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Although Africa’s medium- and long-term development challenges remain large and complex, the progress underway is remarkable and undeniable according to a new study from the World Bank’s Africa Region.
The economic landscape of sub-Saharan Africa has changed dramatically since the mid-1990s, with stagnation giving way to dynamism in a broad swathe of countries. Aggregate GDP growth climbed from less than 2.5 percent in the 1990s to around six percent in 2003–07. The region has also begun to make headway in poverty reduction and achieving the Millennium Development Goals.
“The African economy has been more resilient to the global crisis than other emerging economies with the exception of those in Asia, notably China and India, it says, noting: “The effect of the crisis, although less severe than on most other continents, was nonetheless significant,” has said the 2010 edition of the “African Economic Outlook” which highlights the continent’s resilience to the global financial and economic crisis.
The report, which was launched recently and attracted great attention among researchers and development partners, said although in the three years before the 2009 global recession Africa had achieved an average annual growth of around 6%, in 2009 the growth rate was slashed by 3.5 percentage points to 2.5%; actual growth in Africa was almost exactly what had been predicted in last year’s African Economic Outlook (2.3%).
A confluence of factors is responsible for the economic and development turnaround taking place in Africa: stronger leadership, better governance, an improving business climate, innovation, market-based solutions, a more involved citizenry, and increasing reliance on home-grown solutions. More and more, Africans are driving African development.
Foreign direct investment in Africa has exploded over the last five to ten years. A lot of this investment takes some time to materialise, but the effects are very positive on the African economy - which in turn lures more international investment.
In 2000, Foreign Direct Investment in the region totalled US$10bn; in 2005 that level had increased to US$30bn and last year FDI in Africa rose to US$53bn.
The population of the African continent is projected to overtake that of the developed world by 2050. In 2009, Africa accounted for 7% of the world's population. This compared to the US, which accounted for 21%, and Western Europe, which accounted for 19%. By 2050, the population of Africa is expected to account for 14% of the global population, compared to the US at 12% and Western Europe at 10%.
Over the last 20 years, the population of Africa has grown faster than any other region. In 1989, the population of Africa was 577m; by 2008 the population had increased to 913m people
For instance, in Mali - which is a landlocked country - the implementation of a multi-modal (road, rail and sea) transportation system was key to overcoming infrastructural constraints. This, coupled with improved phytosanitary, orchard management and post-harvest handling training programmes, increased mango exports to the European Union by five-fold between 2003 and 2008, boosting incomes for Malian farmers.
In Rwanda, liberalisation efforts in the coffee sector combined with national strategies specifically aimed at capturing a larger share of the specialty coffee market have made important contributions to the country’s post-war economic recovery. In Kenya, M-PESA - an electronic payment system accessible from ordinary mobile phones - was launched in mid-2007 by mobile network operator Safaricom. The system is allowing nine million customers - 40 percent of Kenya’s adult population - to transfer funds, pay bills, and purchase mobile airtime credit for a small per-transaction fee. The affordability of M-PESA has been key in opening the door to formal financial services for Kenya’s poor
By showing that Africa has weathered the crisis better than other regions of the world, the flagship publication has elicited considerable interest since its launch in May 2010 at the Annual Meetings of the African Development Bank (AfDB) in Abidjan, Cote d’Ivoire.
The African Economic Outlook - jointly published by the AfDB, Organisation for Economic and Cooperation Development and the UN Economic Commission for Africa (UNECA) - said the economic meltdown was most pronounced in the mining and manufacturing sectors, which recorded negative growth in many countries. “These sectors were particularly exposed to the fall of commodity prices and global trade.”
The other sectors, notably agriculture and services, were more resilient and mitigated the economic downturn.
In fact, in most African countries agricultural sectors benefitted from good harvests thanks to favourable weather conditions. “Domestic services, including real estate and telecommunications (notably mobile telephony), were generally resilient to the crisis and continued to contribute to growth,” the report says.
Anchored on the theme “Public Resource Mobilisation and Aid”, the report points out that tax-revenue on the African continent were positive.
The average African tax revenue as a share of GDP has been increasing since the early 1990s. African countries generally collect tax revenue in the same way as countries at similar stages of development on other continents, it says.
However, this positive trend has been mostly driven by resource-related tax revenue that typically distract governments from generating revenue from more politically demanding forms of taxation - such as corporate income taxes on other industries, personal income taxes, Value Added Taxes (VAT) and excise taxes.
By contrast, countries without large natural resource endowments have made relatively more significant efforts in improving the quality and balance of their tax mix.
It says that non-resource related tax revenue has stagnated at best, while trade taxes declined as a result of trade liberalisation. Corporate income taxes were reported to have been resilient, despite decreases in rates at which profits were taxed across Africa and increases in the number and type of exemption granted by African countries to investors.
In order to improve tax revenue in Africa, the “African Economic Outlook” says: “tax reform will bring long-term results only if it is visibly linked to a growth strategy. Improving tax collection must be accompanied by a general discussion about governance, transparency and the eventual use of increased public resources by the government,” says the report.
“Administrative bottlenecks are such that in the short-run, deepening the current tax base is the only effective policy option. In particular, countries should consider retrenching tax preferences and negotiating fairer and more transparent concessions with multinational enterprises,” the report says.
Pull-quote
In fact, in most African countries, agricultural sectors benefitted from good harvests thanks to favourable weather conditions. “Domestic services, including real estate and telecommunications (notably mobile telephony), were generally resilient to the crisis and continued to contribute to growth,” the report says.
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