Growing African economies

Solid economic performance across Africa in the decade 1995-2005 contrasts sharply with the economic collapse of 1975-1985 and the stagnation experienced in 1985-95, the World Bank said in a statement.

The report indicates that spreading and sustaining growth going forward can be achieved by accelerating productivity and increasing private investment. Accomplishing this will require improving the business climate and infrastructure in African countries, as well as spurring innovation and building institutional capacity.

“Over the past decade, Africa has recorded an average growth rate of 5.4 per cent which is at par with the rest of the world. The ability to support, sustain and in fact diversify the sources of these growth indicators would be critical not only to Africa’s capacity to meet the MDGs but also to becoming an exciting investment destination for global capital” said Obiageli Ezekwesili, the World Bank Vice President for the Africa Region.

In 2005 (the latest year for which ADI report posts data), the performance varied substantially across countries, from -2.2% in Zimbabwe to 30.8% in Equatorial Guinea, with nine countries posting growth rates of near or above the 7% threshold needed for sustained poverty reduction. African countries fall into three broad categories.

The first group of seven countries comprises the region’s seven major oil exporting economies, home to 27.7% of the region’s population. The second grouping of 18 countries (35.6% of the region’s population) show diversified, sustained growth of at least 4%, and the third grouping of 17 countries (home to 36.7% of the region’s population) is characterized by their resource-poor nature, their strong volatility, are conflict-prone, afflicted or emerging from conflicts or just trapped in slow growth of less than 4%.

“Greater integration with the global economy especially through export trade, are characteristics common to all African countries that have recorded sustained growth. These according to the ADI largely explain the aggregate efficiency levels and investment volumes – comparable to India and Vietnam – recorded by these countries” Ezekwesili said, pointing out that overall investments in Africa increased from 16.8% of GDP to 19.5% of GDP between 2000 and 2006.

In such countries, the ADI finds, policies have gotten better thanks to the reforms of the last decade, inflation, budget deficits, exchange rates and foreign debt repayments are more manageable; the economies are more open to trade and private enterprise; governance is on the mend and more assaults on corruption. These better economic fundamentals have helped to spur growth, but equally important to avoid the growth collapses that took place between 1975 and 1995.ADI warns that growth in Africa is more volatile than in any other region. That volatility, it says, has dampened expectations and investments.

“ADI finds that avoiding sharp declines in GDP growth was critical to Africa’s economic recovery. Indeed, it was crucial for the poor who suffered greatly during the declines,” explained John Page, the World Bank’s Chief Economist for the Africa Region. “Avoiding growth collapses is key to accelerating progress towards the MDGs in Africa.”

The report identifies stronger and more diverse export growth as a key factor needed to sustain growth and reduce volatility. The study laments the higher indirect costs of exporting in Africa (18% to 35% of total costs) compared to indirect costs in China – a mere 8% of total costs. As a result, while efficient African enterprises can compete with Indian and Chinese firms in terms of factory floor costs, they become less competitive due to higher indirect business costs, including infrastructure identified as an “important emerging constraint to future growth”.

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