- African economic growth appears to be accelerating significantly, raising legitimate hopes for the future of a long-troubled region
- It is encouraging that the sources of growth have broadened, to some extent diminishing Africa's reliance on raw material markets
- The continent needs an industrialization strategy, including programs for stimulating inward investment, to achieve sustainable expansion
Signs of Hope
When Africa makes the news, it is seldom for a positive reason. The average reader or viewer unfortunately associates this vast and highly diverse continent with the scourge of Ebola and Boko Haram. While these stories are modern instances of a long history of strife, the pessimistic media bias is unfortunately blocking what should be important stories regarding positive signals from the economic front.
The evidence of strengthening is increasingly persuasive. Between 2000 and 2010, the share of the African population living on less than $1.25 per day fell from 58% to 48%.1 In no small part, the falling rate of extreme poverty is driven by much-improved output performance.
For U.S. goods producers, a compelling consideration is the path of industrialization and the role it will play in sustainable development across the continent. In recent research, the current and future strength of African manufacturing has been debated as economists watch for signs of long-term change.
African Growth in a Global Context
While sub-Saharan Africa is still one of the poorest regions in the world, Figure 1 shows an upswing in overall economic strength. Through much of the 1980s and 1990s, gross domestic product growth lagged emerging market and world performance by a considerable margin. But a notable, albeit volatile, upswing began in the mid-1990s. For a brief period in the early 2000s, sub-Saharan growth was considerably stronger than the emerging market and global average.
Figure 1 – GDP Growth, Inflation-Adjusted
Source(s): International Monetary Fund
Debates rage about the sustainability of stronger African economic performance. A recent article in The Economistnotes that for decades, commodity prices shaped the continent’s economic cycles to such an extent that output growth would weaken during periods of raw material market weakness.2 This seems to be changing. The article points to encouraging signs in the wake of the current sag in global commodity markets. Among other things, there have been fewer sizable currency depreciations.
The authors note that one reason for the current resilience to commodity weakness is that African manufacturing has been expanding as quickly as the rest of the economy. Data from the African Development Bank reflect this assertion although the numbers highlight a modest lag. Between 2010 and 2012, African GDP growth averaged 5% versus a 4.6% average for the growth of African manufacturing value-added. In a healthy developmental picture, industrial growth should be leading. But the improvement is noteworthy nevertheless, especially in the context of better fiscal policy management, upgrades to education and infrastructure, and streamlining of the regulatory regime.
African Manufacturing: A Growing Debate
While the growth signs are certainly positive, work by economist Dani Rodrik raises important questions as to whether Africa’s long-term development is proceeding along familiar—or at least credible—dimensions.3 Rodrik’s analysis highlights the central role that manufacturing must play in order for Africa to have a full transition to globally competitive economic performance. He argues that transitory factors have aided the African economy in recent decades. The region has benefited from a favorable combination of high commodity prices and low interest rates; China’s rapid growth has also fed demand for the region’s natural resources.
He asserts, however, that industrialization prospects are poor. Farmers have moved out of rural areas and the share of agriculture in value-added and employment has fallen significantly since the 1960s. But the primary beneficiary of this oft-repeated developmental shift has been urban services rather than manufacturing—industrialization has lost ground since the mid-1970s. Another problem is the degree to which African manufacturing is dominated by small informal firms that are not especially productive.
Key data suggest a bit more optimism on industrialization prospects than Rodrik’s conclusions suggest. For one thing, demographics are a strong competitive advantage. Figure 2 shows the median age for Africa as well as the broad average for less-developed regions. Africa’s considerable age advantage appears to be growing, something that global manufacturers should not ignore. Young populations form the basis of a vital household sector, with all of the positive implications for goods demand. The younger cohorts are also critical for the development of a manufacturing workforce.
Figure 2 – Median Age
Source(s): United Nations, World Population Prospects: The 2012 Revision
There are positive signs on the capital side of the industrial development equation as well. As shown in Figure 3, the investment share of GDP in sub-Saharan Africa has reversed the decline of the 1980s and early 1990s. It increased from 15% in 1993 to slightly above 21% in 2009, only retreating a bit since then. Nonetheless, the share remains well below the rising emerging market average, a gap that African governments can close by expediting investor-friendly policy programs.
Figure 3 – Investment Share of Inflation-Adjusted GDP
Source(s): International Monetary Fund
Active Policies for a Brighter Future
Amidst difficult health and terrorism challenges, Africa is showing potential on the economic front. The question now is sustainable performance. While China’s rise and a lengthy period of high commodity prices and low interest rates have certainly been stimulative for Africa’s economy, hints of structural change have also been seen, however weak. As manufacturing begins to play a larger role, observers are noting less negative impact from the current period of raw material market weakness.
This long-troubled continent needs a program for widespread and sustained industrialization. Active policies to continue to attract inward foreign direct investment and capitalize on a considerable demographic advantage could very well push the African economy to a new day.
- 1.Margaret McMillan and Kenneth Harttgen, "What is Driving the 'African Growth Miracle'?" Working Paper Series No. 209, African Development Bank Group, October 2014.
- 2."The twilight of the resource curse?" The Economist, January 10, 2015.
- 3.Dani Rodrik, An African Growth Miracle? Institute for Advanced Study, Princeton, April 2014.