The Route to Transformative Growth

How Sub-Saharan Africa Is Evolving Into A Global Economic Powerhouse

Growth in sub-Saharan Africa has accelerated since 2000. And the potential for further growth is enormous given its positive demographics and natural resources.

by David Cowan

The potential for economic growth in Sub-Saharan Africa (SSA) is enormous given the continent’s positive demographics and the abundance of natural resources, but historically, infrastructure, political and policy challenges have stood in the way. Without question, there has been a sharp pick up in real GDP growth in the region in the 2000s compared to the previous two decades, when SSA was often seen as a development disaster. This pick-up has led to a marked change in how many investors think about SSA, and has facilitated a switch from decades of Afro-pessimism to the new wave of Afro-optimism.

To give an idea of the potential impact of growth, Citi’s February 2011 long-term growth projection paper, Global Growth Generators: Moving Beyond ‘Emerging Markets’ and ‘BRIC’ , argued that Africa could move from accounting for only 4% of world GDP in 2010 to 7% by 2040 and 12% by 2050. In this new report we examine in much greater depth the prospects for growth in SSA and ask what steps need to be taken to generate truly transformational development that can unlock the potential of the continent's demographic and resources dividend. Critically, to unlock the full potential policymakers must find a path from the current growth model to one which achieves greater global economic integration.

Clearly the rise in global commodity prices has played an important role in the growth pick-up throughout the 2000s in SSA, but we show that commodities have only made up about a third of the overall increase. In order to continue the growth trajectory of the past, a focus on the other two thirds of the growth story — improved political stability, better economic policy and a new wave of investment into SSA by corporates — is required.

There is unlikely to be any one standard “off the shelf” model of growth that a typical SSA country can follow in the coming decades. Looking at a combination of a country’s demographics, political and economic heritage, plus its resource endowment, provides a base of a framework for development models. Increased economic integration could be obtained through the expansion of the service sector, revisiting manufacturing or agriculture potential, or encouraging an effective development state which supports economic growth, provides public services and reduces poverty.

Inward-looking economies with large populations and domestic markets could provide us with a “new big five” in SSA — Democratic Republic of Congo (DRC), Ethiopia, Nigeria, Sudan and Tanzania. Countries that are “coastal outward lookers” have smaller domestic markets but better education levels and infrastructure which gives them the potential to develop a significant manufacturing export business. For countries that have the infrastructure constraint of being landlocked then regional market trade could provide the best means for economic growth.

In the end the real challenge for SSA policymakers is to make more fundamental decisions around infrastructure investment and improve the business operating environment, as well as to develop a much clearer and more coherent picture about where their particular country fits into the global economy in the future. We think this will be necessary to encourage truly transformative growth that will drive the integration of SSA into the global economy

 .