This IMF Working Paper examines the growth performance of sub-Saharan African countries since 1960 through the lens of growth turning points (accelerations and decelerations) and periods of sustained growth (growth spells).

Growth accelerations are generally associated with improved external conditions, increased investment and trade openness, declines in inflation, better fiscal balances, and improvements in the institutional environment. Transitioning from growth accelerations to growth spells often requires additional efforts beyond what is needed to trigger an acceleration.

Growth spells are sustained by fiscal policy that prevents excessive public debt accumulation, monetary policy geared toward low inflation, outward-oriented trade policies, and structural policies that reduce market distortions, as well as supportive external environment and improvements in democratic institutions.

Overall, determinants of growth spells in sub-Saharan Africa are different from those in the rest of the emerging and developing countries.

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Introduction

After nearly two decades of strong growth, average economic activity in sub-Saharan Africa decelerated sharply in 2016, against the backdrop of lower commodity prices, a less supportive global environment, and in some countries, a delayed policy response. While the broad-based slowdown now appears to be abating, two related questions arise: How can growth be revived in the hardest-hit countries? And for countries that are still growing fast, how can growth be sustained? To answer these questions, we depart from the traditional cross-country investigation of average growth rates and focus on growth turning points and episodes of sustained growth.

The emphasis on turning points recognizes that cross-country differences in per-capita income are more closely related to differences in the volatility of growth and less to structural differences in the levels of growth rates. Some related literature finds that the higher average growth in advanced and emerging economies compared to developing countries is explained by their relatively lower volatility of growth, with most developing countries alternating between episodes of very fast growth and episodes of stagnation or decline. Several papers have then sought to characterize growth patterns as accelerations, plateaus and hard-landings, and explain these patterns using proxies of the macroeconomic, institutional and geographical environment. Overall, evidence from this literature suggests that traditional growth determinants are not necessarily associated with growth accelerations.

Subsequent work has focused on better understanding what determines the duration of sustained growth episodes or growth spells, and the duration of growth declines. This literature is motivated by the fact that even though growth accelerations are just as common in emerging and developing economies as in advanced countries, growth spells are found to be significantly shorter in emerging and developing economies; this factor accounts for a fair share of the growth differentials between regions and across levels of income. Berg, Ostry, and Zettelmeyer (2012) find that the duration of growth episodes is positively associated with lower income inequality, democratic institutions, and macroeconomic stability. In addition, Tsangarides (2012) documents how the factors affecting growth spells in Africa differ from those in the rest of the world, highlighting the role of trade openness and droughts. In a similar vein, Kerekes (2012) characterizes countries according to the duration and level of growth and finds that the best performers share features such as favorable initial conditions, and strong institutions and macroeconomic policies. Finally, exogenous factors, political institutions, ethnic cleavages, financial and political crisis, and a measure of export sophistication have been found to be associated with the duration of growth declines.

Building on these elements from the literature, we follow Berg et al. (2012) to first define structural turning points or breaks in economic growth, classified as upbreaks (periods of higher growth than before, or growth accelerations) and down-breaks (periods of lower growth than before, or growth decelerations). Then, episodes of durable growth or growth spells are identified as the periods between growth up-breaks and downbreaks. Next, using growth breaks and growth spells as the units of analysis, we examine the changes in factors and policies that coincided with turning points and then investigate what influences the duration of growth spells.

We find that growth turning points are common in sub-Saharan Africa, but with substantial variation across time. While both up-breaks and down-breaks were frequent in the region before 2000, the region has experienced relatively fewer down-breaks since 2000. Growth spells are also frequent in sub-Saharan Africa – both among resource-intensive and nonrecourse-intensive countries – and have become more frequent over the last 15 years. But what differentiates sub-Saharan Africa from the rest of the world is that growth spells have tended to be shorter, start from worse growth positions, and more often end in “hard landings” compared to spells elsewhere – a result that still holds after controlling for armed and political conflicts.

Growth accelerations in sub-Saharan Africa are generally associated with improved external conditions, increased investment and trade openness, better fiscal balances, and more diversified economies, while the opposite is associated with growth decelerations. However, some factors seem to operate asymmetrically. Typically, up-breaks tend to be characterized by declines in inflation, increased fiscal revenues and foreign direct investment, improvements in the institutional environment and social indicators, and reductions in inequality. For their part, down-breaks coincide more often with increased public expenditure, higher debt ratios, increased aid flows, and overvalued exchange rates.

Ensuring that growth turnarounds become periods of sustained growth often requires additional efforts beyond what is needed to trigger a growth up-break. Our findings, which are robust to several tests, suggest that in addition to improved external environment, spells are sustained by better macroeconomic policies proxied by lower inflation, reduced debt-to-GDP ratios, more outward-oriented trade policies, and higher investment-to-GDP ratios. In addition, improved macro-structural policies captured by smaller market distortions and better-quality institutions help sustain growth spells.

Overall, we find that in the case of sub-Saharan Africa there are differences between the factors associated with growth accelerations and the factors that prolong periods of sustained growth. We also find that the determinants of the duration of growth spells in sub-Saharan Africa are somewhat different from those in the rest of the world.

In terms of policy implications, our findings suggest that in the current context of a less supportive external environment, the impetus to revive growth where it has faltered, and sustain it where it has remained relatively strong in sub-Saharan Africa, must come primarily from within, that is, a strong domestic policy response. For countries where growth has slowed down, the priority is to maintain macroeconomic stability and set the stage for a growth turnaround that can then be sustained. For countries currently enjoying a growth spell, the focus should be on prolonging it and avoiding a hard landing.

The research underlying this paper was initiated in the context of the preparation of IMF’s April 2017 Regional Economic Outlook for Sub-Saharan Africa.