A Brief Overview of Africa’s Economic Progress

Much of what you hear in the media about Africa can be pretty bleak, but Africa’s economies, with exceptions, are performing quite well overall. Despite the economic crisis affecting much of the world, Africa is still experiencing growth every year that is on track with previous years.1 After spending a semester at GPIA learning about all the problems associated with poverty in Africa, I found this new information extremely uplifting. 22 out of Africa’s 48 countries have reached middle-income status.1 Africa’s GDP is rapidly growing in many of its countries, and some its countries’ economies are growing faster than any other part of the world. Examples include: Rwanda, Nigeria, Chad, Mozambique, and Angola, all with annual average GDP growth rates of over 7% from 2001-2010. And all are in the top ten of the world’s fastest growing economies. Angola was actually first on the list with an annual average GDP growth rate of 11.1% from 2001-2010.5 The collective GDP in Africa was $1.6 trillion in 2008, which is approximate to the GDP of Brazil or Russia.2

Interestingly enough, a few billionaires are even emerging out of Africa, such as one billionaire out of Nigeria, named Aliko Dangote, who is in the cement business.4 He does have some shady political ties, but his cement business made him wealthy and it seems legitimate. Of course, there is still a huge gap between the rich and the poor in African countries, but a middle class is arising.4 By 2015, 100 million households in Africa are expected to reach middle class status, which is almost the same amount as India today.4 Globalization has enveloped Africa, with trade between Africa and the rest of the world increasing. Africa is becoming increasingly urbanized, which is a good thing because despite the fact that this can create larger slums, it also increases productivity.2 No country has achieved high income without high urbanization.1 The banking, retailing, construction, and telecommunication sectors are growing in Africa. Malls and internet cafes are popping up in cities and cell phone use is becoming more widespread, showing that Africans have more disposable income.3 A consumer culture is emerging in Africa.

What about oil and precious minerals? Minerals do play an important role in economic growth in some African countries with Guinea being a major producer of bauxite and Zambia and the Democratic Republic of the Congo having a substantial share of copper. Ghana and Mali are big producers of gold.1 Oil is another major resource for some countries, such as Equatorial Guinea, Algeria, Angola, Chad, Congo, Gabon, Libya, and Nigeria.2 However, according to McKinsey Global Institute, Africa’s oil and mineral resources only account for one-third of its economic growth. African countries with these resources had similar growth rates to African countries without oil and mineral resources. The remainder of the growth is mainly from transportation, wholesale and retail, manufacturing, and telecommunications sectors.2

Although, things are looking up, Africa does still face many struggles. It is in the midst of a delicate economic balancing act and any war, natural disaster, or bad government policies could stop growth and/or reverse the gains in any given country.2 Africa could also be affected by the crisis in the Euro-Zone, as well as a slow-down of growth in China, which is an important market for Africa’s mineral exporters.2 The African countries who depend on oil for their economic growth lack diversified economies, which could be a problem in the future. What happens to these countries when the oil runs low? Rising prices for food and grain could also be a problem, as well as ongoing conflicts in certain areas. According to the World Bank, ten African countries which are affected by conflict and fragile, currently have very little chance to become middle income countries by 2025.1 Drought is also affecting areas and this may only get worse as global warming continues, leading to food shortages. And countries in Africa with natural resources need to make a deliberate effort to use the wealth generated by minerals and oil to reduce poverty and create a better standard of living for their people. Africa also lags behind the world in education.4

However poverty in Africa has been on the decline, which is always good news. Rates have been dropping every year and the number of people living on 1.25 a day fell for the first time between 2005-2008.1 Current and forecasted trends leave much to be hopeful about concerning Africa’s economic growth.2 Africa is attracting more foreign investment. In 2010, Africa gained more foreign investment (more than $55 billion) than it received in aid. This is five times the amount of foreign investment it received ten years earlier.4 According to McKinsey Global Institute, “the rate of return on foreign investment is higher in Africa than in any other developing region.” So Africa is the place to invest your money if you have money to spare, all of you foreign investors out there.

African governments are adopting policies that encourage market growth and the creation of a private business sector by making it easier to do business in Africa. Privatization of formerly state-owned enterprises is occurring. Trade barriers have been reduced. Corporate taxes have been lowered and legal and regulatory systems have been made stronger and infrastructure is slowly improving.2 The future definitely looks brighter for much of the continent.

SOURCES:

1WORLD BANK, “Despite Global Slowdown, African Economies Growing Strongly― New Oil, Gas, and Mineral Wealth an Opportunity for Inclusive Development,” World Bank Press Release, October 4, 2012.

2Leke, A., Lund, S.,Roxburgh, C. & van Wamelen, A. “What’s driving Africa’s growth,” McKinsey Global Institute, June 2010.

3“Despite Grim Headlines, Africa is Booming,” Talk of the Nation, Host Neal Conan, NPR, July 11, 2012, available at: http://www.npr.org/2012/07/11/156621234/despite-grim-headlines-africa-is-booming (accessed February 11, 2013)

4“Africa’s hopeful economies-The sun shines bright,” December 3, 2011, The Economist, Lagos, From the Print Edition, available at: http://www.economist.com/node/21541008 (accessed February 11, 2013)

5“Africa’s impressive growth,” January 6, 2011, The Economist online, available at: http://www.economist.com/blogs/dailychart/2011/01/daily_chart, (accessed February 11, 2012)

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