African governments will need to ramp up investments in urban infrastructure and the service industry to help revive the economic growth needed to eradicate absolute poverty.
As Africa’s population continues to grow fastest in the world, a new report by the McKinsey Global Institute (MGI) shows that, despite positive signs at the start of this century, Africa’s economies took a different turn in the second decade and might get into a deeper plunge if nothing is done now.
Compared to other emerging economies like India and China, Africa’s GDP grew at a relatively slower pace between 2000 and 2019 and even slower over the last decade.
While China recorded an average annual GDP growth rate of 7.2 percent and 6.4 percent for India in the decade to 2019, Africa’s GDP expanded by only 3.3 percent.
In the same period, Africa’s population grew the fastest, at 2.6 percent, meaning GDP per capita remains low and there are still many people living in absolute poverty.
“Gaps in infrastructure and skills, along with relatively high hurdles to conducting business, low levels of intracontinental trade, and dependence on natural resources, were obstacles to Africa’s growth,” said the report.
Due to these hurdles, Africa’s GDP in 2019 was $400 billion less than what it could have been had the economy continued to grow at the same pace it did in the 2000 – 2010 period.
To reignite growth, MGI argues Africa needs to focus on improving the productivity of the service industry, which is emerging to be the largest employer not only in emerging markets, but across the globe.
On the continent, the proportion of workers employed in the services sector increased from 30 percent in 2000 to 39 percent in 2019, and the sector’s output rose from 50 percent to 56 percent of GDP.
“Services create significant opportunities for African countries to boost economic output and job creation – but only if productivity in the sector improves,” MGI said.
Boosting productivity in the services industry will involve rapid deployment of digital innovations, upskilling of Africa’s workforce to enable them “do more with less,” and increasing intra-Africa trade to expand markets, the report argued.
If Africa can boost the productivity of the services sector to match that of China and India, it could create an additional 225 million jobs by 2030, absorbing all the projected new labour market entrants.
At the current trajectory, only 85 million jobs will be created by the services industry by 2030, leaving more than half of Africa’s new working age population without employment.
But as the services sector grows, so are Africa’s cities, as many abandon low-paying jobs in agriculture in rural areas.
MGI forecasts that urban areas will be home to nearly three quarters of Africa’s population over the next two decades.
As such, investing in urban infrastructure is integral to rekindling the continent’s economic growth.
By 2040, ten more cities – including Nairobi, Kampala, Dar es Salaam and Kinshasa – will join Lagos and Cairo in having more than 10 million dwellers, while 19 cities will have populations of over five million people.
“Critical to the continent’s ability to accommodate its rising population [in urban areas] is the built environment and its supporting infrastructure – transportation, power, water and telecom systems,” the MGI study said.
Africa’s cities have huge infrastructure gaps, making it hard to accommodate the urban population and decelerating economic activity.
According to MGI, while different cities have different infrastructure needs and gaps, “affordable housing is high on the priority list” as well as access to electricity, water, proper roads and the internet.