Risks and Opportunities Attached to Sub-Saharan Africa’s Development

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CEIC WorldTrend Data Talk - September 11, 2014 Investors have been showing increasing interest in Sub-Saharan Africa because of its robust growth rate, highlighting the strong potential of the region. Economic growth in Sub-Saharan Africa has been strong since 2002, with annual real gross domestic product (GDP) expanding by more than 4.5% year-on-year (YoY) on average. The only exception was 2009, when the region’s growth rate slowed to 2.6% YoY from 5.7% YoY in 2008 under the impact of the global financial crisis. Despite the slowdown, Sub-Saharan Africa still performed better than most other regions posting outright contractions, including the European Union (-4.4% YoY), G-7 (-3.8% YoY) and the Commonwealth of Independent States (-6.5% YoY). This made the region a good option for diversifying the risks of investing in the developed world or indeed in other emerging markets such as the CIS. IMF forecasts suggest that this region will account for an increasing portion of the world’s GDP. At USD 1.3 trillion in 2013, its GDP took up a share of 2.59% of world GDP, which was approximately the same as that for France (2.62%). The region is expected to surpass France in 2014, Brazil and the United Kingdom in 2016, and Russia in 2017 or even earlier, considering its recent economic dip. The projection underpins the increasing role of Sub-Saharan Africa in the global economy. The United States-Africa Leaders Summit, hosted in Washington DC on August 4-6 this year, highlights the strengthening ties between Africa and the developed world, in particular with the US. At the summit President Obama announced new trade and investment agreements amounting to USD 33 billion, or 2.5% of the estimated GDP of Sub-Saharan Africa for last year, to support economic development in Africa. The initiative is likely to be met with some success, as it is more than 10 times larger than the USD 2.9 billion net direct US investment to Africa in 2013. However, despite these optimistic projections and the support from the developed world, there are still plenty of hurdles hindering the region’s growth in the long run. The under-developed healthcare system is an example. Health workers are scarce in Sub-Saharan Africa. For every 1,000 people, there are only 0.2 physicians and 1.12 nurses and midwives available, while the world average is 7.6 times and 2.9 times those figures, respectively. The natural corollary is low life expectancy, which is 56.4 years versus 70.8 years on average in the world. There is solid scientific proof that low life expectancy discourages investment in human capital, which is crucial for sustainable growth. The wide gap between Sub-Saharan Africa and the world in primary and secondary education completion is an interesting observation in this context. For primary education, the completion rate in the world is 92.1%, or 1.3 times that in Sub-Saharan Africa. But for lower secondary education, the gap widens drastically to 41.9 percentage points, while the multiple becomes 2.5 times. A possible explanation is that lower life expectancy makes the overall returns on education smaller, making it less attractive to invest a few more years to complete lower secondary education in Africa. Moreover, African children are much earlier involved in the labour force compared to those in the West. Apart from the immature healthcare and education systems, unemployment, weak international competitiveness and lack of confidence in governments’ economic policies are seen as the top three economic issues in Africa, according to the Ifo World Economic Survey. These factors are limitations and yet opportunities for the economic development of the region. Despite its impressive advancement and growing importance, the economic influence of Sub-Saharan Africa to the world is expected to remain small in the medium term. Compared to Asia, Africa’s share of world GDP is trivial and will remain so for some time. Emerging and Developing Asia is projected to take up 30.5% of the world’s GDP by 2019, 4.6 percentage points more than its estimate for 2013, while Sub-Saharan Africa is expected to take up 2.9% in 2019, only 0.3 percentage points more than in 2013. Despite the need for significant improvements in its infrastructure and other fundamental constraints that put Africa in a lagging position, the speedy development of certain countries in the region and the risky opportunities for high investment gains put it on the map as one of the most important parts of the world to follow closely. By Eric Ng Google+ Author Profile - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog

10th September 2014 Risks and Opportunities Attached to Sub-Saharan Africa’s Development

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