Africa: The Growing Continent

Much has been said and written about the slow pace of growth of Africa, the reasons explained, the solutions explored, but the positive side of the story has so far almost been neglected. Africa, undoubtedly, suffers from a barrage of bad reporting. The economic growth in the past five years has been impressive in a number of African countries. In the recent years, the continent has seen most of its economies growing at the average real GDP growth rate of 4.5-5% annually. And surprisingly, this growth is not just restricted to the resource and raw-material rich countries. Internal structural changes within the economies and new policy initiatives have played a very important role in driving this growth. In 2008, the continent’s GDP stood at $1.6 trillion. The role of private sector in Africa’s economic growth is becoming important. Africa’s share in the world trade is rapidly increasing. With time, the conventional agrarian economies are becoming more diversified and are investing more in services and manufacturing sectors. This will help in strengthening the physical infrastructure in Africa which is very critical for its further development.

Some of the best performing countries of Africa, namely, Nigeria, South Africa and Botswana have GDP growth rates comparable with the fastest developing countries of the world. These countries have the least volatile GDP in Africa. Rwanda was declared the best reformer by the World Bank for encouraging business in the country. Many economies are shifting away from being just primary product exporting economies. In Ethiopia, Nigeria, Senegal, Cape Verde and Gambia, among others, some important structural changes have led to the service sector surpassing agriculture to become the dominant sector of the economy. This change is important for reducing the long-term dependence of African countries on the developed economies for the import of manufactured goods and services. Many countries have formulated and implemented important economic reforms. These reforms comprise of privatisation of the state-owned firms, abolition of inflexible trade regimes, lowering of corporate taxes and making the markets and trade more liberalised. These reforms, under the improved macroeconomic management, have yielded the desirable economic results. Africa is witnessing a rapidly increasing inflow of foreign investment. According to a report by Mckinsey Global Institute, the annual flow of foreign direct investment in Africa increased from $9 billion in 2000 to $62 billion in 2008 – relative to Gross Domestic Product, almost as large as the inflow into China. These foreign direct investments are mainly the large scale investments in manufacturing and services sector which are subject to tremendous economies of scale. The major sectors which are seeing an upswing of foreign investment are telecommunications, banking, pharmaceuticals, tourism, textiles, retailing and construction. Due to the rapid urbanisation of many countries of Africa, there is potential of even higher investments in these sectors. The proportion of the urban population of Africa has increased from a mere 28 per cent of its population in 2000 to 40 per cent now. Consequently, the spending, necessary for growth, has increased. According to a Mckinsey report, the consumer spending of the continent, with less than 1 billion people in 2008, was $860 billion, more than that of India with a population of 1.2 billion.

Africa enjoys the luxury of being the world’s richest continent in terms of natural resources. It owns some of the world’s rarest resources. It possesses the world’s 85% of platinum reserves, 68% of cobalt reserves, 99% of chrome reserves, 70% of tantalite reserves and 54% of gold reserves. Its share of diamond production in world is 65%. Nigeria, Libya and Angola are amongst world’s leading oil producing nations. The Democratic Republic of Congo owns more than 80% of world’s coltan and a significant amount of cassiterite, both of which are rare minerals used in making cell phones. If utilised in an adequate manner, underpinned by civic peace and lesser political strives, these resources can enable the resource-rich nations of Africa realise their full economic potential. This can change the growth patterns of many countries of Africa. Not just the natural resource development but the human resource development of Africa also remains an important issue. The foundation of a strong democracy as well as an economy is laid by the educated people of the society. Education can break the so called “vicious circle of poverty”. Education in Africa has become an important issue. There is now mass access to quality primary education. But higher education in Africa still remains a cause of concern.

Africa is a huge continent with a huge population of about one billion people. Moreover, the population and resources of Africa are unevenly distributed across the region. It is approximately ten times bigger than India in terms of area and has almost the same population as India. Thus, the existence of many small countries makes it difficult to build the physical infrastructure which is the key driver of growth. However, with sufficient investment and efficient policy implementations, it is possible to create it and further increase the already increasing levels of growth in the region. The integration of these small countries can help in making the big infrastructural and developmental projects viable. Further, the economies of scale of large industries can be exploited if there is a large consumer base. Realising the importance of these facts, many countries are integrating and forming regional trade blocs to promote trade, free movement of people and, goods and services.  Economic Community of West African States (ECOWAS), South African Development Community (SADC), East African Community (EAC), Common Market for Eastern and Southern Africa (COMESA) are some of the Regional Economic Communities which have done reasonably well in the past. The intensification of these regional economic communities can help the small countries of Africa realise their full economic potential.

(Divya Sharma is a Research Assistant at Observer Research Foundation)

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