Economic Development in Africa

Africa’s historical struggles with economic underdevelopment have left it with the densest concentration of lower-income countries of any continent on Earth. According to World Bank data from 2020, no African country holds “high-income” status and only five of the continent’s fifty-four nations have reached the “upper-middle-income” level. The remaining forty-nine African countries hold “lower-middle-income” or “low-income” designations, speaking to an acute and ongoing need for effective and high-impact economic development strategy.

According to the Economic Development in Africa Report 2021, issued in October 2021 by the United Nations Conference on Trade and Development (UNCTAD), “inclusive growth” and “regional integration” rank among the continent’s top developmental priorities. Widespread poverty and dramatic levels of wealth inequality continue to characterize the general state of the African economy, with regional disparities more intensely concentrating these trends in certain areas. Yet, observers remain optimistic about Africa’s overall economic fortunes: in 2021, the African Continental Free Trade Area (AfCFTA) came into effect, establishing viable foundations for sustainable, long-term economic growth across the African continent.

Background

The course of Africa’s modern economic development is a direct legacy of the continent’s colonial past. Beginning in the fifteenth century when Portugal became involved in the transatlantic slave trade, various European powers including Belgium, France, Germany, Great Britain, Italy, the Netherlands, Portugal, and Spain established control over much of Africa. European dominance of Africa continued into the twentieth century before waning in the 1960s, when continent-wide nationalism and independence movements extracted much of Africa from European control. European imperialism in Africa peaked during a brief historical period commonly known as the Scramble for Africa (1881–1914), a time of particularly intense rivalry among the various European powers seeking to maximize their African holdings.

Europe’s colonial interest in Africa was primarily driven by economic considerations. The Industrial Revolution (ca. 1760–ca. 1840) profoundly impacted the European economy, with mechanized production creating a soaring demand for raw materials. As European activity in Africa generated ever-larger pools of surplus capital, colonists deepened their investments in the African continent and achieved monopolistic control of its highly lucrative agriculture and mining industries as well as its labor forces and consumer markets.

Africa’s colonial economy was primarily configured to service European interests. To the greatest possible extent, agricultural operations were concentrated near port areas, facilitating the easy and efficient export of the continent’s bounties. Road and maritime infrastructure were similarly structured, allowing for the rapid transport and shipping of Africa’s colonial economic output. As contemporary scholars and economists note, this setup benefitted European colonial powers but did not reflect the likely developmental course Africa’s economy would have otherwise taken. Its lasting effects continue to exert a profound impact on Africa’s modern economy. The continent’s cities grew in places originally established by European colonizers, leaving agricultural production concentrated in areas prone to overexploitation and necessitating the continued use of the infrastructure networks originally built to serve European economic interests. These factors continue to impede food security and resource development in contemporary Africa. They also form the basis of Africa’s continued economic reliance on the export of agricultural goods and raw materials.

Brief History

During the initial stages of Africa’s postcolonial history, the continent’s economic development policies largely revolved around foreign aid. External aid was mainly provided by high-income countries and former colonial powers and was generally applied with the immediate objective of reducing poverty. Development models endeavored to establish gradual moves toward industrialization, with donor countries supplying capital with the expectation that local national governments would use it to guide industrial development. Early aid programs also operated under the assumption that such programs would only exist temporarily and for the short term.

Over the course of the 1960s and 1970s, economists and external donors found that aid programs were not generating meaningful reductions in poverty rates nor were they improving education- and health-related outcomes. Corruption became a recognized impediment to economic progress, as some African leaders used a combination of aid funding and self-interested policymaking to enhance their personal wealth and the wealth of their allies. Wealth inequality increased as greater and greater levels of resource control were concentrated under the purview of a small, select class of political, economic, and military elites.

Africa’s economic development strategy shifted in response to these developments, moving away from government-led industrialization models in favor of monitoring progress on key socioeconomic indicators. Developmental funding was diverted from agricultural and infrastructural development to emerging priorities in the social sectors and to respond to humanitarian emergencies and crisis relief efforts. However, a prolonged period of high interest rates took hold in the 1980s, sending national debt levels across Africa soaring. This persisted into the 1990s and impacted international investment in African economic development when much of the Western world slipped into an economic recession. Donor nations imposed strict conditions on their developmental aid packages and adopted a macroeconomic approach to stimulus efforts. This formed the basis of what came to be known as the Washington Consensus: African countries agreed to tighten their economic policy and move away from state-led, state-controlled development models in favor of free-market structures. In exchange, high-income donor nations agreed to continue their developmental aid programs.

In 1996, the United Nations’ World Bank established the Heavily Indebted Poor Countries (HIPC) Initiative. The program established a multilateral debt relief framework designed to prevent the world’s lowest-income countries from slipping into financial ruin under unsustainable levels of public debt. However, the impacts of these efforts were limited because bilateral and multilateral aid donors decreased their financial commitments to the African economy for the remainder of the 1990s as the effects of the decade’s recession lingered.

Debt relief and aid spending recovered following the turn of the twenty-first century, leading to new shifts in economic development policy. Donor countries began to tie their provision of aid to quantifiable results, seeking greater levels of accountability and measurable progress. In 2005, African aid recipients and high-income donor countries agreed to the Paris Declaration on Aid Effectiveness, which introduced formal economic development targets. The 2005 declaration went on to form the basis of the 2008 Accra Agenda for Action, which updated and expanded the newly established results-oriented structure.

Overview

During the 2010s, poverty rates in Africa generally improved. According to UNCTAD, the percentage of African households in absolute poverty as defined by income or consumption levels below US$1.90 per day fell from 40.2 percent (2010) to 34.4 percent (2018). Similar reductions were seen when tracking poverty across modestly higher income levels during the 2010–2018 period. However, as of the publication of UNCTAD’s Economic Development in Africa Report 2021, more than 80 percent of African households were still generating or consuming less than US$5.50 per day.

Despite modest improvements on the poverty front, income inequality continues to function as a major barrier to continent-wide economic development. As such, current developmental efforts have evolved toward policy-based reforms intended to address the root and systemic causes of income inequality. These cover the inclusive growth and regional integration priorities specified in the 2021 UNCTAD report, along with programs meant to generate positive human development outcomes, improve gender-based metrics regarding economic participation, advance environmental protection initiatives, and facilitate easier access to health care and education.

Inclusive growth strategies focus heavily on factors not directly related to individual income and instead make deeper investments in human capital development. The United Nations (UN), its aligned financial institutions, and the wider international community now heavily orient their African human capital investments in education, seeking to encourage entrepreneurship and skills-focused learning. Health care functions as another crucial avenue for human capital development, with programs continuing to work toward extending life expectancy rates and reducing infant and child mortality. Regarding labor force participation, current development strategies focus heavily on women and girls. The Economic Development in Africa Report 2021 states that 54 percent of eligible African females participate in the labor force. This outpaces the overall global average of 47 percent, but major gender-based income gaps persist. In 2018, female labor force members generated only one-third of Africa’s total economic output despite their relatively high rates of labor force participation.

Regional integration ranks as another central consideration, as some parts of Africa benefit from relatively affluent and developed economies while others lag far behind. In general, countries in eastern and sub-Saharan Africa face the continent’s most challenging economic outlooks, while those in its northern, western, and southern regions enjoy relative prosperity. Policymakers generally consider bridging the gap between Africa’s higher-income and lower-income countries a pressing and central concern, as it stands to improve political stability and economic prosperity across the continent while addressing the conditions that lead to violent conflict. Many experts view the establishment of the African Continental Free Trade Area (AfCFTA) as a critical and potentially transformative step forward for regional integration. The AfCFTA was established in 2018 and became operational on New Year’s Day, 2021, with fifty-four of the African Union’s fifty-five member states agreeing to its underlying multilateral free trade agreement.

Entrepreneurship has also emerged as a key area of focus for economic development efforts, particularly regarding Africa’s fast-growing technology industry. International experts believe that Africa is poised to become the world’s next high-growth economic market, which stands to dramatically increase technology adoption and usage rates across the continent. Technology startups have already begun to have positive impacts on multiple national economies in Africa, with countries including Egypt, Ethiopia, Kenya, Nigeria, Rwanda, and South Africa sporting particularly rapid industry growth. According to a 2020 World Bank report, the Internet economy could account for more than 5 percent of Africa’s total economic output by 2025, potentially injecting an estimated US$180 billion per year into its economy.

The Twenty-First Century

The economic impacts of the global pandemic of novel coronavirus disease 2019 (COVID-19) had particularly damaging effects in Africa. In 2020, the global economy contracted by 4.3 percent because of COVID-19. Developing economies, including those in most African nations, were affected to a lesser proportion, suffering average losses of 2.5 percent with forecast 2021 rebound rates of 5.7 percent. However, people living in low-income and lower-middle-income countries generally experienced more severe pandemic-related economic shocks. Among African countries in those income categories, this was mainly due to sharp export reductions, contractions in local economic activity, and mounting levels of public debt.

At the same time, Africa’s tourism sector effectively collapsed in 2020 and remittance payments sent back to Africa by expatriates living and working abroad also fell dramatically that year. As a result, financial institutions have tightened access to loan capital while inflation has seeped into the African economy. These factors have combined to inform official estimates suggested that about thirty-nine million Africans could lapse into extreme poverty in 2021. The situation threatens to undo the consistent antipoverty gains made across Africa during the 2010s.

Given the scope and severity of the economic threat, current economic development policy in Africa largely revolves around mitigating the damage caused by COVID-19. Intervention efforts include strategies to return the continental economy to a state of growth and reduce the short-term and long-term impacts of the pandemic-induced recession.

The African Development Bank has assumed a leadership role in these efforts, creating a crisis response division to serve its partner countries in addressing the economic aftershocks and healthcare burdens brought on by the pandemic. It also established a COVID-19 relief social bond fund initially valued at US$3 billion, which began trading on international financial markets. According to the African Development Bank’s African Economic Outlook 2021 report, the bond is the most valuable US dollar-denominated social bond in history.

Despite cautious optimism for a relatively expeditious and smooth economic recovery, the African Development Bank forecasts potentially significant challenges arising from high and climbing public debt levels. Over what the institution describes as the “short to medium term,” Africa’s overall debt levels are expected to rise by 10 to 15 percent relative to the continent’s total economic output as measured by gross domestic product (GDP). These indicators suggest a looming debt crisis, which could seriously impact Africa’s developmental path to improved economic prosperity. The African Development Bank notes that a debt crisis could lead to complex and protracted settlement negotiations with creditors, reducing the availability of capital while hampering recovery and growth efforts.

Given the economic pitfalls of Africa’s post-pandemic economy, the African Development Bank has sought to establish cooperative partnerships with high-income countries and especially with members of the Group of Twenty (G20) major global economies. The institution has proposed a temporary debt relief program to the G20, deferring scheduled payments while inviting the increased participation of private-sector banking interests in charting a productive forward course. Observers note that the COVID-19 situation has once again placed Africa in a position of needing to solicit debt relief from relatively affluent creditors, echoing the twentieth-century aid-based economic development model that has already been deemed unsustainable.

For its part, UNCTAD continues to focus its efforts on creating the conditions for inclusive Africa-wide post-pandemic economic growth. Recoveries in the market value of key Africa-produced commodities and exports hold the potential to accelerate economic healing, restore stability, and return Africa to positive economic growth rates. UNCTAD notes that the post-pandemic supply chain crisis of 2021 provides AfCFTA members with a valuable and critically important opportunity to reconfigure their internal supply chain structures, address its vulnerabilities, and emerge with more resilient and efficient exporting infrastructure. To achieve these goals, UNCTAD endorses a multifaceted strategy focused on encouraging African industries to prioritize the development of products for regional markets and deploying digital infrastructure assets to streamline AfCFTA supply chain operations.

As a final focal area of development effort, UNCTAD also seeks to formalize the numerous and sizable aspects of the African economy that circulate outside officially quantifiable channels. These include regulating and streamlining unofficial forms of cross-border trade, bringing it under the legal purview of AfCFTA and enabling its economic value to be properly identified and tabulated. Similar efforts extend to entrepreneurship, especially among females and young people, and to intranational trade. These sectors have historically been underrepresented in official economic analyses and formalizing them allows policymakers to more readily and transparently direct aid and investment capital to them.

While AfCFTA’s operationalization has generally yielded economic optimism, analysts note that like every free trade agreement, certain economies and economic sectors will benefit while others will feel negative impacts. In some circles, concerns have centered on AfCFTA’s potential effects on Nigeria, which hosted Africa’s largest and most valuable economy when the free trade zone was established. Nigeria’s economy could suffer some losses because of the pact as rival regional countries become more competitive. Some economists fear that any resulting economic contraction in Nigeria could cause wider-reaching ripple effects capable of neutralizing the free trade agreement’s positive effects and potentially stalling economic growth and development.

One of the major challenges facing African countries in their steep climbs to economic development is global climate change. Although this is an issue facing all nations, climate change is a more profound issue on this continent. For more than half a century, Africa has recorded more rapid warming trends than global averages. This is resulting in increasing occurrences of droughts and floods on a continent where twenty percent of its inhabitants suffer from food insecurity.

Despite its abundance of natural resources, particularly in sub-Saharan Africa, climate change is altering soil fertility because of drought. Many African countries are turning to more traditional practices, such as a switch from the production of cash crops to subsistence crops. There are also renewed efforts to employ plentiful organic fertilizers, such as livestock droppings and biodegradable materials, rather than synthetic fertilizers. In many cases, these replacements are yielding more drought-resistant crops.

About the Author

Jim Greene holds bachelor’s degrees in English and film production and an MFA in creative writing from the University of Southern California. Now based in Europe, he has more than twenty years’ experience as a professional writer specializing in the student reference and consumer information segments.

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