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Africa: Consequences of a crunch

Patrick Smith
By Patrick Smith
Editor-in-Chief of The Africa Report.

Posted on Wednesday, 7 November 2018 11:34, updated on Wednesday, 20 March 2019 11:40

Aerial photo of Johannesburg's downtown. Bram Janssen/AP/SIPA

The Editor in chief of The Africa Report highlights some of the key challenges slowing down Africa's economic development

Should any African president suffer from a bout of irrational exuberance, the latest reports from the International Monetary Fund (IMF) and the World Bank make for sobering reading.

The message, less varnished than usual, is that the economic and technological gulf between Africa and the industrial economies, and many developing ones, is widening. Without a strategy, the chasm will grow.

One set of reasons are about strategy: low investment in education and slow adoption of new technology at the macro level leading to a rising productivity gap.

So it’s more than the gloomy headline figures, although both the IMF and the Bank have downgraded their GDP growth projections for Africa this year to 3.1% and 2.7% respectively.

On average, growth per capita will rise 1% this year; then it is projected to rise 1.5% a year for the early 2020s. On that basis, it would take until 2063 for per capita incomes to double across the continent.

There are a raft of global factors responsible, in part, for this stasis: deepening effects of climate change on productivity and livelihoods; the laggardly market for many commodities; the financing squeeze and lack of access to international markets; a stronger US dollar and rising debt service costs to which can be added the indirect costs to Africa of the trade war between the US and China.

Caveats for both scenarios

Between the lines the Bretton Woods reports acknowledge such constraints but focus on the policy and strategic actions that governments could take to mitigate these pressures.

And in most cases that isn’t happening. Slow growth and weak commodity markets are causing a capital crunch, squeezing investment in infrastructure and social programmes.

The lack of investment in health and education in Africa is depressing productivity

The consequences of this are spelled out in the Bank’s new ‘Human Capital Index’ which measures performance in terms of health and education outcomes.

Reporting some of the lowest scores for Africa, the Bank argues that lack of investment there is depressing the productivity of its economies.

The IMF’s analysis of the effects of the ‘Fourth Industrial Revolution’ sketches out two scenarios for Africa. First, an upbeat assessment that the technological leapfrogging achieved by mass use of cellphones and internet access could be extended to other sectors, to complement and speed up economic development.

A grimmer scenario is that robotics and Artificial Intelligence will replace much of the current workforce, leading to many of the manufacturing and service industry operations set up by foreign firms in developing economies returning to their countries of origin.

That would mean vast swathes of Africa would not get on that first rung of industrialisation, at least via international investment.

The IMF boffins offer caveats for both scenarios, but the dangers in their analyses are as clear as the Bank’s assessment of Africa’s progress on educationand health.

With the combined research cap capacity of the AfDB and UNECA, it must be time for these institutions take up this gauntlet, focusing on strategies to address the economic travails.

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