factors affecting economic growth in africa
Finally, African governments increasingly adopted policies to energize markets. However, the war in the northern Tigray region, which began in late 2020, resulted in immense disruption. xZKo8QZ( These factors affect not only productivity, but also efficiency. The Democratic Republic of the Congo, for example, controls half of the worlds cobalt reserves and a quarter of the worlds diamond reserves. .chakra .wef-facbof{display:inline;}@media screen and (min-width:56.5rem){.chakra .wef-facbof{display:block;}}You can unsubscribe at any time using the link in our emails. Global executives and investors cannot afford to ignore this. For more interesting articles on the African economy and construction sectors, feel free to tune in to us. This may be through higher tax revenue, consumers' ability to afford electricity, a better financial position for. In a study by Anyanwu (2014), it was found that even the smallest increase in government effectiveness would lead to an increase in economic growth as well. For China, the key factors driving its economic growth are domestic investment, trade openness, initial income, and rural share of the population. Investment in humancapital enhances the workforce's ability to work and increasesproductivity. They trimmed their foreign debt by one-quarter and shrunk their budget deficits by two-thirds. But many pretransition economies are now growing very fast. Foreign exchange restrictions and mounting debt stretched the Horn of Africa countrys economy amid reports of massive government spending on the war effort. Swift responses should be in place to protect displaced populations and alleviate the economic and social strains often generated in host countries. In 2022, Ethiopia experienced the highest inflation in a decade. 0000005145 00000 n 0000008657 00000 n OVERVIEW. The economy experienced five years of contraction between 1982 and 1993. Sierra Leone has about 5 percent of the worlds diamond reserves. It has been the main engine for poverty reduction in sub-Saharan Africa. First, to the extentthatcorruptiondecreaseseconomicgrowth,whichismorelikelytoincrease the income share of the poor than the rich, it increases income inequality and poverty.Second,corruptionleadstoabiasofthetaxsysteminfavoroftherichand powerful, thus making theeffectivetax system regressive (Hendriks et al. Looking ahead, these diversified economies face the challenge of continuing to expand exports while building a dynamic domestic economy. Natural resources accounted for just 35 percent of Nigerias growth since 2000, and manufacturing and services are growing rapidly. Addressing Political Instability to Sustain Africas economic growth. I am a writer based in Kenya with vast knowledge in Business, Economics, Blockchain, Law and Environmental Conservation. Political instability shortens policymakers timelines, leading to suboptimal short-term macroeconomic policies. The country turned around its economy with mega-projects like the Grand Ethiopian Renaissance Dam, the largest in Africa, and large-scale construction projects in Addis Ababa, Africas diplomatic capital. Since 2000, Africas annual private infrastructure investments have tripled, averaging $19 billion from 2006 to 2008. Until the COVID-19 pandemic, Kenya was one of the fastest growing economies in Africa, with an annual average growth of 5.9% between 2010 and 2018. Ethiopia and Mali have 22 million and 19 million hectares of arable land, respectively. The $750 million South Africa Covid-19 Response Development Policy Operation supports government efforts to accelerate its COVID-19 response, aimed at protecting the poor and vulnerable from adverse socio-economic impacts of the pandemic and promoting sustainable recovery. 0000011716 00000 n Keywords South Africa Education Economic growth Citation stream The GDP of African countries is expected to rise if conditions remain stable and if more innovations come rushing through the continent. Domestic services, such as construction, banking, telecom, and retailing, have accounted for more than 70 percent of their growth since 2000. i\^_&T(HF-'7R{~oxc08!(iIj5UW0(%-|/n{g=:_UUje\mMiB D&TpS6d8Zg*xuwMY1'Q^f*pn;Re~(4e:~D6R,1=6ZV8,U4>?H!Z"Aa 8Z2I4C1 j=CI#46,Hrk[C. Ethiopia represents a prime example of how political instability impedes Africas economic growth. Determinants of Growth in Sub-Saharan Africa. Each African country will follow its own growth path. MGI research finds that over the next decade, the worlds liquid-fuel consumption will increase by 25 percenttwice the pace of the 1990s. This factor affects economic growth in Africa because most of the funds intended for development are lost through corruption. The 1981 Berg report highlighted poor governance as a primary culprit responsible for the poor state of Africas economic health. 0000026217 00000 n Aspects of this agreement have been challenged in court because of disputes over the mining rights. 0000004577 00000 n Broadly speaking, they already have the continents highest rates of literacy and school enrollment; the next step will be to increase secondary and tertiary enrollments and improve the overall quality of their education systems. Today, 40 percent of the continents one billion people doa proportion roughly comparable to Chinas and larger than Indias (Exhibit 2). One could easily forget that Ethiopia was once seared into the global consciousness with an overwhelming famine in the 1980s. 35K views, 1.2K likes, 69 loves, 290 comments, 62 shares, Facebook Watch Videos from Channels Television: News At 10 Since 2000, the number of Nigerias telecom subscribers increased from almost zero to 63 million, while banking assets grew fivefold. Research from the McKinsey Global Institute (MGI) shows that resources accounted for only about a third of the newfound growth.1 1. Photo: Panorama of downtown Luanda, Angola, with buildings under construction and construction cranes in the background (Siempreverde22 | Dreamstime). These countries had either a GDP of roughly $10 billion or more in 2008 or a GDP growth rate greater than 7 percent a year from 2000 to 2008. according to their levels of economic diversification and exports per capita. These investments have been mostly focused on the extraction and export of the continents natural resources. During the late Muammar Gaddafis reign, Libya had one of Africas highest political and economic stability levels. Mining production fell while manufacturing production stagnated, as load-shedding and transport bottlenecks intensified. (MGI research finds that internal services account for virtually all net job creation in high-income countries and for 85 percent of net new jobs in middle-income ones.) Project activities have included measures to increase the supply and distribution of water, and to improve security through more staffing, equipment, facilities, training, fence upgrades, and improved aerial support and communications, as well as national and regional coordination. These trends have prompted growing social demands for government support, which could put the sustainability of public finances at risk if they are to be met. During that period, many African and Arab countries recognized and admired Libya. However, the region remains prone to conflicts with the scourge of armed conflict in 2021 and early 2022. Image:REUTERS/Mike Hutchings. Inequality in wealth is even higher, and intergenerational mobility is low, meaning inequalities are passed down from generation to generation with little change over time. However, investors in the development of renewable energy face problems with decision making due to the existence of multiple criteria, such as oil prices and the associated macroeconomic performance. Two decades on from the formal end of the old apartheid regime, the South African economy can lay claim to being one of the wealthiest in Africa . It took over a century for the whole continent to get to this point. Measured in terms of purchasing-power parity (PPP), which takes into account the relative prices of nontradable goods in different countries. Their cities added more than ten million people in the last decade, real consumer spending has grown by 3 to 5 percent annually since 2000, and 90 percent of all house-holds have some discretionary income. Prices for minerals, grain, and other raw materials also soared on rising global demand. India, Brazil, and Middle East economies are also forging new broad-based investment partnerships in Africa. 0000002007 00000 n Domestic consumption is the largest contributor to growth in these countries. However, medium-term prospects for higher and more inclusive growth remain constrained. Segun Faniran is a Civil Engineer with several years of experience providing construction planning and construction-related project management services internationally. Rising oil prices have lifted their export revenues significantly; the three largest producers (Algeria, Angola, Nigeria) earned $1 trillion from petroleum exports from 2000 through 2008, compared with just $300 billion in the 1990s. Manufacturing and services account for just one-third of GDPless than half their share in the diversified economies. This is to support the second phase of the government TreasurysCities Support Programme. If rhino population growth rates climb over five years (that is, if black rhino growth is above 4% annually), investors receive a payment, financed through the Global Environment Facility (GEF), of $0 to $13.76 million. But several measures of health and education have not improved as fast. Coltan, or columbite-tantalite, is the raw ore from which tantalum is processed. The deal was originally valued at $9 billion. Meanwhile, Africas labor force is expanding, in contrast to whats happening in much of the rest of the world. Together, such structural changes helped fuel an African productivity revolution by helping companies to achieve greater economies of scale, increase investment, and become more competitive. Throughout Gaddafis reign, the administration launched ambitious social programs in housing, health, education, public works, and electricity. Like other middle-income countries, such as Brazil, Malaysia, and Mexico, these African states must move toward producing higher-value goods. The experience of emerging-market oil exporters outside Africa illustrates the potential for greater diversification. At the same time, Africa is gaining increased access to international capital. They help countries prioritize the most impactful actions that can reduce greenhouse gas (GHG) emissions and boost adaptation while delivering on broader development goals. 0000005479 00000 n 0000030284 00000 n Private-investment inflows are surging. This study aims to analyze the differential effects of . These investments have been mostly focused on the extraction and export of the continent's natural resources. For China, the key factors driving its economic growth are domestic investment, trade openness, initial income, and rural share of the population. In addition to immeasurable human suffering, conflicts impose large economic costs. 0000010318 00000 n This dependence has driven up the cost of metals. This elevated status translated to literacy levels of 88.4 per cent, a life expectancy of 74.5 years, and gender equality. Here's why, How implementation committees are moving the African free trade area from talks to action, Africa's universities are surging in the world rankings, Accelerating action on Africas health agenda: Here's everything you need to know, African Free Trade Area can herald $12 billion growth for the continents automotive industry, is affecting economies, industries and global issues, with our crowdsourced digital platform to deliver impact at scale. The diversified economies can also expand manufacturing, particularly in food processing and construction materials, for local and regional markets. They are: (i) insufficient skills; (ii) the skewed distribution of land and productive assets, and weak property rights; (iii) low competition and low integration in regional and global value chains; (iv) limited or expensive connectivity, and underserviced, historically disadvantaged settlements; and (v) climate change and the transition to the low-carbon economy, as well as water insecurity. The rest resulted from internal structural changes that have spurred the broader domestic economy. ODA, or official development assistance, is a type of government aid provided for the stimulation of businesses, projects, trades, and other economic players. 0000025833 00000 n This represented the configuration of a more socialist approach. And the rate of return on foreign investment is higher in Africa than in any other developing region. ODA inflows would not have been effective without good government implementation. by Segun Faniran 17th March 2021 There are many factors that have contributed to this steady rise, one among many is the new generation of workers who are far more educated. 6 Leading Factors for Africa's Economic Growth In the past, Africa has relied a lot on foreign direct investments to fuel its economies. 0000006609 00000 n Rhino Bond investors agree to forego periodic interest coupon payments and instead direct the money to fund rhino conservation in two protected areas in South Africa. Ethiopia and Rwanda, for example, saw some of the fastest expansions in the worldan average of more than 7.5 percent per year over the past two decades. In the past, Africa has relied a lot on foreign direct investments to fuel its economies. The economies in the pretransition segmentthe Democratic Republic of the Congo, Ethiopia, Mali, and Sierra Leoneare still very poor, with GDP per capita of just $353one-tenth that of the diversified countries. These included the nationalization of several Western oil companies, such as the creation of the National Oil Corporation (NOC) and the British Petroleum (BP). They privatized state-owned enterprises, increased the openness of trade, lowered corporate taxes, strengthened regulatory and legal systems, and provided critical physical and social infrastructure. Gaddafi ruled Libya for 42 years, leading the North African nation to significant social, political, and economic growth. These relationships involved investment, trade, and the presence of migrant workers from the three countries in Libya. The local service sectors (such as telecommunications, banking, and retailing) in the transition economies also have potential. five of the ten least-peaceful countries globally were in Africa. From 1996 to 2010, it became necessary for many people to move closer to the cities where work opportunities abound. Economic Growth and Trade. Economic growth remains a critical element for development. These policies resulted in substantial improvements in the living standards of Libyans. 0000001160 00000 n A conflict ceasefire and permanent solution to DRCs political instability would unlock the countrys potential and Africas economic growth. 0000007040 00000 n The South Africa CCDR was prepared in late 2022 and shows that South Africas ambition to build a more inclusive, resilient, and sustainable economy depends on the extent that the country will be able to shift from its current heavy dependence on coal to low-carbon activities (decarbonize) and to address the growing risks from climate change (adapt and build resilience). Government spending from resource-generated revenue contributed an additional eight percentage points. If you wish to read more Africaeconomy facts, make sure to subscribe to ConstructAfrica today. Nigeria privatized more than 116 enterprises between 1999 and 2006, for example, and Morocco and Egypt struck free-trade agreements with major export partners. We provide a wide array of financial products and technical assistance, and we help countries share and apply innovative knowledge and solutions to the challenges they face. DRCs political instability is built upon fighting on account of ethnic and political tensions, economic greed, and mismanagement. With a GDP of $95 billion, Kenya recently reached lower-middle income status, and has successfully established a diverse and dynamic economy. Weak structural growth and the COVID-19 pandemic have exacerbated socio-economic challenges. Urbanization has also prompted a construction boom that created 20 to 40 percent of all jobs over the past decade. Our in-depth reports give rare insights into the construction markets of high performing African economies. Telecommunications, banking, and retailing are flourishing. Growth in Sub-Saharan Africa is forecast to pick up to 2.6 percent in 2017 and to 3.2 percent in 2018, predicated on moderately rising commodity prices and reforms to tackle macroeconomic imbalances. Domestic demand has played a more limited role given the region's slow recovery. While short-term risks remain, our analysis suggests that Africa has strong long-term growth prospects, propelled both by external trends in the global economy and internal changes in the continents societies and economies. Not only did the quality of education increase, but the number of enrollees also had an effect on economic growth. <>/ExtGState<>/XObject<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 595.44 841.92] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> Gain a competitive advantage into the lucrative construction industry in sub-Saharan Africa with our in-depth construction market reports for sub-Saharan Africa countries. Download an executive summary or read the full report. Gross Private Domestic Investment, or domestic investment for short, is getting more attention now more than ever. We hope you learned a lot from this article about the factors that affected Africa's economic growth. Deadly drought in Horn of Africa would not have happened without climate change, Cholera cases are on the rise. The cause of this economic growth is the dependence of foreign countries on exporter products, which leads to long-term development. Along with other countries seeking to make this jump, Africas diversified economies need to improve their education systems. The World Banks strategy in South Africa reflects the countrys development priorities and its unique leadership position at sub-regional and continental levels. The intensity of conflicts in recent years remains lower than that observed in the 1990s. The percentage of the population living below the upper-middle-income country poverty line fell from 68% to 56% between 2005 and 2010 but has since trended slightly upwards, to 57% in 2015, and is projected to have reached 60% in 2020. Socio-economic challenges were further exacerbated by rising fuel and food (bread and cereals) prices, which disproportionately affected the poor. trailer << /Size 271 /Info 222 0 R /Root 239 0 R /Prev 173630 /ID[<58856969bbedf7d17d0a6624cf68ea50><58856969bbedf7d17d0a6624cf68ea50>] >> startxref 0 %%EOF 239 0 obj << /Pages 223 0 R /Type /Catalog /AcroForm 240 0 R >> endobj 240 0 obj << /Fields [ ] /DR 218 0 R /DA (/Helv 0 Tf 0 g ) >> endobj 269 0 obj << /S 1012 /V 1134 /Filter /FlateDecode /Length 270 0 R >> stream In many cases, this turmoil is linked to the fact that resource wealth is closely associated with poor governance, clientelism, and the absence of a social contract between the citizens and their leaders. For the most part, Africas oil and gas exporters used this revenue well, to reduce budget deficits, fund investments, and build foreign-exchange reserves. Fewer people lived below the poverty line in Gaddafis era compared to leading countries like the Netherlands. The World Bank is supporting the implementation of a new wildlife initiative, a $8.9 million grant from the Global Environment Facility (GEF), to step up investment in South Africas wildlife and biodiversity sectors in the Kruger National Park, Addo Elephant National Park, and iSimangaliso Wetland Park. Next, Africas economies grew healthier as governments reduced the average inflation rate from 22 percent in the 1990s to 8 percent after 2000. Regional cooperation that would have propelled Africas economic growth in the larger context has also taken a blow from Libyas conflict. Global executives and investors must pay heed. Undeniably, the study has revealed that the general financial inclusion, penetration and availability dimension, . Finally, many Africans are joining the ranks of the worlds consumers. It has diminished the macroeconomic outlook with a significant drop in growth. 0000004866 00000 n 0000002360 00000 n While Africas collective long-term prospects are strong, the growth trajectories of its individual countries will differ. The region is projected to grow by 3.4 percent, buoyed by the global recovery, increased trade, higher commodity prices, and a resumption of capital inflows. But they increasingly export manufactured goods, particularly to other African countries. The key challenges for this group will include maintaining the peace, upholding the rule of law, getting the economic fundamentals right, and creating a more predictable business environment. To be sure, urbanization can breed misery if it creates slums. In this context, the COVID-19 Social Relief of Distress Grant, introduced in May 2020, was extended for another year until March 2024. To be sure, Africa has benefited from the surge in commodity prices over the past decade. Gaddafi moved his government to utilize oil income to lift redistributive measures among the Libyan population, creating a new economic and social development model. 0000009214 00000 n Meanwhile, Africa boasts an abundance of riches: 10 percent of the worlds reserves of oil, 40 percent of its gold, and 80 to 90 percent of the chromium and the platinum metal group. To learn more about cookies, click here. Ordinary citizens have faced weakening incomes and rising poverty. Thus, there is a need to reemphasize sustained economic growth in Africa. It is aligned with the Banks Crisis Response Approach, aimed at protecting lives and livelihoods and supporting inclusive and resilient growth. The views expressed in this article are those of the author alone and not the World Economic Forum. dimensions of financial inclusion affects economic growth in sub-Saharan Africa. Moreover, Libyas conflict has caused a sharp fall in government revenues, expenditures, and investment. In Indonesia, manufacturing and services account for 70 percent of GDP, compared with less than 45 percent in Algeria and Nigeriaeven though all three countries have produced similar quantities of oil since 1970. Another priority for the diversified economies is to continue building their internal service sectors, which will be important sources of future employment. If you continue to navigate this website beyond this page, cookies will be placed on your browser. 3 0 obj Catalyzing Financing and Capacity for the Biodiversity Economy Around Protected Areas Project. 1998), Alan Gelb, Vijaya Ramachandran, and Manju Kedia Shah. The World Bank Group works in every major area of development. As a result, consumer-facing sectors such as retailing, banking, and telecom have grown rapidly. A growing economy creates room for increasing electricity generating capacity. The operation is the first budget support South Africa has received from the World Bank during the countrys post-apartheid, democratic era. <>/Metadata 2831 0 R/ViewerPreferences 2832 0 R>> All focus areas are approached through a lens of harnessing the digital economy, empowering women and girls, strengthening public sector institutions and governance frameworks, and promoting integration and cooperation in the region and continent. Several economic and structural factors, including low-income levels, poor growth outcomes, weak governance, state capacity, and inequality of opportunityespecially across ethnic, religious, and regional groupsincrease the likelihood of conflict. Africa is nearly as urbanized as China is and has as many cities of one million people as Europe does. As for the agricultural side, agricultural raw materials are deemed more valuable locally and internationally. At the end of 2022, there were still close to half a million fewer jobs than at the end of 2019, with women and youth persistently more impacted. The remaining two-thirds came from other sectors, including wholesale and retail, transportation, telecommunications, and manufacturing (Exhibit 1). Economic growth in these countries remains closely linked to oil and gas prices. Others, like Kenya and Uganda, are already more diversified. All the factors for economic growth that will be mentioned here did not happen overnight. This helped inform discussions on the development of a vision for South Africa to be a leading fintech hub for Africa by promoting financial inclusion while spurring competition, digital skills, and economic growth through innovation. Over the years, diplomatic efforts have focused on finding solutions to the insistent conflict with little success. Economic growth is also identified as a major driver of the development of renewable energy. Banking and telecom, in particular, are expanding thanks to a series of economic reforms. Political instability and governance challenges have caused a significant loss of economic potential in Libya, estimated at $170 billion since 2011. M==( bk+]yg(fbHTH4Eif! Corruption occurs when government officials misappropriate public funds, making it difficult to achieve its goals. Although Africa is more than a story about resources, it will continue to profit from rising global demand for oil, natural gas, minerals, food, arable land, and the like. Instead, inflation is mainly driven by external factors, including global commodity prices and disruptions to global supply chains. Ethiopias economic growth averaged 11 per cent over the past decade. Schwab Foundation for Social Entrepreneurship, Centre for the Fourth Industrial Revolution, Africa's future is innovation rather than industrialization. Yet Africas collective GDP, at $1.6 trillion in 2008, is now roughly equal to Brazils or Russias, and the continent is among the worlds most rapidly growing economic regions. Of course, unforeseen factors like global pandemics cannot be avoided. The coupon payments that are foregone are used to improve the management of the Addo Elephant National Park and Great Fish River Nature Reserve, both of which contain populations of black rhino, and to raise the benefits of their presence to local communities. Factors driving down China's growth include inflation rate, domestic credit to the private sector, net ODA inflows, population growth, telephone density, and oil and agricultural/raw materials prices. Emerging markets require large investments to build a modern economys infrastructure. They are among the continents richest economies and have the least volatile GDP growth. But in the long term, internal and external trends indicate that Africas economic prospects are strong.
