an average 6.5% a year across the continent, and Africa’s growth is increasingly diverse: the oil-exporting countries are experiencing high growth, while land-locked countries such as Uganda and Burkina Faso are still suffering from little or no growth.

Macroeconomic management has improved in African countries. Inflation has fallen sharply, particularly in the oil-exporting countries, and most state economies have become more flexible and encourage private-sector activity as a strong engine of growth.

Governments’ structural policies have also improved as a result of increasing local pressure for more accountability and democracy, said Mr Page. Coupled with the drop in the number of countries involved in conflicts over the last five years, this increased stability is providing a strong backdrop for economic growth.

Africa’s best economic performers appear to be on a par with India and Vietnam. The challenge now for the continent as a whole is to bring the “laggards” up to the levels of the best. However, while African growth has picked up and incomes are rising, they are still failing to keep up with other developing countries. Two major health pandemics are also still decimating Africa’s population: HIV/AIDS and endemic malaria.

Using the private sector as the engine of growth

The World Bank is a strong advocate of economic growth through the private sector. Mr Page said one problem for Africa was that entrepreneurs regard it as a high-risk, high-cost place to do business, particularly in comparison to other developing regions such as South or East Asia.

Governments are working to improve the environment for entrepreneurs by providing more security, liberalising the economy and removing some of the unnecessary bureaucratic barriers facing businesses. However, Africa lacks the necessary infrastructure to support economic development: for example, only 24.7% of the region’s population has access to electricity.

One of the economic ways forward for Africa is to sell its products on the world market, since its current share of global markets is only 1.5% and it displays very little “export dynamism”.

Indirect costs are partly to blame for this decline: factory-floor production costs in Africa compare well with India and China (it costs $0.29 to produce a shirt in China and just $0.12 in Ghana), but the indirect costs of finance and infrastructure then push up the prices up by nearly 60%, compared to the 30% increase in East Asia.

Another ‘push factor’ for the African continent’s economic growth is regional integration. This would be particularly helpful for those countries which do not have access to the sea or marine trading routes. Many countries have sought to overcome these difficulties by joining together in trading blocs and most now belong to at least one. This can result in conflicting interests, but Mr Page insisted that Africa has to begin trading as a regional bloc if it is to become internationally competitive.

Shared growth

World Bank research indicates that economic growth alone is not enough, with 46.4% of the population in sub-Saharan Africa still living in poverty.

This is partly the result of the HIV/AIDS pandemic and partly because of the strong rural-urban divide across the continent. A startling 70% of Africa’s population live in the countryside, and many lack access to clean water or new farming methods. With support, there could also be a rise in exports from this sector, as has been shown by moves to develop horticulture for export.

Mr Page questioned whether real progress had been made since “the year of Arica”, since the promised increases in development assistance from Organisation for Economic Co-operation and Development (OECD) countries had not materialised in real terms. While Official Development Assistance (ODA) had risen, much of it had been used for poor countries’ debt relief and debt service repayments.

Mr Page was critical of this approach, arguing that it was difficult for Africa to boost its development if this involved a “system of smoke and mirrors”, since development assistance through “accounting tricks” was not proper aid.

Turning to trade and World Trade Organization developments, Mr Page said African countries should be concerned about the high tariffs imposed by countries in East Asia - the emerging market for African goods. “We should not protect these low-cost economies at Africa’s expense,” he argued.

Mr Page concluded by saying that Africa was “at a turning point”. He said improvements in the continent’s economic management were grounds for optimism that the recent positive changes could be sustained. However, to do so, the poor had to be brought into the process through heath, education and agriculture programmes - and the international community had to abide by its promises.