15 November 2007
Many African countries appear to be on a path of faster and steadier economic growth, but more has to be done to diversify exports and create an environment conducive to increased private investment, the World Bank reports in its 2007 Africa Development Indicators.
Speaking in Johannesburg at the release of the indicators this week, World Bank country director Ritva Reinikka said African economies’ performance between 1995 and 2005 reversed the collapses between 1975 and 1985 and the stagnations witnessed between 1985 and 1995.
“Average growth in sub-Saharan economies was 5.4% in 2005 and 2006. The consensus projection is 5.3% for 2007 and 5.4% for 2008,” she said. “Leading the way are the oil and mineral exporters, thanks to high prices, but 18 non-mineral economies, with more than a third of the sub-Saharan African people, have also been doing well.”
In his presentation of the indicators, World Bank Africa region chief economist John Page explained that African economies could be divided into three groups: slow growth economies such as Zambia, Guinea and Zimbabwe; diversified economies with gross domestic product (GDP) growth of about 4% a year such as Mozambique, Rwanda, Uganda and Ghana; and finally oil exporting countries like Nigeria, Angola, Equatorial Guinea, Chad and Sudan.
Favourable policies, higher growth
With the development report questioning whether Africa’s steady growth had to be attributed to good policies or plain luck, Page said that in his opinion it seemed to be a bit of both, referring to the Albert Einstein quote: “Fortune favours the prepared mind”.
However, he said that countries with the correct policies were more likely to experience stronger economic growth.
Page pointed to one of the worrying factors highlighted in the report as the lack of export diversification in many African economies, despite good growth in exports. “Many of these countries’ exports that were important in 1975 are still important today.”
In addition, he said that while the actual GDP growth of many African countries had in many cases experienced real growth, the volatility of Africa’s actual growth remained a problem, with growth across the continent barely topping 2% over the last decade.
“There have been several episodes of growth acceleration, but acceleration was usually followed by growth collapses,” he said. “Thus the very slow long run growth cycles in which growth and then collapse preceded each other in an almost predictable pattern.”
‘Good times for the continent’
Since 2005 however, economists have noticed that the frequency between what he referred to as the “good and bad times” had started to shift in favour of the good times for the continent.
Explaining the term “good times”, Page said it is when savings and investment are higher, trade is substantially greater, and policies and institutions, including the government, function effectively.
He pointed out that despite Africa managing to grow in tandem with many of the world’s developed economies, the fact that the continent was a natural resource hub for the rest of the world made it increasingly vulnerable to outside shocks and changes in commodity prices.
It was therefore crucial for countries to improve their investment climate, bolster infrastructure, spur innovation and build the institutional capacity to increase private investment, which is crucial to accelerate growth on the continent.
Regarding the cost of doing business on the continent, Page explained that Africa was still a “high cost, high risk place to do business as opposed to East Asia and the Pacific”.
He added however, that structural policy changes on the continent were improving growth forecasts, adding that it was good policies that would build the basis on which Africa could grow further.