Africa must reap the benefits

©OECD Development Centre

Judging from media headlines, we are in a phase of Afro-optimism. Are we witnessing Africa’s economic take-off? The African Economic Outlook project, the result of a partnership of more than 10 years between the Development Centre, the African Development Bank, the United Nations Development Programme (UNDP) and the Economic Commission for Africa, presents a contrasting assessment of the continent’s “emergence”.

Since the early 2000s, Africa’s real GDP has grown each year by an average of 5.1%. This is double the rate of the previous decade, and per capita GDP on the continent is growing at least twice as fast as that of OECD member countries. However, this positive medium term trend has faced setbacks on two occasions: in 2009, when demand fell from OECD countries tackling the global economic and financial crisis, and in 2011, when the Arab Spring suddenly froze growth in Tunisia, Egypt and Libya (see graph). Dependence on foreign markets, as well as political and social instability, remain major risks for Africa’s economies. Yet each time, growth rebounds.

So what are the secrets of this dynamic performance? Demographics is the first key factor. Africa is the world’s youngest continent, with 200 million 15-24 year-olds, a number due to rise to 400 million by 2045. Since 2010, the population of Africa has topped 1 billion, including some 300 million people with incomes of more than US$2 per day. As a result, domestic demand is one of the main drivers of growth in Africa in 2013.

Furthermore, the African economies are now, for the most part, peaceful and better managed. There have been fewer, and less violent, conflicts in the years since 2000 than in the previous decade, and a rise in the number of demonstrations and strikes, rather than political violence. More or less free and transparent democratic elections are becoming the norm. Many African economies are now enjoying more efficient macro-economic management, sustained by partial or total sovereign debt write-offs. Also, a new generation of decision makers is shaking up management practices in business and government.

Above all, since the 1990s, Africa has benefited from shifting global wealth and the sustained boom in demand for commodities and accompanying price rises. After 2000, as the growth rate of the emerging economies really took off, their needs for energy, minerals, arable land, wood, etc. rose sharply. Africa’s exports to Europe doubled, but those to China increased 12 times over. Foreign investments, boosted by high levels of global savings, flooded into the mining and agricultural sectors, as well as infrastructure programmes and the related services they need. Other sectors of the economy benefited from the knock-on effects of this trend.

Conundrum
“Every year you say that Africa is getting richer, but my parents who live there are still struggling! Where is this growth going?” This question, from a delegate at the 2008 edition of the International Economic Forum on Africa, clearly sets the terms of the debate. If wealth is being accumulated more quickly in Africa, can we at the same time speak of a sustained rate of development that benefits all Africans? On the employment front, this past decade has indeed been disappointing. Young people are the main victims of unemployment, under-employment and job insecurity. Figures from the International Labour Organisation show that while growth created 63 million new jobs between 2000 and 2007, over the same period 96 million young people (aged 15-24) entered the workforce. Growth is not sufficiently strong or diversified to provide meaningful employment for the 10 to 12 million young people who join the ranks of jobseekers in Africa each year. Our joint work with the Gallup consultancy (World Poll) reveals that once the “discouraged” who do not register as unemployed are taken into account, the real number of out-of-work young Africans is more than double the official statistics, at between 18 to approximately 40 million.

The causes of this situation are to be found in both labour supply and demand. First, the school and training systems do not equip young people with the skills and aptitudes which African businesses need, or which would allow young Africans to start their own viable companies. In Egypt, for example, there are around 1.5 million unemployed young people while, at the same time, private sector companies are struggling to fill 600,000 vacancies. In South Africa, 3 million school-leavers and 600,000 graduates are still without jobs but there are 800,000 vacancies for suitable candidates.

But labour demand is above all hampered by obstacles to the development of the local private sector. The business community cites the high cost and mediocre quality of energy and infrastructure, difficult access to credit and markets, and corruption as barriers to their growth and competitiveness.

So, while Africa looks in better shape overall, change for the greatest number of its inhabitants is lagging behind. The problem stems from both the pace and structure of growth.

First, the pace: periods of economic boom need high and stable growth rates over a long period. But the average of around 5% that Africa’s economies believed in for a decade, taking account of the fact that they started from very low levels, and that the population continues to grow at a rate of 2 to 3% a year, is way below the 10% growth enjoyed by China over the past 30 years.

Second, structure: maintaining a sustainable growth trajectory to create more jobs supposes two phenomena: a boom in new and more productive activities–such as high value-added manufacturing and services on the one hand–and, on the other, the shift of resources and labour from traditional sectors–such as family farms and small informal businesses–to these new activities. Structural transformation comes about when these two trends happen simultaneously, triggering a rise in overall productivity, higher salaries and better quality jobs. The change in the economy of Mauritius in the last 30 years of the 20th century is a good illustration. It diversified from its traditional sugar cane industry, introduced export-oriented garment manufacturing and then developed a high value-added services sector, particularly in tourism and banking.

The conditions for economic take-off are more favourable than ever before in Africa. It is now up to the continent’s economies to mobilise and develop their human capital and natural resources. It is only by means of ambitious structural reforms and new industrial policies that Africa’s economies will truly reap the benefits of the past decade of growth.

Reference
www.africaneconomicoutlook.org 

Please visit: www.oecd.org/africa/

© OECD Observer No 296 Q3 2013




Economic data

GDP : +0.5%, Q4 2014
Employment rate: 65.9%, Q4 2014
Annual inflation : 0.60% Mar 2015
Trade : -3.0% exp, -3.7 imp, Q4 2014
Unemployment : 6.993% Feb 2015
More moderate expansion ahead? Composite leading indicators
Updated: 12 May 2015

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