Over the past few decades, a number of developing countries have managed to achieve impressive economic growth thus prompting experts to wonder whether similar models could be used to help the African continent overcome the serious economic issues that have been afflicting its population since the 1970s. Poverty, political instability, excessive reliance on commodity exports, income inequality and corruption are only some of the challenges facing most African nations. Interestingly enough, while the African economy is widely perceived as hopelessly unsustainable, its macroeconomic indicators are incredibly promising. As reported by Anyanwu (469), between 1990 and 2013 the African economy grew at an average annual rate of 5%; in 2012, for example, its GDP growth exceeded 6%, despite the negative effects of the Global Financial Crisis. Africa’s growth has been fueled by a number of favorable factors, such as robust domestic demand, demographic growth, positive supply conditions, effective macroeconomic management, prudent fiscal policies, decreased public spending, rising commodity prices and increased foreign direct investment.
Despite Eastern and Western African nations significantly outperforming their Southern and Northern counterparts, all regions – even the ones that do not produce oil – have participated in the recent economic boom. As Devarajan and Fengler (68) pointed out, poverty has been declining at a steady rate since the late 1990s, to the extent that in 2008 the number of Africans living on less than $1,25 dropped from 52% to 48% for the first time. Remarkable progress has also been achieved within the education and healthcare sectors, with secondary school enrollment growing by 50% between 2000 and 2008 and life expectancy increasing by nearly 10% between 2003 and 2013 (Devarajan and Fengler). Such promising trends appear to have enhanced the continent’s attractiveness to foreign investors, to the extent that in 2015, the FDI Intelligence identified Africa as the world’s fastest-growing region for FDI (Fingar). To be more precise, available data indicates that between 2013 and 2014, FDI into the northern half of the continent went from $10 billion to $26 billion, whereas capital investment into Sub-Saharan Africa rose from $42 billion to $61 billion (Fingar). Unsurprisingly, over 50% of firms investing in Africa identified domestic market growth as the main reason behind their decision to enter the complex African market (Fingar).
As Devarajan and Fengler noted, the above factors have contributed to the emergence of an optimistic narrative that has prompted many academics, economists, financial analysts and entrepreneurs to see Africa as an emerging economic superpower. However, a closer analysis of the aforementioned trends suggests that the African economy is far from being sustainable. In fact, while the region’s increased economic momentum is globally recognized, its triggering factors are still widely misunderstood. In this regard, Devarajan and Fengler pointed out that soaring commodity prices have had a tremendously positive impact on the African economy, thus boosting the continent’s exports despite local governments’ failure to implement effective reforms and policies. With commodities accounting for a significant percentage of the continent’s exports, the African economy remains vulnerable to adverse macro environmental phenomena, which means that most African nations are bound to be negatively affected by the next economic downturn.
Moreover, with available data suggesting that Africa’s economic growth was indeed triggered by soaring commodity prices, it is no surprise that a significant number of economists believe that the continent is simply riding a favorable commodities wave and that the region has failed to take adequate steps to promote long-term economic growth and sustainability (Devarajan and Fengler). For example, as of today, the manufacturing sector still accounts for a minor share of the region’s GDP and fast-growing nations such as Burkina Faso, Tanzania and Mozambique are still struggling to lower their poverty rates, which are above the regional average. As a result, it is not unreasonable to assume that the aforementioned macroeconomic indicators will probably collapse as soon as commodity prices start falling.
Political instability and corruption are two other factors that should not be overlooked when evaluating the current status and future prospects of the African economy. Even though most local civil wars have ended, occasional coups d’état, frequent violent conflicts and ongoing tribal tensions keep preventing Africa from achieving the kind of political stability needed to reassure foreign investors. As far as corruption is concerned, recent surveys have revealed that bribery is a very common practice in Africa, to the extent that a significant percentage of Africans – both rich and poor – have reported paying bribes to court officials and police offers in order to get a place at a good school, start a business, build a house on their own land or even avoid paying an unfair fine (The Economist).
As far as human capital is concerned, while most education and healthcare-related metrics have improved significantly over the past three decades, Africa keeps faring very poorly compared to most developing countries. As Devarajan and Fengler (69) noted, the large amount of contradictory evidence surrounding the African economy is the main reason why two opposite and apparently irreconcilable narratives have emerged. However, the authors believe that neither party is entirely right or wrong. According to them, in fact, pessimists focus so much on the region’s excessive reliance on commodity exports that they fail to appreciate the impact that effective economic reforms have had on its economic growth; on the other hand, optimists tend to focus exclusively on GDP growth, thus underestimating many of the region’s persisting issues, including its outdated institutions, pervasive corruption, low school enrollment and literacy rates, inadequate healthcare system and ongoing political conflicts (Devarajan and Fengler, 70).
While available data clearly indicates that both education and healthcare have contributed greatly to Africa’s economic growth, it is still uncertain whether domestic investment and foreign aid programs have had any positive impact on the region. Based on Anyanwu’s (474) findings, it appears that both domestic investment and foreign aid have been playing a key role in stimulating economic growth in Africa, with a 1% increase in domestic investment leading to a 0,7% increase in economic growth and a 1% increase in foreign aid resulting in a 0,4% increase in economic growth. According to Rwandan economist Donald Kaberuka, while the African economy has grown significantly over the past four decades, it is important not to keep in mind that economic growth does not always go hand in hand with economic transformation (OECD Observer). Kaberuka (OECD Observer) argued that the region’s low human development indicators have been preventing it from the making the most out of recent technological advances and other favorable macro environmental phenomena. For example, geo mapping technologies are making it increasingly easy to locate natural resources, and digital technologies have provided users with a cost-effective way to access information and do business (OECD Observer).
In conclusion, the considerations presented in the essay indicate that Africa’s economic growth has been affected by a variety of macro and microeconomic factors, including demographic growth, fluctuating commodity prices, fiscal policies, economic reforms, corruption, education, healthcare, as well as other fundamental metrics. Despite most macroeconomic indicators painting a remarkably rosy picture of Africa’s current status and future prospects, it is important to examine the hidden forces that have been driving its economic growth in order to gain a deep enough understanding of its strengths and weaknesses. A closer analysis of the phenomena that have affected its economic performance over the past three four decades suggests that the region has failed to implement adequate economic reforms, thus becoming excessively reliant on commodity exports.
- Anyanwu, John C. “Factors Affecting Economic Growth in Africa: Are There any Lessons from
China?” African Development Review, vol. 26, no. 3, 2014, pp. 468-493. - Devarajan, Shantayanan and Wolfgang Fengler. “Africa’s Economic Boom – Why the Pessimists
and the Optimists Are Both Right.” Foreign Affairs, vol. 92, no. 3, 2013, pp. 68-81. - Fingar, Courtney. “Foreign direct investment in Africa surges.” Financial Times. 19 May 2015.
https://www.ft.com/content/79ee41b6-fd84-11e4-b824-00144feabdc0. Accessed 8 May 2017. - OECD Observer. Africa’s challenges. 2013,
http://oecdobserver.org/news/fullstory.php/aid/4174/Africa_92s_challenges.html. Accessed 8 May 2017. - The Economist. The scale of corruption in Africa. 3 Dec. 2015,
http://www.economist.com/news/middle-east-and-africa/21679473-gloomy-news-transparency-international-scale-corruption-africa. Accessed 8 May 2017.
