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Does economic growth in Sub-Saharan Africa reduce poverty?

According to the World Bank’s latest issue of “African Pulse”, its semi-annual economic development report, Sub-Saharan Africa’s economies continue to grow and are predicted strong medium-term prospects. However, the last decade’s strong economic growth has failed to reduce mass poverty in this region, due to dependence on the export of natural resources and rising inequality.

Sub Saharan African economies continue to expand thanks to domestic demand and high commodity prices. In 2012 economic output in this region increased twice the global average. About a quarter of the countries in the region, including Sierra Leone, Niger, Cote d’Ivoire and Liberia, have seen growth rates of 7% or more, and several countries are among the world’s fastest growing countries.

Foreign direct investment (FDI) supporting growth

Increasing investment flows contribute to growth in the region. While in value the mining industry sector dominates FDI flows, investment in infrastructure (construction, transportation, electricity, telecommunication and water) is expanding.

Sectors

Export growth has been driven by the export of natural resources and the resource rich countries (Mozambique and Tanzania are rich in natural gas, Guinea and Sierra Leone – in iron ore, Zambia – in copper) are leading economic growth. Government investment in infrastructure is an important factor, as is the services sector, in particular tourism, in some countries (for example Mauritius and Kenya, but also Rwanda).

Risks

According to the report, the risks to economic growth in Sub-Saharan Africa include a fragile global recovery, a possible fall of commodity prices if Chinese investments decrease, and domestic disruption, such as increasing fiscal deficit or possible unrest.

High unemployment

In spite of the overall positive effect of growth, stable jobs for the growing population have not materialised. The unemployment rate in Sub-Saharan Africa is 25%, with youth unemployment of nearly 40%. Small farms prevail in the farming sector, and micro-enterprises in the manufacturing and services sectors. Hence enterprises cannot benefit from economies of scale and remain uncompetitive. The gap between real wage and productivity growth is widening.

By A. Davey from Where I Live Now: Pacific Northwest (At the Chat Market Uploaded by Elitre) [CC-BY-2.0], via Wikimedia Commons
In conclusion, the report indicates that inequality levels in the region cast doubts on the hope that economic growth in Africa will eliminate poverty. The World Bank stresses the need for better management of natural resources to increase agricultural productivity, and to increase urbanisation of the population in order to further reduce poverty.

The Africa Progress Report 2013 reaches similar conclusions, stating that natural resource revenues contribute to widening inequalities, and that despite the impressive level of economic growth, comparable improvements in health, education and nutrition have not followed. The substantial problem of tax evasion and aggressive tax planning means that Africa loses more through illicit financial outflow than it receives in foreign aid and FDI put together. Resource exploitation has failed to generate employment because there is no further processing of the raw materials within the territory. More transparency and better accountability is required to eliminate poverty in the region.

Kofi Annan, chairman of the Africa Progress Panel, stresses the need to fight corruption and to ensure that the wealth earned from export of natural resources is invested in the region to reduce poverty.

Further reading

South African growth drifts but is unlikely to crash, Oxford Analitica, April 22, 2013

The East African Community: Prospects for Sustained Growth , International Monetary Fund, 2012

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