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Africa’s economy: Ten key points to consider

Fitch Ratings today released a report discussing the outlook and challenges for Sub-Saharan Africa. The report gives a perspective on the region’s strong growth in recent years and the likelihood of this trend continuing, taking into account the challenges of infrastructure and governance, a surge in food prices, and a weak recovery in advanced countries. We highlight ten key points made in the report:

Growing income levels on the continent are boosting local demand for goods and services.

Growing income levels on the continent are boosting local demand for goods and services.

1. Strong performance: “Sub-Saharan Africa is changing,” says Fitch. “The region’s resilience to the global financial crisis . . . demonstrates this.” The region saw a slowdown in economic growth to 2.8% in 2009 before a robust recovery of 5% in 2010. Fitch notes that the only other two regions that experienced a slowdown in growth during the financial crisis, rather than a recession, were Asia, and the Middle East and North Africa.

2. The China-factor: Since the early 2000s, China’s role in Sub-Saharan Africa increased significantly, both in terms of trade and investment. In 2009 about 14% of Africa’s exports were sent to China, mainly oil and minerals, but also timber and cotton.

3. Mineral resources: The continent’s mineral resources will continue to be a major driver of economic growth. A number of new countries such as Malawi (uranium), Lesotho (diamonds), Sudan (oil), Chad (oil), Guinea (bauxite, gold), Sierra Leone (bauxite, diamonds) and Ghana (gold, oil) have in recent years become more dependent on commodity production. Uganda (oil) will also soon join their ranks.

4. Rising domestic demand: Africa’s growing middle class and generally improving income levels will lead to higher domestic demand for products and services, supporting economic growth.

5. ICT improving productivity: Africa’s rapid adoption of mobile phones and other information communication technology have had a major positive impact on productivity.

6. Easier to do business: Economic reforms have improved the continent’s business environment, albeit from a very weak base. The World Bank’s Ease of Doing Business rankings has ranked some countries – including Liberia, Zambia, Rwanda, Kenya and Ghana – among the world’s top reformers in recent years.

7. Regional integration: “Regional economic blocs have started to integrate better, bringing economies of scale that will improve regional investment. Infrastructure and non-tariff barriers have to be worked on, but the governments see the problem and it is gradually being addressed,” notes Fitch.

8. Infrastructure holding back growth: Fitch says that investment in Sub-Saharan Africa’s infrastructure has not kept up with demand. Power outages in the region are common while poor roads and non-existent railway systems in many countries are stifling trade. Infrastructure investment has, however, increased in recent years, largely because of debt relief that put more money in governments’ pockets and assistance from the Chinese.

9. Corruption: Although governance has improved, many African countries continue to consistently rank near the bottom of Transparency International’s Corruption Perceptions Index. Certain countries – such as South Africa, Namibia, Botswana, Mauritius, Seychelles and Rwanda – are, however, keeping corruption in check.

10. Cautiously optimistic: According to Fitch, the outlook for Sub-Saharan Africa “is brighter than it has been for decades”. However, challenges associated with poor infrastructure and governance as well as the difficult business environment and lack of skills need to be addressed if the continent wants to boost investment, productivity and employment.

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