The driving forces behind Africa’s growth
Over the past century sub-Saharan Africa has grown faster than the rest of the world, maintaining an average growth in excess of 6% per annum. Contrary to popular theory, this sustained and increasing growth cannot be attributed solely to Chinese investment and the commodities boom and is driven by other key growth elements.
This is the view of Dr David Bridgman – manager for Africa of the investment climate team of the World Bank Group. Speaking recently on Africa Day at the University of Stellenbosch Business School (USB), Bridgman says that growth in Africa can be attributed to three key growth categories: stability and security; finance and infrastructure; and regulation and taxation. He believes it is these growth elements that will ensure the growth of sub-Saharan Africa even if Chinese investment was withdrawn and the commodities boom reversed.
“Of course, if commodity prices were to return to decade-ago prices and China were to stop investing in Africa, we would definitely see a slow-down in African growth. However, no longer would we expect a return to conditions of absolute decline. This is clearly the resilience of African growth exhibited since the global financial crisis in 2008,” says Bridgman.
According to Bridgman, over the past decade, between1998 and 2008, approximately 70% of the people in Africa have lived in countries which have grown at a rate faster than 4% per annum. Furthermore, over the last 10 years for the first time ever, the level of absolute poverty in Africa has dropped to 47%.
“In order for this new reality to be sustained in the future, African countries need to develop on all key growth categories, as these elements combined fuel the establishment of a strong investment climate.”
Referring to the first key growth element of safety and security, Bridgman says it is clear that there has been huge progress in conflict and fragility in Africa as the continent as a whole has moved away from the gross problems of civil war and inflation and is focused now on economic and political stability.
He explains that there has also been a dramatic reduction in the number of countries currently in conflict in Africa, even though the African continent has more countries afflicted by conflict and fragility than any other. He stresses that countries are making progress on defining legal rights and establishing the courts and processes to secure them.
The second key driver of African growth, according to Bridgman, is finance and infrastructure. He says that in order to achieve the levels of infrastructure investment needed in transport, power, water and telecommunications, it is necessary to establish conditions under which the private sector will invest in, own, establish and manage this infrastructure.
“Estimates of the shortfall in annual investment in Africa’s infrastructure to support current and growing needs are about $100 billion per year. Therefore, a new set of regulations is needed to foster private flows into this sector.”
In terms of the third key driver of growth, regulation and taxation, Bridgman says sub-Saharan countries have come a long way. “Regulation and taxation make it possible for businesses to establish, grow and prosper. They are also important to support the investment of private funds into infrastructure and financial flows needed for companies to stabilise and grow.”
Bridgman says that at the moment, Mauritius is listed as the easiest country to do business with, according to the World Bank. “It has now become accustomed to expect sub-Saharan countries to uphold this high standard and they therefore need to constantly work on improving on regulations and taxation.”