Is Africa’s Economic Recovery Over?

By Soko Directory Team / Published October 3, 2016 | 12:20 pm



youth Africa

With respect to per capita GDP, Africa as a whole has recovered from the economic downturn of the 1990s. Since 1995, despite recording high population growth, African countries have been experiencing positive per capita GDP growth reaching 6.5 percent in 1997.

During the 2000–2013 period, per capita GDP increased by an average of 2.3 percent annually in Africa at the continental level compared to 2.5 percent in the world. After the 2008–2009 financial crisis, African economies demonstrated a much stronger resilience than the world economy did. Indeed, while the world per capita GDP declined by 1.4 percent in 2009, that of Africa as a whole grew by 0.8 percent and 3.0 percent respectively in 2009 and 2010. Since the 1991–2000 period, the recovery of Africa as a whole has not been driven by a single sector.

Growth in value added can be observed across all sectors. Sectors such as construction, wholesale, and transport and communication achieved value added growth rates more than two times those of the previous decade. The incredible performance of the agricultural sector was impressive: value added increased by 5.2 percent in 2000–2014 compared to less than 3 percent in previous decades.

Unlike the turnaround in growth trends, no major change was observed in the composition of value addition of African economies as in the 1970s, African economies are still dominated by the mining sector. This explains the vulnerability of African economies to the fluctuations of the world market. The share of the agricultural sector in total value added is still below 15 percent. More importantly, manufacturing did not increase as a percentage of value added.

Labor productivity shows similar trends, with good performance in the 1960s followed by sluggish growth or absolute declines in productivity during the next three decades. Starting in the 2000s, labor productivity growth in SSA increased to an unprecedented annual rate of 2.6 percent.

Sub Saharan Africa’s agricultural labor productivity growth in the 2000s also far surpassed its performance in the previous lackluster decades. Is the African economic recovery over? Recently, the external environment has changed markedly for African countries. Indeed, commodity prices, which had risen throughout most of the 2000s, dropped sharply in the 2010s. From mid-2014 through 2015, oil prices experienced the steepest drop in any 18-month period since 1970. Accompanying the commodity price slump was a general decline in demand from China, as its economic growth slowed. The long-standing trade surplus of SSA with China became a deficit as the oil price decreased, but even non-natural resource dependent.

Read: Challenges Facing the Agricultural Sector in SSA countries

African countries saw their trade deficits with China worsen. In addition, external borrowing has become more difficult for African countries and borrowing costs have increased with the rise of US interest rates. In addition to exogenous factors, internal shocks have had a negative impact on Africa in recent years as well. The countries affected by the Ebola outbreak beginning in 2014 continue to experience negative growth repercussions, and the Eastern and Southern Africa region is likely to suffer from food insecurity and reduced growth in 2016 due to the serious drought currently affecting the region.

The experience of agriculture in the past few decades broadly fits the pattern of typical structural transformation in terms of declining agricultural employment share and increased crop diversification. However, other aspects of Africa’s structural transformation have shown marked differences from the patterns seen in other developing regions. Badiane (2014) documents a more rapid decline in the agricultural GDP share of African countries than would be normally expected based on their modest income levels.

In a typical structural transformation, increases in agricultural productivity cause the agricultural GDP share to decline more slowly than the agricultural employment share, but the stagnation of agricultural productivity in Africa over several decades before the current recovery resulted in an unusually rapid drop in the agricultural GDP share as labor exited agriculture. The destination of labor exiting agriculture has also been markedly different in Africa than in other developing regions.

Unlike East Asian countries which saw rapid increases in manufacturing, employment and production as agricultural employment declined, African countries have shown few signs of any takeoff in manufacturing. Some authors document recent improvements. The share of manufacturing in total SSA GDP is lower today than during the 1970s, having declined gradually throughout the past four decades. Throughout the 2000s, the SSA, Middle East and North Africa (MENA) regions had the lowest manufacturing GDP shares in the world, even slightly below those of developed regions. The ILO estimates that the share of manufacturing employment in total employment in SSA has hovered between 9 and 10 percent since the early 1990s. This is the lowest employment share of all regions, except for the Arab States.

Read: Kenyan Economy Expanded by 6.2 Percent During the Second Quarter

 




About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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