In Africa, economic growth is continuously failing to create jobs and lift a significant number of Africans out of poverty. Subsequently, predictions of economic growth acceleration have so far failed to substantially identify practical factors that could make such growth more tangible. In what is becoming a usual pattern, Africa’s Economic Outlook forecasts a growth at 5% for 2016 but acknowledges the shocks, global economic uncertainties and plunging oil prices serve as a challenge to current growth. While growth trajectory varies across African states, the hindrance to growth follows a similar pattern, affecting not just the vulnerable states, but the giant economies which initially demonstrated strong resilience against global financial crisis.
From low generated electricity, to security issues and steep inequality, the common pattern demonstrated in the last decade is framing for a continuous cycle of inequality and high poverty coexisting in the midst of economic growth. Over time, this could become a deeper, longer-term hindrance to growth. This constant coexistence of growth in the midst of highly unequal society and poverty is prompting increased concerns for the future stagnation and harder times in Africa.
As such, Africa’s growth sustainability has been central focus of policy debates and agenda. Of recent, economist and development experts have been making a hard case for the need to align policies along with practical agendas to boost and sustain Africa’s growth. As a result, estimation of existing and potential growth have been lowered. Potential growth is difficult to estimate, many of the recent analyses, including by the IMF, all show a huge decline in potential output growth for 2015 to 2016 from 5.8% and 6.0% to 4.9% and 5.2% consecutively.
Citing the reason for such decline for the two biggest economies; Nigeria and South Africa, the reason for decline in estimation has been associated to lowered oil and commodity prices shocks. South Africa’s growth projection has been adjusted from 2.3% to 2.1% for 2015 and from 2.8% to 2.5% for 2016. For Africa’s biggest economy and the biggest oil exporter, Nigeria, growth has been slashed from the initial 7.3% projection to 4.8% in 2015 and to 5.2% from 7.2% for 2016.
What this means for Africa is
There is a need for government and policy makers to understand that more has to be done to support economic growth for sustainability and lifting more people out of poverty. This can be achieved by building on and strengthening growth strategies for redistribution and taking a more human development approach. In context, the challenge remains identifying and agreeing on what additional measures are required. Some experts have focused on scarcity of demand, identifying the need for a more macroeconomic approach to boost demand, advocating for increased use of fiscal policy to induce demand alongside monetary policies. From this perspective, the challenge lays in unbalance equilibrium in favor of supply side of reforms, some expert arguments present a case for the contractionary impact of demand on supply, for example, demand for skilled human capital against a deficit.
Secondly, the slashing of initial projected growth points to a need for structural reforms and calls for strategies in addressing underlying challenges that hinder foreign investment, employment, small enterprise operations, informal sector and productivity. Structural reforms could act as support system to boost demand and harness internal supply.
Further, direct policies are necessary but vary across all the African states. Overall, the aim is to boost support systems for growth in a way that it can produce tangible result that is accepted as reality for common man in Africa; as opposed to viewing it from the macro versus structural agenda, but from a broader angle of both macroeconomic and structural policies supporting growth to be more developmental in nature.
Removal of these barriers could enhance economic growth’s impact on macroeconomic policies. Subsequently, boosting investment through governance improvement and service delivery should be key on Africa’s sustainability plans, as it illustrates the interplay between driving more investment and a conducive business environment. With the commodity price decline, weak investment opportunities could undermine potential sustainability and future growth in Africa.
Globally, investment is approximated to have fallen, as such, a good way for Africa like other emerging economies to stay afloat is by creating investment enabling environments to boost public investment. That means better security, improved governance and infrastructure – while taking advantage of the current low cost of interest rates on lending. Lack of infrastructure in most African states lies huge potentials for employability; for example, in poor road networks in Nigeria lies immense opportunities. As harnessing public investment by itself will not be sufficient; private investment is necessary to create the balance and create more jobs.
A relative interplay of macroeconomic and structural elements typify the agenda to boost employment through labor market participation and productivity growth, as together with tangible investment could drive and sustain growth.
Presently, the high unemployment rates in Nigeria and the rest of Africa is driving negative impacts in high crime rates and terrorism. As such, underscores the priority of action to generate more jobs. Thus agenda spans both actions to boost demand and structural reforms to advance functionality of educational institutions, skills acquisition, and informal skills to correlate with labor market requirement. In advanced nations, structural reforms plays a vital role in rearranging the declining trends in the overall factor-productivity-growth in developed nations as it stimulates innovation, and evidently, could be what Africa needs right now.
In conclusion, the fragile and unstable outlook of Africa’s growth projection calls for specific formulation and implementation of concrete and balanced set of macroeconomic and structural policies to support growth. The current state of unemployment, low infrastructure, informal sector, entertainment industry, human capital and the untapped potentials in Agriculture provides a vital opportunity to do so.