Lee-Roy Chetty
Lee-Roy Chetty

Tracking economic growth and poverty reduction in Africa

Africa is currently experiencing its most dynamic growth period in recent times. Our continent has achieved an overall growth rate above 6 percent for most of the last ten years. This makes Africa one of the fastest growing regions in the world today, with notable progress in nearly all dimensions of development.

Between 2000 and 2010, six of the world’s ten fastest growing economies were situated in sub-Saharan Africa, including our country, South Africa. In addition, a number of states consistently managed growth rates above 7 percent, which is widely seen as the threshold for sustainable poverty reduction. This outstanding growth performance reflects significant improvements in macroeconomic management across the continent.

However, the global financial crisis characterised by stagnant economic growth and recession in the West, has put a dent in Africa’s growth figures recently. While less exposed to international financial markets than other regions around the world, Africa still suffered a reduction in capital flows and a sharp decline in trade. This is due to the fact that many of Africa’s traditional trading partners are found in the EU and North America. However, with the help of anti-crisis measures taken by African governments and a rapid mobilisation of international support, particularly emanating from the East, sub-Saharan Africa, in particular, were able to return relatively quickly to its pre-crisis growth path.

With that being said, Africa still continues to be vulnerable to economic shocks, both externally and internally. With macroeconomic buffers yet to be rebuilt, Africa may still find itself particularly exposed to the Eurozone crisis in the coming years. Estimates are that every 1 percent drop in growth in OECD (Organisation for Economic Co-operation and Development) countries results in a 10 percent fall in demand for Africa’s exports. The recent political crises and unrest in Côte d’Ivoire, Mali and North Africa, the spike in global food and fuel prices and the humanitarian crisis in the Horn of Africa have also negatively affected growth rates on the continent recently.

Overall, however, growing investor confidence that Africa can continue its outstanding growth performance is gaining traction. This confidence exists for a number of reasons.

A decade of reform all over the continent has given rise to improved macroeconomic management and a more attractive business climate. The rise of China and other emerging economies from the East is helping to sustain high commodity prices, to the benefit of the resource-rich African continent. Another key factor is the rise of Africa’s middle class, now thought to number between 300 and 500 million people. With more Africans in a position to make consumer choices, Africa is becoming an increasingly attractive market for both domestic and foreign investors.

However, Africa’s growth still tends to be concentrated on a limited range of commodities and extractive industries. These sectors are not generating the employment opportunities that would allow the majority of the population to share in the benefits. This is in marked contrast to the Asian model, where the growth of labour-intensive manufacturing has helped lift millions of people out of poverty. This unequal pattern of growth is exacerbated by poor infrastructure and chronic under-investment in agriculture, which prevent the rural population from sharing in the new urban prosperity.

As a result, Africa remains one of the most unequal regions in the world. Income inequality, as measured by the Gini index, has widened over the past six years, as it has in other developing regions, and has only showed incremental levels of improvement since 1980. Of the ten most unequal countries in the world in 2010, six were in sub-Saharan Africa.

One of the consequences of high inequality is that economic growth has less of an impact on poverty reduction. With a result, growth is not reaching many of those in dire poverty. Since 2005, the proportion of Africa’s population living on less than $1.25 per day decreased from 51 percent to 39 percent. These figures are a very creditable performance by international standards, but still short of the rate of poverty reduction needed to achieve the first Millennium Development Goal (MDG) outlined by the United Nations (UN).

Africa continues to make progress on a broad range of development frontiers. Poverty rates are slowly falling, the private-sector environment is improving rapidly, trade is expanding, and more and more people are becoming connected – to roads, electricity, information technology, water and sanitation. Education and health are making steady progress and the number of fragile states has declined.

However, due to the fact that Africa’s growth is concentrated only in a few sectors, this only tends to benefit only part of the population on the continent. Despite continued GDP growth rates, comparable to that there is a need to change the quality of growth. With a focus on creating more and better jobs and economic opportunities which would result in lifting more of our fellow Africans out of poverty.

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