Towards the economic transformation of Africa
Despite the severity of the global financial and economic crisis of 2007, Africa did not deep into a recession but rather saw its economies significantly slowdown. The channels, through which the crisis affected Africa, included among others, plummeting trade, the drying up of the flows of financial capital and remittances as well as treats of bank runs and weak financial intermediation. These negative influences caused Africa to register an average growth of 2 percent in 2007, significantly down from about 5-7 percent beforehand. Although there are currently turbulent head-winds coming out of the Eurozone, the 2007 financial storm is behind us and Africa's economy is roaring back, forecasted to grow between 5-7 percent from 2013-2015. It is worth noting that that six (Ethiopia, Mozambique, Tanzania, Congo, Ghana and Zambia) of the world's ten fastest-growing economies are in Africa, recording at least 7 percent growth rate. The optimism beaming around the globe has led some commentators to predict that the average African economy will outpace its Asian counterpart in next five years. According to the respected Economist magazine, Africa which it dubbed a decade ago as a hopeless continent is currently bullish about the economic prospects of the continent, calling it the hopeful continent.
A question one may ask is how did Africa withstand the 2007 crisis? Although no definitive answer can be offered, one could suggest that the positive performance of Africa is due to the solid policies run by many African countries prior to the crisis. These policies, which inoculated the African economies against the severe ramification of the crisis included: low-inflationary monetary stance, prudent fiscal management (strengthened budget positions, reduced debt burdens and reformed tax structure), and reasonable foreign currency reserve cushion. Improved fiscal position allowed countries to use the budget to counteract the crisis, rather than making it worse. Fiscal policy was therefore expectedly countercyclical in many African countries at the time of the crisis. It should be said that the fiscal cushion helped a great deal to protect the poor and vulnerable as social spending was not cut during the crisis.
Despite the current robust economic performance, Africa should not rest on its laurels as it remains vulnerable to shocks from different sources. These shocks could potentially come from volatility in commodity prices, natural disasters, climate change, wars and conflicts as well as weakened flow of remittances, aid, and financial flows. The challenge for Africa is to continue to pursue an agenda of strong inclusive-growth at the same time reinforcing its resilience to shocks. This requires that Africa stay on course on its pursuant of sound macroeconomic policies. Hence policy buffers must remain in place to allow for future countercyclical responses including prudent fiscal policy and the use of reserves. Social safety nets needs to be strengthened as well. Social and income inequalities must also be aggressively addressed so as not to heighten tensions within the population in times of economic downturn and make shocks more destabilizing.
Experiences from other parts of the world indicate that if African countries continue their current economic performance then the rapid growth recorded prior to the financial crisis would result in substantial structural changes within the economies of many countries. The goal of many African countries, as enshrined in their development plans or strategies, is to reach middle-income-country status by the next decade. However, moving from low- to middle-income status would not only require an increase in per capita income but also structural transformation of the economies as an important part of development.
A key challenge facing many African policymakers is how to maintain the pace of rapid growth while embarking on structural transformation. One can recall that the industrial planning strategies embarked by post-independent African countries in the 1960s and 1970s was a failure as it led to economic mismanagement and poor economic growth. On the other hand, the adoption by African countries in 1980s and 1990s of the Washington-Consensus-promoted policies of the laissez-faire market oriented strategies successfully yielded macroeconomic stability but failed to produce structural transformation and sustained growth.
The success of Asian and Latin American countries to embark on structural transformation of their economies to significantly uplift living standards of the poor raises several important questions for Africa. First, can Africa draw lessons from these countries? Second, what are the roles private and public sectors as well as agriculture sector should play in initializing and sustaining a transformation? Third, what is the impact of initial policies during the early stages of transformation on a country’s long-term development path? The purpose of this paper is an attempt to answer the questions raised. However, to answer these questions there is a need for a better understanding of what constitutes structural economic transformation.