Digital revolution can unlock inclusive growth and job creation across Africa

Growth in Sub-Saharan Africa has been downgraded to 2.3 percent for 2018, down from 2.5 percent in 2017, according to the April 2019 issue of Africa’s Pulse, the World Bank’s bi-annual analysis of the state of African economies released on Monday.

Economic growth remains below population growth for the fourth consecutive year, and although regional growth is expected to rebound to 2.8 percent in 2019, it will have remained below three percent since 2015. This issue of Africa’s Pulse also looks at how fragility is holding back sub-Saharan Africa, and how the digital economy can help the continent move forward.

“The digital transformation can increase growth by nearly two percentage points per year and reduce poverty by nearly one percentage point per year in sub-Saharan Africa alone. This is a game-changer for Africa,” said Albert Zeufack, World Bank Chief Economist for Africa.

The slower-than-expected overall growth reflects ongoing global uncertainty, but increasingly comes from domestic macroeconomic instability including poorly managed debt, inflation, and deficits; political and regulatory uncertainty; and fragility that are having visible negative impacts on some African economies. It also belies stronger performance in several smaller economies that continue to grow steadily.

In Nigeria, growth reached 1.9 percent in 2018, up from 0.8 percent in 2017, reflecting a modest pick-up in the non-oil economy. South Africa came out of recession in the third quarter of 2018, but growth was subdued at 0.8 percent over the year, as policy uncertainty held back investment. Angola, the region’s third largest economy, remained in recession, with growth falling sharply as oil production stayed weak.

Growth picked up in some resource-intensive-countries like the Democratic Republic of Congo and Niger, as stronger mining production and commodity prices boosted activity alongside a rebound in agricultural production and public investment in infrastructure. In others, like Liberia and Zambia, growth was subdued, as high inflation and elevated debt levels continued to weigh on investor sentiment.

In the Central African Economic and Monetary Community, a fragile recovery continued as reform efforts to reduce fiscal and external imbalances slowed in some countries. Non-resource-intensive economies such as Kenya, Rwanda, Uganda, and several in the West African Economic and Monetary Union, including Benin and Côte d’Ivoire recorded solid economic growth in 2018.

Africa’s Pulse also found that fragility in a handful of countries is costing sub-Saharan Africa over half a percentage point of growth per year. This adds up to 2.6 percentage points over 5 years.

“The drivers of fragility have evolved over time, and so too must the solutions,”said Cesar Calderon, Lead Economist and Lead author of the report. “Countries have a real opportunity to move from fragility to opportunity by cooperating across borders to tackle instability, violence, and climate change.”

Taking the Pulse of Africa’s Economy

The growth story in Sub-Saharan Africa in the past few years has been one of faltering recovery from the worst economic crisis of the past two decades. “Three years past the crisis period, we should be seeing a more widespread pickup in growth; instead we have downgraded our estimates again for 2018,” said Gerard Kambou, World Bank Senior Economist for Africa. “Leaders in Sub-Saharan Africa have the opportunity to build stronger domestic policies to withstand global volatility – and now is the time to act.”

The report notes that the three largest African economies – Nigeria, Angola and South Africa – play a big role in the region’s growth. While Nigeria grew faster in 2018 than in 2017, thanks to a modest pick-up in the non-oil economy, growth remained below 2%. Angola continued its recession, with growth falling sharply as oil production stayed weak. South Africa came out of recession in the third quarter of 2018, but growth was subdued mostly due to policy uncertainty weakening investor confidence.  

Growth performance was mixed in 2018 across the rest of the continent. Growth in resource-intensive economies was buoyed by stronger commodity prices and higher mining production, according to the Pulse, but also benefited from higher agricultural production and more public investment in the necessary infrastructure to connect people and goods to markets. Reform efforts in the Central African Economic and Monetary Community are beginning to bear fruit, although there are signs that reforms are slowing down in a few places. And non-resource-intensive economies such as Kenya, Rwanda, Uganda, and several in the West African Economic and Monetary Union, including Benin and Côte d’Ivoire recorded solid economic growth in 2018.

The report also outlines issues which continue to hold back growth across the region – debt and fragility. It is not just the growing amount of debt, but also the type of debt that countries are taking on that is leading to widespread vulnerabilities. External debt is shifting from traditional, concessional, publicly-guaranteed sources to more private, market-based, and expensive sources of finance, putting countries at risk. By the end of 2018, nearly half of the countries in Sub-Saharan Africa covered under the Low-Income Country Debt Sustainability Framework were at high risk of debt distress or in debt distress, more than double the number in 2013.

Low growth in just a handful of fragile countries costs the continent more than half a percentage point of growth per year, the report finds. That is 2.6 percentage points over five years. The report recommends countries focus on building state capacity and strong institutions that secure peace and stability, as well as deliver better services to their people to rebuild the social and economic foundation needed for a successful future.

“As the nature and the causes of fragility evolve, the approach to overcome it becomes more complex,” said Calderon. “It increasingly requires collective solutions. Regional and sub-regional institutions are needed to address peace and security challenges as well as economic shocks that spill over national borders.”

The report also highlights the opportunities on the horizon for Sub-Saharan Africa, including the digital revolution. The continent is at an important inflection point of demand for and support for the digital transformation, and the African Union recently endorsed the aspiration that every individual, business, and government across the African continent will be connected to the internet and can reap the benefits. This can pay huge dividends in terms of inclusive growth, innovation, job creation, service delivery, and poverty reduction in Africa.

Across the African continent, including sub-Saharan and North Africa, the digital transformation could increase growth per capita by 1.5 percentage points per year and reduce the poverty headcount by .7 percentage points per year, according to the report. In Sub-Saharan Africa alone, the digital revolution can increase growth by nearly two percentage points per year and reduce poverty by nearly one percentage point per year.

When paired with stronger investments in human capital, impacts across the African continent can be more than doubled. Impacts are greater if expansion of the digital economy is accompanied by regulations that create a vibrant business climate, skills that allow workers to access the jobs of the future, and accountable institutions that use the internet to empower citizens.

Africa’s Pulse is a biannual analysis of the near-term macroeconomic outlook for the region, published around the World Bank/IMF Spring and Annual meetings each April and October. Each issue also includes a special focus on a particular development challenge that is shaping Africa’s economic future. It is produced by the Office of the Chief Economist for the Africa Region of the World Bank.