What Forces Are Driving African Economic Growth?

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April 11, 2013 By specialguest

Orthographic map of Africa (Photo credit: Wikipedia)

The continent of Africa has, once again attracted the attention of the political and economic elite in the United States. Four decades ago, the continent mostly received attention from the cultural elite. Many intellectuals were curious about how African nations would navigate their way between the tensions from traditional societies encountering the process of modernization. They saw, in these tensions, case studies for changes that were occurring in other parts of the world.

Now, as competition for raw resources heats up, economic and political elites are turning to Africa for quick and generous capital gains and for the promotion of British and American geostrategic interests.

This is not the first time that American elites have been optimistic about Africa; about a decade and a half ago “Africa experts” boosted new “progressive-minded” leaders, who were said to represent political reform, more grassroots participation in government, more transparent economic policies, and an end to tribal favoritism and conflicts.

Meles Zenawi in Ethiopia, Isaias Afewerki in Eritrea, Yoweri Museveni in Uganda, and Paul Kagame in Rwanda were symbols of this new leadership. It didn’t take long, however, before more tribal conflicts followed and persistent charges of corruption seemed to dash hopes for economic reform. The problems facing Africa were compounded by the way HIV-AIDS ravaged the continent, cutting down many men and women in the prime of their lives. Much of the media in the West questioned whether or not Africa would ever be able to recover. By 2000 the London Economist magazine described Africa on its cover as being “The Hopeless Continent”.

That was then.

Now, coverage of Africa promises a bright new future while noting that there are still a number of difficulties that African nations will have to overcome. Post-HIV AIDS population projections show that in the next 25 years Africa will more than recover its population losses from the 80s and the 90s, At the same time, investment companies see Africa as having some of the world’s most promising opportunities for sharp economic growth.

T. Rowe Price’s “Global Connections” identifies what it believes are the five most promising countries in Sub-Saharan Africa.

There is, of course, South Africa, which is the leading economy on the continent. Price says that South Africa plays the role as the continent’s economic powerhouse, by providing countries with goods and services, as well as investments. Price says that South Africa has a stake in seeing the standard of living rise in its potential trading partners and that this will continue to stimulate economic growth in the continent.

Then there is Nigeria, which Price describes as benefiting from a large population base and from the petroleum export business. Nigeria is consolidating political reform, as exemplified by two peaceful transfers of power within the past decade. Nigeria also has demonstrated its prowess in mobile telecommunications technology. Price says that the Nigerian economy is still hobbled by its political patronage system, and that the economy has not sufficiently diversified.

A third country investors have their eye on is Angola, which is growing rapidly due to oil exports. Price reports that Angola’s economy is vulnerable because it lacks diversity, but for the time being it is rapidly expanding its infrastructure as part of a controversial “infrastructure for oil” trade agreement with China, which critics believe benefits the Chinese more than the Angolans.

A fourth promising country in Africa is Ghana. Price reports that Ghana is “one of the fastest growing economies in the world.” Ghana’s economic growth is based primarily on its oil production, but Price says that political and economic reforms that were in place nearly two decades before oil was discovered in 2007, play a major role in the country’s long-term economic prospects and sustainability, even though Ghana’s rate-of-growth will not remain at its current astronomical levels.

Price reports that Ethiopia is yet another country with a promising future. Ethiopia represents a huge market that can drive economic growth and integration in the East African region. Ethiopia’s economic growth has been fueled by hydroelectric power, which enables it to export electricity to neighboring countries. Price says that Ethiopia has also benefited from large-scale government investment in agriculture, industrialization, and infrastructure.

Much of the promising economic news coming out of Africa reflects the benefit of rising commodity prices. The continent can also expect to capitalize on having a comparatively young demographic structure, as the growth 16 to 30 age bracket provides the potential for an expanded workforce. This is also the demographic that will rapidly adopt mobile technology, which is likely to increase both markets and productivity on the continent.

With sharp and rapid growth, however, there is greater economic disparity. While global demand for Africa’s natural resources will continue to attract investors, the growing gap between the rich and the poor could trigger social and political instability in the future if countries do not take measures to reduce economic disparity so that more people will benefit from the growth of national and regional economies.

African nations should also be careful to direct a sizable portion of the surplus from this growth into infrastructure and economic diversity, so that nations will not be dependent on high commodity prices to sustain a higher standard of living over the long-term.

C. Matthew Hawkins

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