World Bank reports a decade of growth in Africa

11.16.07

For the first time in three decades, African economies are growing at rates comparable to the rest of the world. This new trend was revealed in the World Bank’s 2007 edition of the African Development Indicators (ADI), a survey of over 1,000 statistics covering the region’s economic, human and private-sector development, governance, environment, and aid. This year’s ADI showed that many African economies appear to be turning the corner and moving towards a path of faster and steadier economic growth. Average growth in the sub-Saharan African economies was 5.4% in 2005 and 2006 and is projected to be 5.3% in 2007 and 5.4% in 2008.

While much of this growth has been led by the region’s oil exporters, 18 non-oil economies, which are home to more than a third of sub-Saharan Africans, have averaged growth rates of 5.5% for the past decade. While favorable global economic developments contributed to this growth, the report also credits African governments for policy improvements. Inflation, budget deficits, exchange rates and foreign debt payments have become more manageable, and at the same time countries have opened themselves up to trade and investment and taken measures against corruption. The ADI points out that Africa’s “sustained growers” have the following characteristics in common:

• Improved Investment and Efficiency: Two main contributors to Africa’s growth deficit, low investment and low productivity, seem to be diminishing. Investment increased between 2000 and 2006, from 16.8% of GDP to 19.5%. Sustained-growth countries have aggregate efficiency on par with India and Vietnam and they are approaching these countries in investment.
• Increased Trade: 38 African countries increased their exports as the region as a whole saw its exports rise in value from $182 billion in 2004 to $230 billion in 2005. Exports were fuelled by growing pockets of non-traditional exports (such as clothing from Lesotho, Madagascar and Mauritius); the successful connection between farmers and buyers (such as with the initiative which boosted Rwanda’s coffee exports to the USA by 166% in 2005); and the aggressive expansion of successful exports (such as cut flowers, an export from Kenya which more than doubled between 2000 and 2005 and became the country’s second highest export earner, after tea).
• Better Governance: Africa today enjoys better growth prospects because its leaders have undertaken major reforms over the past 10 years. In 2006, Africa’s best Country Policy and Institutional Assessment (CPIA) ratings were in macroeconomic management and trade policy. The average African CPIA score in 1995 was 2.80. By 2006 it had risen to 3.2, and 27 of 36 countries evaluated in both years had improved their scores. Measures of bureaucratic capabilities and the quality of checks and balances institutions improved in six African countries (The Gambia, Ghana, Kenya, Madagascar, Senegal, and Tanzania). Three of the seven countries worldwide showing improved governance in a balanced manner over the last decade were in Africa. In mid-2007 there were still 5 civil wars, much fewer than the 16 that existed in the late 1990s.
• Ease of Doing Business: Before 2005, African countries were slow to reform, but the pace has picked up in the last two years. Presidential investors’ councils or similar bodies are active in seven countries, among them Mozambique, Rwanda, and Tanzania. Forty-six Sub-Saharan countries introduced at least one business environment reform in the past year, and Ghana and Kenya were among the top 10 reformers in the world in 2006/07. Eleven African countries introduced reforms to reduce the time and cost needed to start a business. For example, Burkina Faso created a one-stop shop for business entry, cutting required procedures from 12 to 8 and time from 45 days to 34.

Challenges Ahead: Spreading and Sustaining Growth

Given Africa’s history of volatile growth, maintaining these rates and building upon them will be a challenge. To spread and sustain growth, the ADI says African countries must escape their traditional boom-bust cycle and avoid growth collapses, accelerate productivity and increase private investment. The ADI also highlights infrastructural capacity as a major impediment to economic efficiency on the continent- sub-Saharan Africa lags at least 20 percentage points behind the average for poor developing countries on almost all major infrastructure measures. Besides infrastructure, growth in Africa also necessitates improvements in post-primary education, integration of the region’s economies and increased agricultural productivity. Growth rates must continue to increase in order to make an impact on poverty levels and make substantial progress towards achieving the Millennium Development Goals.

Read the report: http://siteresources.worldbank.org/INTSTATINAFR/Resources/adi2007_final.pdf