The global economic landscape is rapidly changing. The 2000s saw the so-called ‘Tiger Economies’ of Asia growing rapidly; will we see African economies follow?
Recent trends suggest that the future is hopeful. Between 2008 and 2013, Sub-Saharan Africa grew at a rate of 4.8% a year, faster than Latin America or advanced economies such as the US!
WHY YOU SHOULD CARE ABOUT ECONOMIC GROWTH
Economic growth is key to improving living standards and lifting millions of people out of poverty. Economic growth means that the value of the goods produced by the economy increases – firms earn more money and the government receives more tax revenue. More tax revenue for the government means that the it can spend more money on improving health, education and infrastructure (roads, bridges etc). More people have jobs and are earning higher wages. Ultimately, economic growth means a stronger country where people live longer, better quality lives.
WHY HAVE AFRICAN ECONOMIES BEEN GROWING RECENTLY?
Investment – Building the Future
Investment is very important for economic growth. With any investment, there is an initial cost, such as the cost of buying new machinery. However, a good investment will improve production, leading to economic growth. For instance, new machinery may produce goods more quickly and therefore increase productivity.
Africa has recently benefited from more investment from a number of sources. Sub-Saharan Africa received $34 billion in 2012 in FDI (foreign direct investment – investment in Africa by other countries). In addition to FDI, Angola, Namibia, Senegal and Zambia have issued external debt for the first time. External debt is a way of borrowing from other countries. They can use the money to make investments now, and pay the money back in the future.
Investment in human capital – Education leads to economic growth
Investment in physical capital (such as machinery) is important, but so is investment in human capital, that is, the people who work in the country. For instance, Kenya has one of the strongest growing and largest economies in Africa. They are successful because their government invests a lot of money in educating the people. Education means that people have more skills, so they are better workers.
A Market System and Trade
Another factor which makes Kenya successful is that it has a market-based system. In a market-based system, the market price is determined freely by demand and supply. This promotes efficiency, competition and encourages investment. Linked to this is the fact that it encourages trade with other countries. Trade is good because firms can sell their goods to more markets, so they make more money. It also means that consumers have access to a larger range of goods. One of the things Kenya does to encourage trade is taking part in the East African Community common market – this means that between Burundi, Kenya, Rwanda, Tanzania and Uganda, there is free movement of goods, labour and capital. This leads to more trade, job opportunities and investment across countries.
In the past, people based their hopes for Africa’s growth on the fact that countries such as Nigeria and Ghana were rich in commodities, raw materials such as oil and gold. When international demand and prices for these goods rose, African firms exporting these goods received more income, leading to economic growth. However, prices for commodities often go up and down. When prices fell, growth suffered too. Oil or gold cannot sustain growth in the long-run.
Now in the 2010s, growth is looking more sustainable thanks to economic diversification. Instead of concentrating on a single industry such as oil, economies are going into other sectors, such as consumer goods and services. Economists predict that SMEs (small and medium size enterprises) will be key to Africa’s future success. Diversification into SMEs is good because it leads to new opportunities – a chance to reach new markets, to create new jobs, and to spread and lower risk. Now, if oil prices dropped very low, other sectors would continue to grow, sustaining growth in the economy as a whole.
While the economic landscape in Africa is looking hopeful, there are still challenges ahead. Africa needs better electricity and transport links. This will improve trade. There are also political challenges. A bad, corrupt government will prevent money from going into investment. A good government will invest in its people, for instance through education and infrastructure.
Work must also be done to make economic growth inclusive, to ensure that the poorest people benefit. Countries must empower their women – educating women makes them valuable members of the workforce. As the head of the African Development Bank Akinwumi Adesina said, there is no developing Africa without empowering women.
A HOPEFUL FUTURE FULL OF ROARING LIONS
Even though there are challenges, Africa does have the power to create successful economic growth. The continent is set to add over 100 million people to the workforce by 2020 and should possess the world’s largest workforce by 2035. If Africa can do more investment and trade, it will be able to provide jobs for those millions of people. The goal of economic growth and a stronger Africa will be achieved.