The recent economic boom in Africa appears likely to persist
Tag: Africa, Africa economic
Summary: Africa is undergoing a period of unprecedented economic growth. According to The Economist, six of the 10 fastest-growing countries in 2011 were in Africa.
Africa is undergoing a period of unprecedented economic growth. According to The Economist, six of the 10 fastest-growing countries in 2011 were in Africa.
Average external debt on the continent has fallen from 63 percent of GDP in 2000 to 22.2 percent this year, while average inflation now stands at 8 percent, down from 15 percent in 2000. This trend is likely to persist, given that it is based on structural geographic and demographic factors, such as rising exports, improved trade conditions and increasing domestic consumption.
But Africa’s national governments still face significant challenges, given the wide variety of factors at play in each country. Economic characteristics vary by country, depending on, for example, whether a fixed or floating foreign exchange regime is in place, and which natural resources the country controls.
As a result, prospects also differ by country. Although the average annual GDP growth rate for the entire continent has been forecast at roughly 6 percent in 2012, South Africa’s economy is expected to grow by only 3.6 percent, while Côte d’Ivoire is expected to grow at a rate of 8.5 percent. In order to tailor national economic policy effectively, policymakers must identify the drivers of – and barriers to – growth in each country.
Africa’s growth potential has caught the attention of foreign investors, who have contributed to a rapid increase in capital expenditure. In 2008-2011, sub-Saharan Africa received on average 4.4 percent of all funds invested in developing countries worldwide, and 3.1 percent of investment spending.
In fact, foreign direct investment in Africa has been on the rise since the early 2000s, increasing fivefold in 2000-2010. But foreign investors remain aware of the challenges faced by certain countries. For example, much of the Horn of Africa (particularly Somalia), Mali and Guinea Bissau carry political risk.
Nevertheless, many economic indicators suggest that the bullish trend is sustainable, and that the conditions needed to change Africa’s image and international trade position are finally in place.
In 2011, 67 percent of potential investors interviewed said that they considered Africa attractive, while half of them planned to invest in sub-Saharan Africa before 2013. And a growing number of large corporations count Africa among their primary strategic targets for business development.
The growth of small and medium-size enterprises will be a key factor in coping with the risks associated with rapid economic expansion. In fact, SMEs already play a crucial role in African economies, involved as they are in all sectors of rural and urban economies.