Africa to grow 5.5% per annum, but risks remain

29 July 2013


Africa is now the world's fastest growing continent in the world and is set to grow at more than 5.5% per annum for the foreseeable future, according to the latest report from the African Development Bank (AfDB) Group. Almost half the African countries have achieved middle-income status and poverty levels have fallen from 51% in 2005 to 39% last year, with some 350 million African now earning between USD 2 to USD 20 per day.

"With around one-third of its countries growing by more than 6%, Africa has become the world's fastest-growing continent," said Donald Kaberuka, president of the AfDB Group in the latest Annual Development Effectiveness Review 2013. "This new economic dynamism is more than just a resource boom; it is the result of dramatic improvements in economic management."

More than two-thirds of African countries have improved their quality of governance, leading to a better business climate, improved basic services and expanded economic opportunities, Kaberuka said.

By 2035, the African labor force will be larger than that of China and India, highlighting its rise as one of the most promising economic growth stories over the next few decades.
Indeed, Africa is part of the great trend of rising emerging economies and greater trade and cooperation between the so-called 'south-south' nations, or developing, non-OECD countries.

"For Africa, financing from BRICs is now almost of the same magnitude as from the more traditional donors," said Madhur Jha, economist at HSBC. "China, once again, is the biggest player in this form of financing - under the banner of economic cooperation."

China has spearheaded the south-south investment in Africa. Africa accounted for 35% of financing of engineering and infrastructure projects undertaken by Chinese contractor firms abroad in 2011 alone. Countries like Angola accounted for 6.1% of Chinese funds in 2011, Algeria 3.9%, Nigeria 3.3% and Sudan 2.6%, HSBC data shows.

"In what has come to be known as the 'Angola model' China invests in major infrastructure deals in other emerging markets in exchange for a guaranteed commodity supply," said HSBC's Jha. "The funding is provided by Chinese banks (especially by China Export-Import Bank)."

Africa accounted for 3.4% of Chinese exports and HSBC expects that figure to rise to nearly 6% by 2050. Meanwhile, Indian exports to Africa are set to accelerate from 5.9% in 2010 to 7.9% by 2050.

Medium term outlook
Deutsche Bank expects the African economies (ex-South Africa) to collectively grow at 6% per annum till 2015 on the back of improved macroeconomic management and increased political stability which has underpinned strong public spending in infrastructure and services.

"SSA's population is growing fast, becoming more urban and experiencing a youth surge," said Claire Schaffnit-Chatterjee, analyst at Deutsche Bank. "On the positive side, this means lower dependency ratios, a major rise in demand and urban centers becoming potential hubs of innovation and employment. However, job creation is a particular challenge, in a context of skill deficits. Structural transformation has started, more through services than manufacturing."

Indeed, Africa is forecast to see more than 137 million secondary school graduates and 12 million tertiary graduates coming to the job market by 2030. While African economies created 73 million jobs between 2000 and 2008, only 16 million were focused on yo ung people. Currently there are 40 million young Africans unemployed - roughly equivalent to the population of Kenya.

"Many young Africans now find themselves unemployed or underemployed in low-paying jobs in the informal sector. With inadequate employment, 72% of Africa's youth live on less than USD 2 a day," AfDB said. "This is not just a wasted economic resource, but also a major social and political challenge for the coming decades."

If honed carefully, Africa can turn the rising job-seeking population into a huge economic advantage. For example, Ethiopia's labor costs are a fifth of China, and if the country can provide the right infrastructure and access to markets, the government can create meaningful employment for 1.6 million unemployed Ethiopians, AfDB notes.

Category: General

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