On the Path from Instability to Recovery in Sub-Saharan Africa

Fostering These Rapidly Emerging Economies for Long-term Growth

By Aziel Goh

Sub-Sahara Africa (SSA) – a region once associated with political instability, extreme poverty, corruption, and overall economic underdevelopment – has begun to surface on the financial radar of investors and businesses alike over the past few years.  And as it turns out, this blip is gaining momentum at a tremendous speed.

As of late, the world has been anxiously fixated on China and India’s economic boom (and to the disappointment of many, their recent slowdown), on South East Asia’s developing nations, the European financial crisis, and USA’s ‘great recession.’ While the fluctuations of these economies cause rise for concern, sub-Sahara African nations such as Ghana, Nigeria, and Zambia have posted growth figures very few countries in the world can presently best.

Photography by Tal Gertin

The evidence is clear in the numbers.  The International Monetary Fund (IMF) is projecting SSA’s output to increase by 5.25% in 2012-2013, well above the 2012 world average of 3.3%.

Despite this recent explosion of growth, those interested in the region continue to carry two concerns.  What is the reason for this economic increase in the past few years and consequently, can this growth be sustained?

[pullquote]What is the reason for this economic increase in the past few years and consequently, can this growth be sustained?[/pullquote]

There is no single factor that can be solely attributed to this expansion.  Rather, a myriad of influencing features have collaborated to create an environment where an emerging economy can grow. Investments in infrastructure, improvement of business and political policies, and stronger domestic demand have all contributed to the recent economic boom.

Improved commodity prices in the international market combined with the surge in demand from emerging Asian markets have also been a major contributor to Africa’s growth in recent years. Oil, for example, one of the region’s main commodity exports, experienced a surge from $20 to $95 USD a barrel from 1999 to 2013, slightly down from its 2008 peak of $145. Demand and prices for other minerals have risen across the board as well, having slightly curtailed post-GFC.

However, we cannot attribute the economic and social progress made in SSA to rising commodity prices and not reference the active steps taken by the people and leaders to boost not only output but also living standards. The resource market price hike only accounts for one-third of the newfound growth in the region, with the remainder comprising from other sectors such as agriculture, telecommunications, and transport.

Throughout modern history, many African nations have lagged behind the rest of the developed world in areas such as infrastructure and healthcare. Investments and improvements are vital for a country to survive not only economically in this globalised and competitive world, but also to improve the overall social welfare of the nation.

[pullquote]Investments and improvements are vital for a country to survive not only economically in this globalised and competitive world, but also to improve the overall social welfare of the nation.[/pullquote]

Currently, investments are being made to develop the environment for private enterprises as well as much needed capital infrastructure. For example, between 1999 and 2006, Nigeria privatized more than 116 enterprises.  Regional productivity growth averaged 2.7% annually from 1999-2010. In turn, this has resulted in an increase of income, expanding domestic demand and therefore, output.

The growth has lured both private and public foreign capital into the nation, with the World Bank estimating net capital inflows into sub-Sahara Africa to increase from 2008’s $43.4bn USD to $86.1bn by 2015.

These foreign injections increase the available capital available for the nation to spend on technology and infrastructure.  This will consequently further elevate output, productivity levels, and incomes.

As for the long-term sustainability of sub-Saharan Africa’s growth, there are many factors to consider – both internal and external to the region – and only time will tell if the growth of the nations can persist. Net commodity exporting SSA nations, recognizing the finite nature of their resources, have begun to diversify into others sectors and are seeking out ways to secure their nation’s future.

The Ghanaian government, for example, has apportioned 5-20% of oil revenues to be allocated into a stabilization fund. For nations that aren’t as fortunate to be blessed with an abundance of natural resources, urbanization is rapidly occurring, giving rise to greater productivity, economies of scale, and international competitiveness.

Sub-Saharan Africa still has a long road ahead in order to affirm its place as a global power that is here to stay. With over 500 million people of working age, and the expectation that this number will swell to 1.1 billion by 2040, Africa’s sheer labour force will play a key role in cementing its place in the global economy.  With literacy rates among the population of SSA nations below 62% on average, it is evident that reforms need to be made in regards to education in order to capture the full potential of this vast workforce.

Photography by Abad Mahava

Inasmuch as international markets, the success of SSA ultimately lies on the shoulders of the leaders and their decisions in the crucial coming years. Fostering an environment for private enterprise to thrive, implementing education policies, and working to minimize poverty and income inequality – among other things – is a good place to start.

If this change from the top doesn’t occur in some countries and continues in others, this disproportionate growth could very well end up being comparable to the short lived African oil boom of the 1970’s.

Aziel Goh is currently studying a Bachelor of Commerce at The University of Melbourne. He holds a keen interest in learning and writing about economics, business, and finance events that shape the global society in which we live today.