A few African countries have seen strong economic growth in recent years, bucking the trend of economic hardships world-wide.
What are these countries doing right, and can we learn from their example? The Dolphin Bay Brief pursued the answers to these thorny questions. We hope our readers will find the answers encouraging.
Dr Kouassi Yeboua of the Institute of Security Studies, an expert in development economics and fiscal policy, among other disciplines, told us in an interview that some African countries, notably Ivory Coast, Senegal, and Kenya, have relatively diversified economies and stand out.
He was particularly impressed with the economic growth in the Ivory Coast (Côte d’Ivoire). World Bank figures put 2021 economic growth in the country at an impressive 7%.
Kouassi explained: “Before the Covid-19 pandemic, Côte d’Ivoire was one of the fastest-growing economies globally, with an impressive average growth rate of 8% between 2012 and 2019. Its recent high economic growth is led by commodity exports, increased private consumption, and public investment in infrastructure.”
“Before the Covid-19 pandemic, Côte d’Ivoire was one of the fastest-growing economies globally, with an impressive average growth rate of 8% between 2012 and 2019.”
Several countries in Sub-Saharan Africa, too, were experiencing high growth when Covid-19 struck in 2020 and 2021. This success was driven by a rebound in commodity prices and an easing of Covid-19-related social restrictions: the average GDP growth in Sub-Saharan Africa was 4.7% at the time. Commodity exports have traditionally been the main underlying factor of economic growth in the region.
However, growth in Sub-Saharan Africa is forecast to decline to 3.6% this year, driven by global factors: weaker global growth, tighter global financial conditions, and inflation.
Asked about the issues affecting economic growth, Kouassi told us that security, good governance, and social and political stability are “prerequisites”. These factors have paved the way for better economic performance in several countries in Sub-Saharan Africa, fostering greater domestic and foreign investment.
Côte d’Ivoire suffered an unstable socio-political environment from the late 1990s to the first decade of this century, which stunted economic growth. The recent impressive growth in the country started only in 2012, after the end of the 2010 post-electoral crisis.
The war in Ethiopia, too, shows how instability can imperil an impressive economic growth record. Kouassi stressed: “Ethiopia’s case demonstrates that a state’s capacity to maintain security and social and political stability is one of the most important conditions for economic growth and development.”
Given the structure of its economy, one could arguably expect South Africa to be among the countries with high economic growth rates. The country has a relatively strong manufacturing sector, a sophisticated private sector, highly developed financial markets, and substantial natural assets.
However, economic growth here is undermined by the high cost of doing business, government inefficiencies, state capture, and crippling electricity shortages.
South Africa is also caught in a classic middle-income growth trap, in which countries struggle to transition to becoming high-income countries due to challenges including high costs. This was worsened by the global financial crisis of 2007/08. “To ignite growth, SA needs to improve governance and the business environment, invest in high-quality human capital, and address corruption and electricity shortages.”
Kouassi stressed that the revised growth rate for 2022 in Sub-Saharan Africa can be explained by the international factors of weaker anticipated growth globally, tighter global financial conditions, and persistent inflation.
This is worsened, for South Africa, by the power cuts. These have resulted in increased running costs and reduced productivity for businesses, severely affecting economic growth and further deepening the unemployment crisis, which is a staggering 34.5%.
“South Africa needs to accelerate structural reforms to reduce high business costs, address the energy crisis, enhance industrialisation, and overhaul state-owned enterprises,” Kouassi said.
In a recent report, the World Bank said that in some respects, South Africa was taking steps to improve growth. Important measures in 2021 helped to address structural hurdles to growth over the medium term, including an increase in the licensing threshold for embedded electricity generation.
The report also pointed out that commodity prices remain important for South Africa, a major net exporter of minerals and a net importer of oil.
“We look forward to a future in which more African countries put the well-being of their people first. Africa could be the future economic powerhouse of the world.”
In Nigeria, another economic powerhouse in Africa, slower growth was forecast due to lower oil production, stoked by infrastructural deficiencies and rising insecurity. These factors added to the external shocks, Kouassi said.
The Nigerian government should remove the oil subsidy and protect vulnerable households. It should also embark on fiscal consolation by improving domestic revenue mobilisation, and prioritising spending efficiency.
In the non-oil sector overall, the factors needing to be addressed by Nigeria to encourage private investment and increase productivity and growth include macroeconomic instability, infrastructure gaps, requisite skills shortage, corruption, and an unfriendly business environment.
Commenting on North Africa, Kouassi said that due to the ongoing political instability in Libya, private investment is low and economic growth is mainly driven by oil production and exports. The country’s economic growth is forecast to improve due to the soaring global oil prices. Any adverse shocks to global oil prices would severely affect economic performance.
The situation in Egypt is more complex as its economic growth is driven by oil and gas exports along with increased private consumption, macroeconomic reforms, and investment.
Bertus commented that Kouassi’s observations confirmed his belief that the basic laws of economics and of cause and effect could not be flouted. If a country is to progress and improve the well-being of its citizens, it needs proper governance and pro-growth policies, which should not be ideology-driven.
“If it is so simple why is it so hard to make it work? I think this is the real question,” he added.
“In my view, it is due to those in power losing their way, becoming entangled in personal opportunities rather than seeking the well-being of their country overall.
“We look forward to a future in which more African countries put the well-being of their people first. Africa could be the future economic powerhouse of the world.”
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