What are the determinants of sustainable economic growth in Africa over the next two decades? The answer lies in the key factors behind the success of a number of economies that are emerging as the engines of growth in the world. Africa is witnessing nothing short of an economic revolution or what Robert Zoellick, the former president of the World Bank, describes as a ‘tectonic shift’ in global economic power.
Economic and political power is shifting at an unprecedented speed. The World Bank forecasts that by 2025 six of the biggest emerging economies – China, India, Brazil, South Korea, Russia and Indonesia – will account for half of global growth. As these countries move to centre stage, their economic growth is lifting hundreds of millions of peopleout of poverty in India, in China, in Brazil.
The economic revolution that has taken place in Asia over the past 20 years is also taking shape in Africa. Real gross domestic product (GDP) compound annual growth between 2000 and 2010 was 5.1 per cent, the second fastest in the world after emerging Asia. The key success factors are very similar to those present in other thriving emerging economies.
Africa’s goal should not be simply to pursue growth,but to aim for sustainable growth and, in doing so, deliver lower levels of inequality. There are a number of necessary conditions for this to happen, the two most important being better macro-economic management and greater political stability. Great strides have been made in these areas,but as the International Monetary Fund managing director Christine Lagarde warned recently, security remains fragilein many countries, especially in West Africa.
In Africa we face four main challenges: faster structural transformation; more inclusive growth and job creation; better management of natural resources; and a stronger financial sector. Africa needs to implement policies that ensure it is an attractive destination for foreign investment.
This includes designing and implementing sensible tax regimes to efficiently and fairly collect revenues to be invested in upgrading capabilities, such as infrastructureand human capital. Already Africa has come a long way in addressing the infrastructure shortfall. More than $85bn was spent on infrastructure in 2011. South Africa alone has committed to spend $400bn over five years. But the gaps remain wide. Internet penetration is only about 6 per cent. The road access rate is only 34 per cent.
Job creation remains an Achilles heel. The management consulting firm McKinsey estimates that, although theofficial unemployment rate is 9 per cent, only 28 per cent of the labour force has stable wage-paying jobs. Africa has potential to create between 54 million and 72million more stable wage-paying jobs by 2020, mostly in manufacturing, agriculture, retail and hospitality. But to get there, there needs to be a focus on reforming the business environment in labour-intensive sectors.
There is real cause to be optimistic about Africa’s ability to maintain and accelerate the gains that have been made. The opportunities have never been so great, the possibilities so tantalising.
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