Diverse Paths In Africa’s Economic Growth

By M. Isi Eromosele

As Africa’s long-term economic prospects continue to grow, the economies of individual countries will travel through differentiated routes. There is sustained progress toward two related objectives.

• Developing diverse sources for economic growth in addition to generating resources and fostering agriculture
• Generating export revenue to finance imported capital goods and machinery as they continue to industrialize

Using the above as benchmarks, we at Oseme Consulting classify African countries according their respective levels of economic diversification and exports per capita.

Within the above framework, most African countries fall into one of four categories:

Diversified Economies | Oil Exporters | Transition Economies | Pre-transition economies

No matter where they belong within any of the above categories, their economic structures and challenges are similar. The above framework is highly favored for assessing growth potentials across all of Africa.

Diversified Economies

Africa’s four most advanced economies – Egypt, South Africa, Morocco and Tunisia already have significant manufacturing and service industries. During the past decade, service sectors such as construction, banking, telecom and retailing accounted for more than 70 percent of their GDP growth.

Their cities have gained more than 18 million additional residents since 2004 and real consumer spending has grown by 4 to 6 percent per year. These economies have the least GDP growth in Africa and stand to greatly benefit from increasing ties to the global economy.

However, these diversified economies have higher unit labor costs than China or India and must move toward competing in higher value industries.

Oil Exporters: Propelled Growth Through Diversification

Africa’s oil and gas exporting countries have the highest GDP per capita but the least diversified economies. Rising oil prices have lifted their export revenues to record levels; the three largest producers – Nigeria, Algeria and Angola earned more than $1 trillion in oil revenues between 2003 and 2010, compared to $400 million in the 1990s.

However, their manufacturing and service sectors remain relatively small, accounting for only one third of GDP. The prospects for growth in these three countries are strong if they use their petroleum wealth to finance broader development of their economies.

Continued investments in infrastructure and education are imperative. Oil exporters in Africa face numerous challenges, including maintaining political stability and sustaining the momentum for economic reforms and curbing the desire to overspend and overinvest.

Transition Economies: Building On Gains

Transition economies in Africa, which includes Ghana, Kenya and Senegal, have lower GDP per capita than the countries in the first two groups, but their economies are growing rapidly. Ghana has recently joined the oil exporting club of African nations.

Their agriculture and resource sectors combined account for as much as 35 percent of GDP and two thirds of exports. However, these countries have increased their export of manufactured goods, particularly to other African countries.

Successfully exported products include processed fuels, chemicals, apparel and cosmetics. One key to future growth of transition economies is the expansion in intra-African trade and the creation of larger African markets.

These countries could also compete globally if they improve their infrastructure and regulatory systems.

Pre-Transition Economies: Growing From Basics

Africa’ pre-transition economies are very poor, with corresponding low annual GDP per capita. However, some are growing very rapidly. Three of the largest – Democratic Republic of Congo, Ethiopia and Mali grew, on average 5 percent a year for the past four years.

Even so, their growth has been inconsistent at times and could stumble again. While these economies differ greatly individually, their common problem is lack of stable governments, other public institutions, good macroeconomic conditions and sustainable agricultural development.

The key requirements for this group include maintaining political stability, establishing strong economic fundamentals and creating a more predictable business environment.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

Copyright Control © 2011 Oseme Group