African growth yet to result in employment gains
Higher economic growth is needed to confront unemployment, the African Development Bank says
The African Development Bank is concerned that robust continental economic growth is yet to translate into improved employment for the continent’s rapidly growing workforce.
According to figures provided by the bank at the start of its annual meeting being held in Malabo, Equatorial Guinea, this week, growth is expected to average 4% on the continent in 2019, rising slightly to 4.1% in 2020.
“While this is higher than for other emerging nations, Africa needs to grow between 4.5% and 7% just to keep unemployment stable,” says Hanan Morsy, director of macroeconomic policy and research at the African Development Bank.
Morsy is encouraged by the fact that more growth is being driven by investment spending and export revenues than it ever has in the past, which historically has been dominated by consumption spending.
In just the last three years, investment spending’s contribution to economic growth has risen from 14% in 2015 to 48% in 2018. The continent’s trade balance as measured by net exports (the difference between the value of exports less imports) has made a positive contribution to economic growth since 2014.
This shift in activity bodes well for the future as it is more likely economic growth can be sustained and increased.
The continent averaged annual growth of 3.5% in 2018, with Southern Africa being the laggard at growth of just 1.2%. This is likely to continue: the bank notes in its research that “Southern Africa’s subdued growth is due mainly to SA’s weak development, which affects neighbouring countries.”
SA recently posted a contraction of 3.2% in the first quarter, which was partly blamed on Eskom’s erratic operational performance.
Morsy believes the continent is losing out on the creation of as many as 2.3-million jobs annually due to constraints on small enterprises.
“Small enterprises have not been able to grow, so there is a missing middle,” Morsy says.
The bank has identified four constraints to small business growth: poor infrastructure, political instability, corruption and bureaucracy. According to Morsy, gains in reducing bureaucracy, such as speeding up the time to issue small businesses with licences, can greatly improve their chances to grow.
The bank is also advocating the benefits of continental free trade, which in the first phase entails removing all bilateral tariffs and would contribute to insignificant economic growth of $2.7bn.
It is the next step that would begin to move the dial. This entails the removal of ad valorem tariff equivalents, which could result in a thirteen-fold increase in growth of $37bn.
It is this type of regional and continental integration the African Development Bank is advocating, with the theme for this years’ annual meeting being “Regional integration for Africa’s Economic Prosperity”.