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April 15, 2013

Africa Sees Strong Economic Growth

by Joe DeCapua

The World Bank says while the global economic recovery remains slow, sub-Saharan African countries continue to grow at a strong pace. The bank has released its latest economic forecast for the region.


Four years after the start of the economic crisis, the World Bank describes the global recovery as “tepid,” especially in the euro zone. Sub-Saharan Africa, on the other hand, has some of the fastest growing economies in the world, thanks to domestic demand and commodity prices that remain high. That’s according to the latest edition of the World Bank report called Africa’s Pulse.

“The report finds that Africa has been growing at a sustained, robust pace in 2012 and the region grew by 4.7 percent, which is double the rate of growth of the global economy. And this growth is impressive because it is in spite of the tepid and weak recovery that the global economy was experiencing in 2012,” said Punam Chuhan-Pole, lead economist for the Africa region, who is the co-author.


She said that if you exclude South Africa, which was hit by the recession, the sub-Saharan economy actually grew by 5.8 percent. Some individual countries had an even higher growth rate.

Several countries, such as Ethiopia, Rwanda, Ghana have managed to grow at 7 percent or more in each of the past three years. That means 2010, ’11 and ’12. And several other countries have also been growing at a strong pace, for example, Nigeria, Zambia, Tanzania, the Democratic Republic of Congo.

Despite the slow global recovery, Foreign Direct Investment, or FDI, actually increased in sub-Saharan Africa by 5.5 percent to $37.7 billion in 2012. In fact, it continued to grow in Africa while falling elsewhere in the developing world.

Chuhan-Pole also said domestic spending rose, as did government spending in infrastructure.

“So with government capital spending increasing to meet some of the large gaps in power and transportation, energy, Africa’s investment has been rising. Also, private consumption has been supported by declining inflation as well as lower interest rates and also easier access to credit. In addition, agricultural income in several countries increased. So all of this has helped to keep private consumption rising,” she said.

The World Bank forecast said that sub-Saharan Africa’s economic growth is expected to average over 5 percent between 2013 and 2015. However, there are risks, such as the weak global recovery.

Chuhan-Pole also said growth has been good for poverty reduction, just not good enough.

“What to we mean by that? If you look the period since 1996, per capita GDP has improved at a fairly brisk pace of 2.4 percent per annum. However, there’s variation across countries. We find that resource rich countries grew at over twice the rate as resource poor countries,” she said.

The World Bank’s outgoing Chief Economist for Africa, Shanta Devarajan, says harnessing economic growth to accelerate poverty reduction is the biggest issue facing policymakers. That’s especially true, he says, with more countries discovering they’re rich in resources. Almost 50 percent of the region’s population lives on $1.25 a day.

“What we have to realize is that resource income or resource revenues are not necessarily the fastest way to reduce poverty for the very simple reason that growth in resource rich countries occurs in the extractive sector, but the poor earn their income from agriculture. Seventy percent of the poor are actually working in agriculture,” he said.

He said there are several ways to ensure resource wealth benefits the population and not just the oil, gas or mineral companies. First, he says, contracts must be as transparent as possible, so countries get their fair share. The next step is to spend that money wisely, for example, on infrastructure, like electricity, along with health and education. He says safety nets and cash transfers should be available to shield the population from poverty and global economic shocks.

Devarajan said that agriculture is another good place to invest.


‘There’s an estimate that worldwide, something like, one percent growth in agriculture is four times as powerful in reducing poverty as non-agricultural growth.”

He said Africa has the potential to be – what he calls – the workbench of the world, as well as the source of savings, investment and growth. Much of that has to do with the continent’s demographics, which are bucking the world trend.

“Africa is going to be the youngest continent in the world. We have a youth bulge and the number of 15 to 65 year olds is going to be the highest in Africa in about 20 years. And that means that we have an opportunity because the number of working people relative to the number of dependents, if you like, very young and very old, is going to be increasing in Africa, whereas in the rest of the world, frankly, it’s going to be decreasing,” he said.

The World Bank’s Africa’s Pulse report also said good progress has been made on a few of the Millennium Development Goals. But the progress across the region has been uneven and, overall, the region lags in achieving development goals.