Is Time Running Out for the African Economy?
Not long ago, Africa was considered to be the region that will follow in Asia’s footsteps to record consistent and long-term high rates of economic growth, with this growth lifting hundreds of millions of people out of poverty, just as Asia’s economic transformation has done over the past half century. Instead, the developments of the past few years have proven to be a major setback for the region as a whole, with this hoped-for growth not materializing. Sure, some countries in Africa have continued to grow at a healthy pace in recent years. However, too many countries, including those that possess most of the region’s largest economies, have struggled mightily in recent years, setting the region back in its quest to raise living standards and its level of economic development. Given the fact that Africa is home to the world’s fastest-growing population and to some of the world’s most unstable countries, it is imperative that the region return to higher levels of economic growth before it is too late.
In the 15 years from 2000 to 2014, the African economy as a whole expanded by nearly 6% per year, with growth driven by high commodity prices and a surge of foreign investment, primarily from China and other large Asian economies. However, growth rates across most of the region have fallen dramatically in recent years, with overall African economic growth rates falling to just 2.5% per year over the past three years, a rate of growth that is just a little above the region’s rate of population growth.
What is worse, some of the region’s most important economies have performed much worse than the regional average. For example, over the past three years, South Africa’s economy has grown at an average of just 0.5% per year, while Nigeria’s economic growth has averaged just 0.7% during this period. In fact, while a few countries have managed to largely avoid this regional downturn, there are simply too many troubled economies these days in Africa and this spells bad news for the region’s near-term economic future.
A number of factors have led to Africa’s recent economic struggles, some of them the fault of the region, and others the result of external factors that the region’s lack of economic diversification make it impossible for the region to escape. First and foremost, the high commodity prices that allowed African economic growth rates to soar earlier in this decade came to an end beginning in 2014, and have remained relatively low ever since. With most African countries dependent upon one or two commodities for nearly all of their export revenues, this fall in commodity prices has had a devastating impact on these economies. Nowhere is this more apparent than in the region’s major oil-producing countries such as Nigeria and Angola, where economic growth rates have fallen dramatically along with the price of oil in recent years.
At the same time, few countries in Africa have sizeable manufacturing sectors that are geared for exporting products to wealthier markets outside of the region, nor do many African countries possess significant offshore service industries. As these export-oriented sectors have been the key component in the long-term sustainable economic growth recorded in successful Asian and Central European emerging markets, it is clear that African countries need to diversify their economies in order to attract investment in such sectors. However, political instability remains widespread throughout the region, making it difficult for many African economies to attract the sort of investment needed in order to attract industries and services aimed at international markets, outside of basic commodities. Furthermore, too few governments in the region have been able to manage their countries’ economic development in a sustainable manor, further reducing the prospects for growth in the region.
While the past few years have been difficult for the African economy as a whole, there is still hope that the region can get back on track and record the levels of growth needed to reduce poverty and improve living standards for the more than 1.2 billion people that now live in Africa.
Of course, much needs to be done, and some dramatic changes will have to take place.
- First, African countries must do more to attract foreign investment in areas that will benefit their economies over the longer-term.
- Second, African countries need to dramatically diversify their economies in order to reduce their exposure to external shocks and increase their levels of job creation.
- Third, Africa needs to develop manufacturing and service sectors aimed at wealthier export models in order to follow the path to development taken by Asia’s more successful emerging markets.
- Fourth, the region’s infrastructure needs to be improved in order to facilitate both the exporting of manufacturing goods and natural resources, as well as to improve the connections between countries within the region.
- Fifth, the region needs to facilitate the expansion of industries and services that create jobs, as the working-age population in Africa will rise from 700 million today to nearly 1.5 billion by the middle of the century.
It is clear that many countries in Africa are in no position to take the steps that are needed to ensure their longer-term economic growth. Too many countries in the region suffer from deep internal divisions, poor governance or harsh environmental conditions.
However, some countries are already showing signs of taking the steps needed to improve their economic prospects. For example, East Africa’s economies have made strides towards the goal of integrating their region’s economy and developing export-oriented industries, and, as a result, have enjoyed some of the world’s highest rates of economic growth in recent years. Others, such as Ghana in West Africa, have achieved a level of political stability that has allowed them to attract significant foreign investment in recent years. With the African population forecast to nearly double to 2.2 billion within three decades, it is imperative that the region’s economy grow at a pace substantial enough to create jobs and reduce poverty. If not, Africa could become a source of instability for the entire planet as jobs and resources within the region grow increasingly scarce.