Factors influencing Africa’s economic growth

East Africa continued to lead the pack with an estimated growth of 5,3% in 2016, down from 6,5% in 2015. North Africa recorded the second-best growth performance in 2016 at 3%, buoyed by recovery in Egypt of 4,3% and Algeria of 3,5%.

By KUDZAI GOREMUSANDU

Persistent political unrest and reduced oil production in Libya, however, continue to drag down growth in North Africa.

Southern Africa recorded the third-best performance regionally with growth of 1,1%, down from 1,9% in 2015. Central and West Africa, on the other hand, recorded the worst growth performance at 0,8% and 0,4%, respectively.

The sharp drop in performance across West Africa highlights the vulnerability of average growth performance on the continent to events in a few large countries.

The persistent fall in oil prices and policy uncertainties have adversely affected the growth prospects of Nigeria, as well as South Africa, and have significantly impacted the growth performance of the continent as a whole. Nigeria and South Africa account for the largest shares of Africa’s GDP at 29,3% and 19,1%, respectively.

Effective governance policies

Africa’s growth resilience is premised on improvements in the business environment and governance, resulting from recent bold reforms. The continent has made steady progress in governance and management of public institutions and resources, and continues to do so.

Relative to the past, Africa now enjoys better ratings on democratic governance and the rule of law, which are critical to nation building and policy consensus. The 2016 Ibrahim Index of African Governance (Mo Ibrahim Foundation, 2016) reports that in 2015, 70% of African citizens lived in a country that experienced improved governance. In the same year, 37 countries improved their overall governance score. Furthermore, the average continental score for overall governance improved by one point between 2006 and 2015, from 49,0 to 50,0.

In 2014/15, Africa accounted for 75 of 230 (30%) of regulatory reforms — the largest number worldwide — making it easier to do business with Uganda, Kenya, Mauritania, Senegal and Benin among the top 10 reformers. In addition to substantial progress in implementing regulatory reforms, 10 African countries recorded significant gains in their business environment in 2015, with half of them located in sub-Saharan Africa.

Effective trade

Fast-expanding regional markets, which now account for about 16% of total trade in Africa, provide an avenue to diversity, supplementing more volatile trade with external partners. Intra-regional trade has increased steadily, standing at 18% of Africa’s total exports in 2015, up from 10% in 1995. However, this share is still low compared with other regions of the world.

Manufactured products account for 60% of total regional trade and could, therefore, compensate for Africa’s global exposure, especially in commodities.

In contrast, Africa’s exports to emerging economies, which are dominated by China and mainly comprise oil and metals, expose the continent to global demand shocks.

Currently, China accounts for 27% of Africa’s total global exports, with primary commodities representing about 83% (Pigato and Tang, 2015). Despite the shift in trade towards China, some African countries still trade predominantly with the euro area and the United States (South Africa) and India (Mauritius). For example, Mauritius’s main export partners are the United Kingdom (13,2%), the United Arab Emirates (12,4%), France (11,9%), the United States (10,7%) and South Africa (8,6%), while their main importers are India (18,7%), China (17,8%), France (7,1%) and South Africa (6,5%). African countries that are less dependent on China for their export market have experienced a somewhat slow deceleration of their growth performance.

Mining

Natural resources and primary commodities are still important as sources of revenue in several African countries, but their role in driving growth is slowly diminishing. In Nigeria, for example, oil accounts for more than 90% of foreign exchange earnings but only about 10% of GDP, down from 25,6% in 2000. This is indicative of a sharp fall in the dominance of the petroleum industry, compared with other sectors, notably services and agriculture.

The decline in extractive resources as sources of growth is reflected across most of Africa. In 2015, the five fastest-growing economies were non-resource rich, with Ethiopia, Cote d’Ivoire and Rwanda leading the pack at 10,2%, 8,8% and 7,1%, respectively. Foreign direct investment (FDI) flows are increasingly targeting non-resource-rich countries and sectors.

In 2013, the FDI-to-gross domestic product ratio for non-resource-rich countries stood at 4,5%, twice the level of 2000. Meanwhile, the share of total FDI to resource-rich countries is gradually decreasing, sliding from 78% of total FDI flows in 2008 to an estimated 65% in 2013.

Kudzai Goremusandu is a business consultant based in Harare. He can be contacted on kgoremusandu@gmail.com

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