Sub-Saharan Africa’s rising population and economies have led to a growing middle class and, in turn, more spending power which provides “a vast source of potential for prosperity,” per experts at the African Development Bank.
The big picture: Since 2000, the wealth of sub-Saharan African nations has been growing much faster than the global average and than that of the more prosperous Northern African nations. And in the next five years, analysts at the International Monetary Fund expect the region’s GDP to expand even faster.
The region’s real GDP growth slowed down to 2.2% in 2016, mainly due to the continued fall in commodity prices and
weak global economic growth. East Africa was the fastest growing region at 5.3% real GDP growth, followed by North Africa at 3%. Growth in other regions was anemic, ranging from a low of 0.4% in West Africa, dragged down by the recession in Nigeria, to 1.1% in Southern Africa, with South Africa, the region’s largest economy, posting only 0.3%
With dynamic private sectors, entrepreneurial spirit and vast resources, Africa has the potential to grow faster and more inclusively. The continent’s average growth is expected to rebound to 3.4% in 2017, assuming that the recovery in commodity prices is sustained, the world economy is strengthened and domestic macroeconomic reforms are entrenched. In 2018, growth is expected to consolidate, expanding by 4.3%.
The composition of total financial flows to Africa reflects the dynamism of its domestic markets. In 2017, inflowsreached almost USD 180 billion. Remittances reached USD 66.2 billion, up from USD 64.6 billion in 2016. Foreign direct investment inflows hit over USD 57 billion in 2017, supported mainly by greenfield investments from emerging economies. Tax revenue remains the most important source of domestic financing in African countries but has slowed with the decline in commodity prices. African countries have been exploring other options of mobilizing domestic resources to minimize vulnerability of revenues to volatility in commodity prices.Unlocking Africa’s less volatile sources of growth to spur human development will require greater investment in human capital – such as in health, education and skills – , stronger capacities to diversify financing and more effective efforts to promote structural transformation. Despite a decade of progress, 54% of the population in 46 African countries are still living in poverty. It is essential to double efforts to empower Africans with the necessary skills to promote development from the bottom up, driven by domestic innovation and investment. This is why the African Economic Outlook focuses this year on the role of entrepreneurs in Africa’s industrialization.
One strategy to help African countries address the challenges of low human development and social exclusion is industrialization, now one of the High 5 priority areas of the African Development Bank. It is also in line with the African Union’s proclamation of industrialization as the main strategy to promote inclusive economic transformation, and it is the ninth UN Sustainable Development Goal. In addition, in July 2016, the United Nations General Assembly proclaimed 2016-25 as the Third Industrial Development Decade for Africa; and under China’s leadership, the G20 also agreed in
September 2016 to support Africa’s industrialization as part of its Action Plan on the 2030 Agenda for Sustainable Development. To bolster this momentum, this year’s African Economic Outlook proposes several concrete steps for action.
Africa’s industrialization will differ from the experience of other world regions.
First, the 54 African countries are diverse and will thus follow various pathways to industrialization. Second, industrialization will not rely solely on the manufacturing sector, which remains modest at 11% of the continent’s GDP. Twenty-first century
industrial policies can target additional sectors with high-growth potential, such as agro-processing and services with higher value added. Third, policies must promote “green industrialization”, as technological and market changes have made it possible to achieve industrialization with lower environmental costs. Greater efforts should also be made to ensure that green infrastructure is developed and is accessible to firms and citizens. Fourth, and most importantly, Africa’s industrialization will also depend on the solid growth of African private companies. New industrialization strategies should therefore leverage Africa’s booming entrepreneurs.
Africa’s entrepreneurial culture is vibrant with about 80% of Africans viewing entrepreneurship as a good career opportunity. The continent has the highest share in the world of adults starting or running new businesses, but often in sectors where
productivity remains low. New industrialization strategies should focus on leveraging this dynamism and targeting the continent’s fast-growing private enterprises which have potential to create quality jobs.