Report says growth rate set to rise and continent's trade with emerging economies offers more opportunities than threats
The publication of the African Economic Outlook report (jointly published by the African Development Bank, the OECD, the UN Development Programme and the UN Economic Commission for Africa) offers an annual opportunity to review the continent's economic wellbeing. For the last few years the news has been fairly positive, and this year is no exception.
Real growth in sub-Saharan Africa is expected to rise from 5% in 2010 to 5.7% in 2011, while in north Africa, political crisis has slowed growth considerably – down from 4.7% in 2010 to a predicted 0.7% in 2011.
A range of interesting statistics and comments emerge from the report, but two points stick out for me.
First, while growth remains impressive in sub-Saharan Africa, the report's authors worry about the type of growth. Fears of "jobless growth" have dogged Africa for some time, and they are confirmed by a brief glance at the countries growing fastest. Nigeria, Angola, the Democratic Republic of the Congo and Mozambique are all heavily dependent on extractive industries, a sector that creates few jobs and has a history of fuelling conflict and increasing inequality.
The need for job-centred economic policy is dramatically demonstrated in an analysis of the Tunisian revolution, which shows that while the overall unemployment rate has remained stable – hovering around 15% since the 1980s – the percentage of graduates out of work has risen steadily, from 2.3% in 1984 to 20.3% by last year when the country erupted.
The report emphasises the difference at the macro scale between oil exporting countries, which tend to have a current account surpluses and relatively small budget deficits, and oil importing countries, where current account and budget are in serious deficit. So as oil comes on line in more African countries, including Uganda, oil revenues could, of course, give a massive boost to development.
However, there is precious little history of oil money being put to good use in Africa, where it has been more likely to line the pockets of the political elite and divert attention from sectors of the economy that directly support poverty reduction. It will be important to support the agricultural sector and small and medium-sized enterprises (SMEs), rather than be seduced by the easy money of resource extraction.
Many banks in Africa, as in developed countries, are too risk averse to lend to SMEs, preferring the safety of big business. Incentives need to be given to providing credit and financial services to smaller industries. The good news is that there is money to be made outside the extractive sector. Rising prices for agricultural goods (ie food) mean the sector is also a driver of present growth, especially in Africa's fastest growing economy, Ghana.
The second issue worth noting in this report is its focus area this year on the ever-increasing importance of the emerging powers for Africa's economic growth. The biggest players are India, Brazil, Turkey, Korea and, of course, China, which accounts for 40% of non-OECD trade with Africa. But the report is also careful to point out that 25% of African trade with non-traditional partners is with countries outside these core five. Africa's total trade has doubled in size in the last decade, and the emerging (non-OECD) partners have doubled their share in it from 23% to 39%.
The report seeks to debunk what it calls four "myths" about some negative impacts these emerging development and trading partners may be having on Africa. Some of these myths appear to be straw men, rather easy to undermine, nor should concerns about human rights and governance be downplayed, but the report paints a convincing picture of how the presence of new actors on the African continent is generally positive and complementary, the same message the IMF gave in its report on the sub-Saharan economy in October last year.
Overall, the message on emerging partners is simple and compelling – there are more opportunities than threats. I agree. In my comments at the launch, I emphasised that the most critical change brought about by the rise of the emerging powers in Africa is the way policy space has been opened up. Added to a realisation that 30 years of neoliberalism had failed, and the spectacular collapse in confidence in the west's system of economics after the financial crash, the rise of countries that do things differently – crucially, emphasising the role of the state far more in economic endeavours – has transformed the world of the possible for African governments.
As I rattled off my list of policies that were once laughed at but are now back on the table (including infant industry protection and industrial policy generally, capital controls, new forms of import substitution, even nationalisation of key industries), I looked over to my fellow panellists and saw the edifying sight of senior OECD and AfDB economists nodding with agreement at views that would have been anathema a few years ago. For all the changes in Africa, we should also be pleased about the changes taking place in these important international institutions, whose views are taken seriously by African leaders. A new generation of economists appears to be liberating itself from stagnant dogma.
