Culture, Art & Life of Countries in Africa

The Economy of Africa

Africa’s economy was diverse, driven by extensive trade routes that developed between cities and kingdoms. Some trade routes were overland, some involved navigating rivers, still others developed around port cities. Large African empires became wealthy due to their trade networks, for example Ancient Egypt, Nubia, Mali, Ashanti, and the Oyo Empire.

Some parts of Africa had close trade relationships with Arab kingdoms, and by the time of the Ottoman Empire, Africans had begun converting to Islam in large numbers. This development, along with the economic potential in finding a trade route to the Indian Ocean, brought the Portuguese to sub-Saharan Africa as an imperial force. Colonial interests created new industries to feed European appetites for goods such as palm oil, rubber, cotton, precious metals, spices, cash crops other goods, and integrated especially the coastal areas with the Atlantic economy.

Following the independence of African countries during the 20th century, economic, political and social upheaval consumed much of the continent. An economic rebound among some countries has been evident in recent years, however.

The dawn of the African economic boom (which is in place since the 2000s) has been compared to the Chinese economic boom that had emerged in Asia since late 1970s. In 2013, Africa was home to seven of the world’s fastest-growing economies.

As of 2018, Nigeria is the biggest economy in terms of nominal GDP, followed by South Africa; in terms of PPP, Egypt is second biggest after Nigeria. Equatorial Guinea possessed Africa’s highest GDP per capita albeit allegations of human rights violations. Oil-rich countries such as Algeria, Libya and Gabon, and mineral-rich Botswana emerged among the top economies since the 21st century, while Zimbabwe and the Democratic Republic of Congo, potentially among the world’s richest nations, have sunk into the list of the world’s poorest nations due to pervasive political corruption, warfare and braindrain of workforce. Botswana remains the site of Africa’s longest and one of the world’s longest periods of economic boom (1966–1999).

Current Conditions
The United Nations predicts Africa’s economic growth will reach 3.5% in 2018 and 3.7% in 2019. As of 2007, growth in Africa had surpassed that of East Asia. Data suggest parts of the continent are now experiencing fast growth, thanks to their resources and increasing political stability and ‘has steadily increased levels of peacefulness since 2007’. The World Bank reports the economy of Sub-Saharan African countries grew at rates that match or surpass global rates. According to the United Nations Department of Economic and Social Affairs, the improvement in the region’s aggregate growth is largely attributable to a recovery in Egypt, Nigeria and South Africa, three of Africa’s largest economies.

The economies of the fastest growing African nations experienced growth significantly above the global average rates. The top nations in 2007 include Mauritania with growth at 19.8%, Angola at 17.6%, Sudan at 9.6%, Mozambique at 7.9% and Malawi at 7.8%. Other fast growers include Rwanda, Mozambique, Chad, Niger, Burkina Faso, Ethiopia. Nonetheless, growth has been dismal, negative or sluggish in many parts of Africa including Zimbabwe, the Democratic Republic of the Congo, the Republic of the Congo and Burundi.

Many international agencies are increasingly interested in investing in emerging African economies especially as Africa continues to maintain high economic growth despite current global economic recession. The rate of return on investment in Africa is currently the highest in the developing world.

Debt relief is being addressed by some international institutions in the interests of supporting economic development in Africa. In 1996, the UN sponsored the Heavily Indebted Poor Countries (HIPC) initiative, subsequently taken up by the IMF, World Bank and the African Development Fund (AfDF) in the form of the Multilateral Debt Relief Initiative (MDRI). As of 2013, the initiative has given partial debt relief to 30 African countries.

Trade Growth
Trade has driven much of the growth in Africa’s economy in the early 21st century. China and India are increasingly important trade partners; 12.5% of Africa’s exports are to China, and 4% are to India, which accounts for 5% of China’s imports and 8% of India’s. The Group of Five (Indonesia, Malaysia, Saudi Arabia, Thailand, and the United Arab Emirates) are another increasingly important market for Africa’s exports.

Future
Africa’s economy—with expanding trade, English language skills (official in many Sub-Saharan countries), improving literacy and education, availability of splendid resources and cheaper labour force—is expected to continue to perform better into the future. Trade between Africa and China stood at US$166 billion in 2011.

Africa will only experience a “demographic dividend” by 2035, when its young and growing labour force will have fewer children and retired people as dependents as a proportion of the population, making it more demographically comparable to the US and Europe. It is becoming a more educated labour force, with nearly half expected to have some secondary-level education by 2020. A consumer class is also emerging in Africa and is expected to keep booming. Africa has around 90 million people with household incomes exceeding $5,000, meaning that they can direct more than half of their income towards discretionary spending rather than necessities. This number could reach a projected 128 million by 2020.

During the President of the United States Barack Obama’s visit to Africa in July 2013, he announced a US$7 billion plan to further develop infrastructure and work more intensively with African heads of state. A new program named Trade Africa, designed to boost trade within the continent as well as between Africa and the U.S., was also unveiled by Obama.

With the introduction of the new economic growth and development plan introduced by the African Union members pricely about 27 of its members who are averagely some of the most developing economies of the continent, it will further boost economic social and political integrations of the continent. The African Continental Free Trade Agreement (AfCFTA) will boost business activities between member states and within the continent. This will further reduce too much reliance on importation of finished products and raw materials in to the continent.

Causes of the Economic Underdevelopment over the Years
The seemingly intractable nature of Africa’s poverty has led to debate concerning its root causes. Endemic warfare and unrest, widespread corruption, and despotic regimes are both causes and effects of the continued economic problems. The decolonization of Africa was fraught with instability aggravated by cold war conflict. Since the mid-20th century, the Cold War and increased corruption and despotism have also contributed to Africa’s poor economy.

Infrastructure
According to the researchers at the Overseas Development Institute, the lack of infrastructure in many developing countries represents one of the most significant limitations to economic growth and achievement of the Millennium Development Goals (MDGs). Infrastructure investments and maintenance can be very expensive, especially in such areas as landlocked, rural and sparsely populated countries in Africa.

It has been argued that infrastructure investments contributed to more than half of Africa’s improved growth performance between 1990 and 2005 and increased investment is necessary to maintain growth and tackle poverty. The returns to investment in infrastructure are very significant, with on average 30–40% returns for telecommunications (ICT) investments, over 40% for electricity generation, and 80% for roads.

In Africa, it is argued that to meet the MDGs by 2015, infrastructure investments would need to reach about 15% of GDP (around $93 billion a year). Currently, the source of financing varies significantly across sectors. Some sectors are dominated by state spending, others by overseas development aid (ODA) and yet others by private investors. In sub-Saharan Africa, the state spends around $9.4 billion out of a total of $24.9 billion.

In irrigation, SSA states represent almost all spending; in transport and energy a majority of investment is state spending; in Information and communication technologies and water supply and sanitation, the private sector represents the majority of capital expenditure. Overall, aid, the private sector and non-OECD financiers between them exceed state spending. The private sector spending alone equals state capital expenditure, though the majority is focused on ICT infrastructure investments. External financing increased from $7 billion (2002) to $27 billion (2009). China, in particular, has emerged as an important investor.

Colonialism
The economic impact of the colonization of Africa has been debated. In this matter, the opinions are biased between researchers, some of them consider that Europeans had a positive impact on Africa; others affirm that Africa’s development was slowed down by colonial rule. The principal aim of colonial rule in Africa by European colonial powers was to exploit natural wealth in the African continent at a low cost. These colonial policies are directly responsible for many of Africa’s modern problems. Colonialism injured African pride, self-worth and belief in themselves. The true effects of colonialism are psychological and the domination by foreign powers creates a lasting sense of inferiority and subjugation that creates a barrier to growth and innovation. But a new generation of Africans free of colonial thought and mindset is emerging and that this is driving economic transformation.

Africa probably benefited from colonialism on balance. Although it had its faults, colonialism was probably “one of the most efficacious engines for cultural diffusion in world history”.

Africa was relatively wealthy and technologically advanced until at least the seventeenth century. Some scholars who believe that Africa was generally poorer than the rest of the world throughout its history make exceptions for certain parts of Africa. Though most of Africa has always been relatively poor, but “Aksum, Ghana, Songhai, Mali, and Great Zimbabwe… were probably as developed as their contemporaries anywhere in the world. Poverty of Africa at the onset of the colonial period was principally due to the demographic loss associated with the slave trade as well as other related societal shifts.

Language Diversity
African countries suffer from communication difficulties caused by language diversity. Greenberg’s diversity index is the chance that two randomly selected people would have different mother tongues. Out of the most diverse 25 countries according to this index, 18 (72%) are African. This includes 12 countries for which Greenberg’s diversity index exceeds 0.9, meaning that a pair of randomly selected people will have less than 10% chance of having the same mother tongue. However, the primary language of government, political debate, academic discourse, and administration is often the language of the former colonial powers; English, French, or Portuguese.

Trade-based theories
Dependency theory asserts that the wealth and prosperity of the superpowers and their allies in Europe, North America and East Asia is dependent upon the poverty of the rest of the world, including Africa. Economists who subscribe to this theory believe that poorer regions must break their trading ties with the developed world in order to prosper.

Less radical theories suggest that economic protectionism in developed countries hampers Africa’s growth. When developing countries have harvested agricultural produce at low cost, they generally do not export as much as would be expected. Abundant farm subsidies and high import tariffs in the developed world, most notably those set by Japan, the European Union’s Common Agricultural Policy, and the United States Department of Agriculture, are thought to be the cause. Although these subsidies and tariffs have been gradually reduced, they remain high.

Local conditions also affect exports; state over-regulation in several African nations can prevent their own exports from becoming competitive. Farmers subjected to import and export restrictions cater to localized markets, exposing them to higher market volatility and fewer opportunities. When subject to uncertain market conditions, farmers press for governmental intervention to suppress competition in their markets, resulting in competition being driven out of the market. As competition is driven out of the market, farmers innovate less and grow less food further undermining economic performance.

Governance
Although Africa and Asia had similar levels of income in the 1960s, Asia has since outpaced Africa, with the exception of a few extremely poor and war-torn countries like Afghanistan and Yemen. One school of economists argues that Asia’s superior economic development lies in local investment. Corruption in Africa consists primarily of extracting economic rent and moving the resulting financial capital overseas instead of investing at home; the stereotype of African dictators with Swiss bank accounts is often accurate. University of Massachusetts Amherst researchers estimate that from 1970 to 1996, capital flight from 30 sub-Saharan countries totaled $187bn, exceeding those nations’ external debts. From 1970 to 2008, capital flight from 33 sub-Saharan countries totaled $700bn.

Because governments were politically unstable and new governments often confiscated their predecessors’ assets, officials would stash their wealth abroad, out of reach of any future expropriation.

Congolese dictator Mobutu Sese Seko became notorious for corruption, nepotism, and the embezzlement of between US$4 billion and $15 billion during his reign. Socialist governments influenced by Marxism, and the land reform they have enacted, have also contributed to economic stagnation in Africa. For example, the regime of Robert Mugabe in Zimbabwe, particularly the land seizures from white farmers, led to the collapse of the country’s agricultural economy, which had formerly been one of Africa’s strongest; Mugabe had been previously supported by the USSR and China during the Zimbabwe War of Liberation.

In Tanzania, socialist President Julius Nyerere resigned in 1985 after his policies of agricultural collectivization in 1971 led to economic collapse, with famine only being averted by generous aid from the IMF and other foreign entities. Tanzania was left as one of the world’s poorest and most aid-dependent nations, and has taken decades to recover. Since the abolition of the socialist one-party state in 1992 and the transition to democracy, Tanzania has experienced rapid economic growth, with growth of 6.5% in 2017.

Foreign Aid
Food shipments in case of dire local shortage are generally uncontroversial; but most famines involve a local lack of income rather than of food. In such situations, food aid—as opposed to financial aid—has the effect of destroying local agriculture and serves mainly to benefit Western agribusiness which are vastly overproducing food as a result of agricultural subsidies.

Historically, food aid is more highly correlated with excess supply in Western countries than with the needs of developing countries. Foreign aid has been an integral part of African economic development since the 1980s.

The aid model has been criticized for supplanting trade initiatives. Growing evidence shows that foreign aid has made the continent poorer. Today, Africa faces the problem of attracting foreign aid in areas where there is potential for high income from demand. It is in need of more economic policies and active participation in the world economy. As globalization has heightened the competition for foreign aid among developing countries, Africa has been trying to improve its struggle to receive foreign aid by taking more responsibility at the regional and international level. In addition, Africa has created the ‘Africa Action Plan’ in order to obtain new relationships with development partners to share responsibilities regarding discovering ways to receive aid from foreign investors.