Economic growth has been rapid, but not always broadly shared
Much of the region has proven to be extraordinarily resilient to the 2007-08 global financial crisis. Growth slowed to 3.6 percent in 2009, but quickly recovered to over 5.5 percent in the subsequent years. Skillful policymaking, stronger institutions, and higher levels of public and private investment were behind many of the economic successes across the region. Human development indicators, such as health and education outcomes, have also improved in many countries. Still, progress has been slower than hoped for in many countries, and the benefits of strong growth have often not accrued to the poor and vulnerable. What will it take to facilitate the structural transformation of the region’s impressive economic performance into a more inclusive growth? In particular, how can economic growth generate more jobs for the growing young populations?
The African Department of the International Monetary Fund examined a series of factors that could explain countries’ relative performance in terms of per capita income and poverty reduction. It found that a stable economic environment, better infrastructure, and rising agricultural productivity can have profound effects on inclusiveness and job creation.
Options for making growth more inclusive
The analysis of the IMF identified two complementary areas of economic policy for inclusive growth.
The first is job creation, especially for household enterprises operating in agriculture and services. The vast majority of Africa’s working age population is engaged in small, household enterprises, often in rural areas. Ensuring that economic policies support their development can have a profound impact on job creation. The Asian experience, for example in Vietnam, could serve as an example. Focusing on job creation in Africa is all the more important given the projected increase in the region’s working-age population. This will only be a demographic dividend if employment opportunities are there to match it.
The second area is financial inclusion and access to cost-effective, reliable sources of finance. Africa still has some of the lowest levels of access to financial services, limiting opportunities for both savers and small entrepreneurs to tap sources of finance for investment. But new technology is opening up new frontiers. Mobile banking in Kenya, for example, is making rapid inroads and providing access to finance to many who previously were cut off.
Reasons to be optimistic
These themes were also discussed at a high-level conference [Africa Rising] which the IMF co-hosted with the Government of Mozambique in Maputo on May 29-30, 2014.
Right from the very start of the conference, jobs and productivity emerged as core topics of discussion on inclusive growth. The key to long-term, sustainable and inclusive growth was considered to lie in promoting higher-value added sectors and boosting private sector activity.
Indeed, agriculture, which accounts for the bulk of employment, is characterized by low productivity and limited use of technology; manufacturing sectors are small in most of the countries in the region; and mining sectors are often foreign-owned enclaves with little or no local content. In an attempt to establish an enabling environment for a thriving private sector to create skilled jobs and meaningful investment opportunities, policymakers are striving to reduce business costs, streamline regulations and facilitate broader access to finance.
The limited availability and quality of transport, energy, and water infrastructure was also seen as a significant obstacle for productivity, business development and external competitiveness. To close Africa’s infrastructure gap, participants flagged the need for different financing options, an appropriate incentive structure to encourage private sector participation, and adequate budgeting for operation and maintenance costs. They suggested that the infrastructure challenge may need to be tackled beyond the national level, as cross-border projects would benefit from economies of scale and act as a driver of growth by spurring regional integration.
Find out more:
Fostering Durable and Inclusive Growth , Regional Economic Outlook – April14 – Internationa Monetary Fund