Is Africa ready for a major economic takeoff?

This is the questions policymakers and economists have been grappling with as optimism grows that the continent’s economy is headed for recovery after a slowdown in 2009.

The World Bank argues that after the Independence generation in which the continent faced harsh facts and choices, Africa could be on the brink of an economic takeoff, similar to what China and India experienced 30 and 20 years ago respectively.

There are reasons why the Bretton Woods institution believes so. 

According to the theory developed by American economic historian W.W. Rostow, countries pass through five stages of economic development: The traditional society (dominated by subsistence activity); transitional stage or preconditions for takeoff (increased savings and investments); takeoff (industrialisation increases); drive to maturity (diversification of the economy); and high mass consumption (the last stage where consumer industries flourish). 

Developed countries passed through the same stages and are at the high mass consumption stage.

Arguably, the continent is past the traditional society stage, and is currently at the pre-condition stage, just before takeoff.

In fact, what is new at this stage is how some nations have figured out ways to exploit their natural and human resources into working models of development, thus becoming change agents to others. 

What is also new is the extent to which ordinary Africans are carving out their own paths to progress.

Research by World Bank economists show  that things have changed for the better for Africa.

Countries have been experiencing  a rosy economic growth. In fact until the onset of the global economic crisis, economic growth was averaging five per cent a year for a decade, before rising to six per cent for 2006-2008.

“The growth was widespread: Some 22 non-oil exporters had four per cent or higher growth from 1998-2008,” adds the World Bank study entitled “Africa’s Future and the World Bank’s Role in it.”

Though the continent, just like Europe, the Americas, Australia and Asia, was hit by the 2008-2009 financial crisis, it successfully came out of the woods thanks to prudent macroeconomic policies and financial support from multilateral agencies.

“The continent avoided an even worse growth shortfall in 2009, and has rebounded in 2010,” the financial institution says.

East Africa, for example, is projected to achieve the highest growth in the continent with more than six per cent on average in 2010/2011, compared with North and West Africa, which are expected to grow at around five per cent while Central Africa will grow at four per cent during the same period.

The steady economic growth has also brought about positives in the fulfilment of the Millennium Development Goals (MDGs). 

Countries like Malawi, Ghana and Ethiopia are likely to meet most of the goals. In east Africa, Kenya, Uganda and Tanzania are also on the right track.

Kenya, east Africa’s largest economy, has excelled in free primary education with enrolment rate surpassing the 90 per cent mark.

It is also one of the countries, according to the United Nations Development Programme (UNDP), with the highest literacy rates on the continent.

Tanzania, on the other hand, has been singled out by Mo Ibrahim Foundation — a think-tank that encourages good governance by naming and shaming the worst — as one of the most peaceful and best governed countries in the region.

On gender equality, Rwanda is one of the trailblazers in adopting ambitious policies that have helped women economically and politically, including a new Constitution in 2003 requiring that at least 30 per cent of all parliamentary and Cabinet seats go to women.

Kenya is also on track on gender equality following the passing of the new Constitution that is considered women-friendly.

Poverty, a major headache for African governments, is also on the decline.

“African poverty rate is falling at one percentage point a year, from 59 per cent in 1995 to 50 per cent in 2005. Child mortality rates are declining; HIV/Aids is stabilising; and primary school completion rates are rising faster in Africa than anywhere else,” the World Bank adds.

Unlike before, the continent is attracting investments with a chunk of the funding coming from domestic banks, private equity firms and other multinational donors. 

Returns to investment are among the highest in the world.

Information and communications technology is one of the sectors that has seen a sharp rise in investments, sourced both locally and abroad.

“Success of ICT, especially mobile phone penetration, shows how rapidly a sector can grow,”  says the World Bank.

Kenya, for example, has the largest mobile money platform in the world.

An estimated 15 million mobile phone users were using mobile money by the end of 2010, the equivalent of three out of every four adult Kenyans.

In addition, Kenya’s active Internet usage stands at 8.7 per cent of the population, the highest in the region, compared with Uganda (7.9 per cent), Rwanda (3.1 per cent), Tanzania (1.2 per cent) and Burundi (0.8 per cent).

Improved business environment

The business environment in many countries has improved. Market-oriented, pro-poor reforms are taking a centre stage in policy making.

Rwanda, for example, has been voted the world’s top performer in Doing Business 2010, thanks to mining and tourism sectors, which have improved their competitiveness.

“Private capital flows are higher than official development assistance. China, India and others are investing large sums in Africa,” says the World Bank.

Due to the enlightened public, aware of their rights, the role of the civil society is becoming critical in governance, as evidenced by Uwezo on education in Kenya.

Citizen report cards on the performance of  public officials are gaining popularity on the continent with groups demanding accountability for resource revenues.

“Today’s Africa boasts of many success stories and stronger economic growth being driven by dynamism of its own people,” says Obiageli Ezekwesili, the World Bank Vice President for Africa region.

However, Ms Ezekwesili says, to be sure the economic takeoff is  in the offing,  the continent has to tackle persistent long-term development challenges.

Though appreciating achievements made, some economists believe the takeoff is a long shot. 

They argue the positives, are piecemeal and not wholesome —  involving all sectors critical  for an economic takeoff.

University of Nairobi economics lecturer Dr Wilfred Nyangena argues that despite the achievements made, the continent still has a long way to go to realise an economic takeoff.

“While there are achievements  made, the continent is still subject to vagaries of weather and fluctuations in external markets,” says Dr Nyangena.

He adds that trouble in the Middle East and North Africa region might have long lasting negative effects on the whole continent, not only in the present but also in the future.

“Some investors who were planning to invest in this region will not put their plans on hold and this will have a torpedo effect on the whole continent,” he adds.

Kwame Owino of the Institute of Economic Affairs says though an economic takeoff in Africa is possible, countries need to achieve high growths and maintain them.

“The problem with African countries is that they achieve high economic growth rates, which in most cases are shortlived for a takeoff,” says Mr Owino.

This has made employment creation and increased investment difficult.

Mr Owino says though the public sector has the capacity to deliver, there is still glaring failure in service delivery in many African states.

“Furthermore, Africa is not one country as far as political risks are concerned, hence the trajectory will not be the same,” adds Mr Owino.

Some of the major challenges bedevilling the continent are an undiversified production structure, low levels of human capital, poor service delivery and weak governance and corruption.

According to Ms Ezekwesili, lack of competitiveness still exists.

Despite the greater emphasis on private sector, and signs of dynamism, Africa’s private sector growth has not been sufficiently poverty reducing, nor is it clear that it is sustainable.

“Most African enterprises are small (often employing only household members), low productivity and informal,” the World Bank.

Though the informal sector is growing at the same rate as the gross domestic product (GDP) in countries like Uganda, the rate is not enough to absorb new entrants to the labour force, leaving the youthful population without jobs.

High fertility rates are partly to blame for the imbalance, even though some of the countries are going through a demographic transition.

In the East African Community, for example, the annual crude birth rate remains high, with Uganda topping the list at 47, followed by Tanzania (42), Rwanda (42), Kenya (37) and Burundi (36).

Despite increasing investor confidence, infrastructure gap is widening to the extent it is the main factor behind African exports’ cost disadvantage in world markets.

In some parts of the continent, roads built by European engineers have been gradually swallowed up by the bush, proof of neglect by post-colonial governments.

The infrastructure financing gap, that would propel the continent to even greater heights of development is estimated at $48million a year for the continent.

The World Bank proposes that many infrastructure programmes should be regional, given the large number of small countries.

However, the move will need harmonisation of policies across countries, an issue that remains a problem even in the EAC.

“Africa must tackle the infrastructure problem as it is the sure way of facilitating people to participate in economic activities,” adds Ms Ezekwesili.

Discouraging business environment

Apart from poor infrastructure, Dr Nyandega says, firms in many African countries experience one of the worst business environments and always have lowest access to finance, and the highest indirect cost.

Agriculture, a top sector expected to play a key role in the economic takeoff still suffers major problems.

The intermittent food shortages many countries experience, show African agriculture is not diversified enough to enable farmers take advantage of higher food prices.

Since 93 per cent of the African agriculture is rainfed, improving resilience to the effects of climate change will be challenging, given the limited and poor storage capacity.

The continent, for example, loses between 20 per cent and 30 per cent of its grain harvests to poor storage. Land and water resources are still underutilised compared with that of emerging economies like China and India.

Research done by Food and Agriculture Organisation (FAO) shows about 60 per cent of the world’s arable but unused land is in Africa.

Kenya, for instance, has 540,000 hectares of irrigable land, but only 90,000ha are currently under irrigation.

It is partly the reason why east Africa, for example, is a food deficit region.

Having a healthy population and skilled workforce is also essential in economic takeoff.

The continent will need to continue with its programme of increasing access to primary, secondary and tertiary education, while at the same time concentrating on skills training.

“Adult health challenges (notably HIV/Aids) also lead to absenteeism and lower productivity in the workplace,” the report says.

For Africa to fully convince even the most skeptical economists that it is raring for a take off, it has to quickly deal with the daily hardships its ordinary citizens still face.

Among them: few jobs, few schools, few hospitals, poor diets, rising prices and no money.