Current African economic development
Behind the broad generalizations of African economic development in a global perspective, there
has been a huge variation of growth experiences within Africa. After all, Africa consists of more
than 50 countries, and these have experienced varying phases of growth and contraction over time.
This intra-African variation is reflected in the GDP per capita presented in Figure 3. It shows a
selection of African countries with income levels below and above $3,000. Among the lower
income countries are the DRC (Congo), Malawi, Ethiopia, Rwanda, Uganda and Benin. At the
higher end of the income distribution we find countries such as South Africa, Botswana and
Mauritius. Senegal, Ghana and Nigeria are somewhere in between. One of the explanations for
these large gaps in GDP per capita is that among the higher income countries in Africa there are
quite a few countries with large reserves of mineral resources such as oil, gold or diamonds. But
mineral resource wealth does not explain everything. Nigeria is a major oil-exporting country as
well, yet it’s average income level is far lower than Mauritius, which does not export any oil or
precious metals.
Notwithstanding the large income gaps, the majority of African economies has experienced a
period of rapid economic growth between 1995 and 2015. In recent years, however, growth slowed
down again, amongst others due to falling world market prices for African export commodities
(including oil) and the Covid-19 pandemic. Some countries such as Ethiopia and Rwanda recorded
yearly growth rates between 5 and 10 percent, which is in line with growth rates recorded in Asia
and Latin America in the past decades. These growth rates are also much higher than in the
advanced economies of Western Europe and North America. These rates of GDP growth led to
high rates of GDP per capita growth, as population growth rates were lower than 2 percent per
year. However, we need to keep in mind that these countries were growing from very low initial
levels and are still considered to be very poor by global standards.
It is not clear to which extent the poorest Africans have benefitted from the growth revival, and
whether these rates can be sustained in the coming decades. African economic growth has not been
driven by a rapid development of manufacturing industries like in Asia and Latin America. The
recent wave of growth is mainly driven by increasing exports of tropical cash crops (tea, tobacco,
cocoa, coffee, palm oil etc.) and mineral resources such as metal ores, oil and gold. In some
countries the fruits of these increasing trade revenues have directly accrued to farmers or wage
workers. In other cases the profits have disappeared in the pockets of a few mega-rich families or
foreign firms who have managed to monopolize the most profitable sectors of the economy, such
as the oil sector.
One of the biggest disadvantages of GDP per capita as a measure of welfare is that it does not show
how income is distributed among people. Figures 1 to 3 have presented average incomes. These
averages do not represent the actual incomes of most people, because incomes are not equally
distributed. The poorest people make a living of perhaps as little as $1.5 a day, which is about $500
a year. For this reason it is important to not focus only on economic growth, but also on the broader
concept of economic development, including the distribution of income.
From economic growth to economic development
Economic growth is an essential condition for economic development, and eventually, also for
human development. But what is the difference between economic growth and economic
development? The first thing to remember is that economic growth is part of a process of economic
development, but that the latter includes a wider range of changes in the economy. Economic
development is economic growth that is accompanied by structural change and diversification.
Diversification means that the range of productive activities widens. Diversification leads to an
increase in the number of jobs and is usually also accompanied by an increase in labour
productivity. Labour productivity refers to the level of production (output) per worker. And if
labour becomes more productive, their incomes will rise.
Ideally, economic development includes a process of economic expansion that is sustainable over
time (a permanent improvement of income levels) and allows broad participation (it is inclusive).
Unlike economic growth, economic development encapsulates the possibility to reduce poverty in
a structural way. To see how economic growth can contribute to economic development it is useful
to make a distinction between extensive growth and intensive growth. Extensive growth is
economic growth as result of adding more resources (inputs) to the system of production. You can
think of extra labour hours, extra raw materials, more land or more machines, transport equipment
or infrastructure (capital goods). Intensive growth is the result of producing in a more efficient
way. Efficiency means that you can produce more with the same (or even less) resources than
before. Intensive growth is thus driven by productivity growth. To increase productivity workers
have to become better trained and production systems have to incorporate better technology.
A simple example of productivity growth is the following: suppose you have to move 10 heavy
bags of rice from one village to another over a distance of 10 kilometre. You walk every day back
and forth with one bag. After 10 days you have completed the job. Motor car technology
(combustion engine, axes, metal etcetera) will allow you to move the bags in a much more efficient
manner. You can drive up and down in perhaps less than one hour, instead of walking ten days!
However, to have the car carry the rice bags, you need to have a driver who is trained to drive the
car and an investor who owns a car for rent. Indeed, the combination of investments in capital,
human skills, knowledge and technology is essential for achieving intensive growth. These are the
key determinants of what Nobel Prize winner Simon Kuznets has called ‘modern economic
growth’. Modern economic growth leads to a sustained rise in GDP per capita, a sustained reduction
of poverty rates and a structural transformation of the economy because people become more
productive.
African history has witnessed several phases of economic growth, and in some places and periods
even strong economic growth. However, most of this growth has been extensive growth. African
growth has especially been driven by the sale of natural resources, or even people in the form of
slaves. Economic development has lagged behind. Without productivity growth and structural
change phases of extensive growth will always be followed by phases of stagnation or decline.
Figure 4 shows the long term trend of GDP per capita in Ghana – also known as the Gold Coast in
the colonial era. You can see a very rapid rise between 1900 and 1930. In these years the Gold
Coast economy experienced a cocoa-boom. Many cocoa-farmers and people working on the
railways and in the harbours benefitted. Export revenues and wages rose. The colonial government
received increasing amounts of tax money and re-invested part of this money in railways and public
schools. The Gold Coast quickly became one of the richest countries in Sub-Sahara Africa.