How realistic are expectations about Africa’s economic prospects? There are several reasons why we should be both optimistic and cautious about the continent’s future economic performance, writes Stephen Onyeiwu.
The world’s eyes have turned to Africa.
They are attracted by its economic performance that even the most cautious analysts are so sanguine about the continent’s economic prospects that they are willing to bet on its bright future.
International Monetary Fund expects sub-Saharan Africa to grow at an average annual rate of 5,7% between 2014 and 2019.
This would make the subcontinent one of the three fastest-growing regions in the world. It will also mark the first time that Africa would have maintained a robust growth rate continuously for more than a decade.
Are these forecasts realistic?
Can Africa’s growth resurgence be sustained? There are several reasons why we should be both optimistic and cautious about the continent’s future economic performance.
Reasons for optimism
While military dictatorships, autocracies and one-party systems have overseen impressive growth before, these are the same governments where policies have resulted in unsustainable budgets, price control and trade protection which is harmful to growth and a lot needs to be done regarding this. The positive is that there is a good number of countries on the African continent that have made substantial improvements to their policies.
An era of accountability
One reason growth stalled in the past was that leaders were not held to high standards of performance.
This has since changed as there are now higher levels of accountability. The Arab spring has made leaders realise that the era of impunity and insensitivity to citizens’ plight is over.
Shift from cronyism to entrepreneurship
The continent has witnessed the emergence of entrepreneurs willing to invest in productive sectors like manufacturing, information technology, agribusiness, aviation and services.
These entrepreneurs can infuse new dynamism into African economies.
This contrasts with the post-independence era’s bourgeoisie, who depended essentially on government contracts and largesse.
Discovery of resources
Prospects for growth are likely to be enhanced by recent discoveries of new resources especially oil and gas.
During the past five years, significant oil and gas reserves have been found in Cote d Voire, Ghana, Madagascar, Uganda, Tanzania, Kenya and Mozambique is expected to become the third largest producer and exporter of liquefied natural gas in Africa after Algeria and Nigeria.
Vast iron ore reserves have also been discovered in Guinea and Sierra Leone.
Why caution is warranted
Future economic growth depends on whether widespread youth unemployment is addressed. Of Africa’s 1,033bn people, 200m are between the ages of 15 and 24, making the continent’s population the youngest in the world.
Globally, almost a third of this age group will be African by 2050.
Youth unemployment will continue to threaten growth as jobless youth in Africa are drawn into unproductive activities like terrorism and other forms of violence.
Violence and instability
Level of violence is dropping in the region but still affects Africa.
This is due to its porous borders, conflicts and violence in one place can easily spill into neighbouring countries.
Al Shabab, A I Qaeda and Boko Haram continue to be forces of violence and instability in the northern, eastern and western territories.
Prolonged conflicts among various militant groups in the Democratic Republic of Congo has destabilised the economies of Rwanda and the DRC
Unexpected shifts of global economy
Most economic forecasts expect growth to be anemic in developed economies in the short to medium term, especially in the euro zone.
Slower growth will affect African economies in various ways.
Inequality and relative deprivation
Africa is one of the most unequal regions in the world. Almost one out of every two Africans lives in extreme poverty. Poverty rates have been declining but not as fast as expected.
In the midst of this poverty one finds sprawling mansions, several posh cars for one household and elites leading opulent lifestyles.
This wealth would not be a threat to growth if it was a result of hard work, innovation and entrepreneurship.
Instead it is the fruit of unabashed graft, cronyism, criminal activities and at times, outright theft of public funds.
Lessons from China
China has managed to sustain high growth rates of GDP for more than a decade. One reason for this is that its growth is driven by exports of manufactured goods.
China’s growth has also been sustained by an investment boom, especially infrastructure. Africa has been doing the opposite: it exports mainly agricultural and mineral products, shifts resources towards consumption rather than investment and fails to invest in infrastructure.
If the region’s momentum is to be sustained, African countries need to reverse these trends
-This article is based on Stephen Onyeiwu’s book. Emerging Issues in Contemporary African Economies- it was first published in Financial Mail.