Sub-Saharan economies are growing faster but are they really getting stronger?

Last year Angola’s economy grew by an estimated 15.5%, the fastest on the continent. But the rest of Africa has also been doing well: a recent report by the Organisation for Economic Co-operation and Development (OECD) estimates that Africa’s economy grew by almost 5% last year, and is expected to do even better this year and next. At the World Economic Forum’s annual get-together this month on Africa, the mood was unusually bullish. Is Africa, often dubbed the hopeless continent, finally taking off?

The perky figures are partly due to a global hunger for oil, minerals and other commodities, whetted by demand from China and India. Africa produces much of what China wants, boosting trade and fuelling interest in the continent. China’s prime minister, Wen Jiabao, was on a tour of seven African countries this week. Soaring commodity prices (oil up by more than 90%, minerals and metals by about 70%, since 2000) have brought windfalls for oil-producers such as Angola and Nigeria. But the good economic showing is not limited to countries with oil or minerals. Ethiopia’s economy grew by nearly 7% last year, Uganda’s by close to 6%.

Rich countries have been more generous lately, with extra aid and debt relief, giving many struggling economies a breath of air. By the end of last year, 29 countries, 25 of them in Africa, had had their debt burden eased by close to $35 billion under the Heavily Indebted Poor Countries Initiative, launched in 1996 by the IMF and World Bank, to try to ensure that no poor country faced a debt burden it could not manage.

But Africa itself deserves credit for the upswing. Most of its economies have been better run: inflation, now averaging 8% a year, is at its lowest level in many countries since soon after independence 40-plus years ago; governments have been tightening the purse strings. With the striking exception of such dismal places as Côte d’Ivoire, Somalia and Zimbabwe, which now has the highest inflation in the world, politics in most African countries is better handled and violence less prevalent. Peace seems to be breaking out in once-bloody Angola, Sierra Leone and Liberia, while the Democratic Republic of Congo, though still a mess, hopes to hold its first elections in decades next month.

Emboldened by this good news, foreign investors have again turned their gaze to the continent. Good returns from Africa’s small stock exchanges have lured in fund managers. Foreign direct investment (FDI) has also gone up: $18 billion flowed into the region in 2004, three times the annual average rate in the 1990s.

For all this happy news, will the region weather the next global dip better than before? Sub-Saharan Africa has sometimes perked up a bit, only to slump again when commodity prices drop and the world economy falters. These boom-and-bust cycles have stymied real progress. John Page, the World Bank’s economist for Africa, points out that real income per person in Africa rose by only 25% between 1960 and 2005; in East Asia, it went up no less than 34 times faster in the same period.

As a result, foreign enthusiasm for Africa has been fickle and aid has become patchier because rich countries do not trust African ones to spend their money wisely. Todd Moss of the Centre for Global Development, a Washington, DC, think-tank, says that investment funds specialising in Africa grew in the 1990s, when a new wind of change seemed to billow, only to vanish as the world economy lost speed. And though FDI has gone up, Africa attracts only 3% or so of the world’s total, down from a peak of 6% in the mid-1970s.

With the striking exception of South Africa, which now contributes more than a third of sub-Saharan Africa’s GDP, the region’s total of 48 countries contains very few large, diverse or industrial economies. Most of them still depend hugely on rain-fed agriculture and on commodities. Those that have managed to build a textile industry, such as Lesotho and Mauritius, have suffered from Chinese competition and the end of the Multi-Fibre Agreement, which set quotas for exports from poor countries. The OECD argues that, though the oil and metal boom is a bonanza for African producers, it risks pushing the region back into a commodity corner, harming efforts to foster other parts of the economy.

For instance, Zambia’s burgeoning tobacco and horticulture, which were encouraged in order to make the country rely less on copper, are struggling to cope with a sudden appreciation of the local currency, driven up by high copper prices and aid money. Oil and diamonds make up 60% of Angola’s economy and almost all of its exports; manufacturing barely exists. The UN’s Conference on Trade and Development reports that sub-Saharan Africa’s exports of manufactured goods have risen by an average of just under 6% a year since 1980, less than half the figure for Asia’s developing economies .

Nor have Africa’s faster-growing economies done much yet for Africa’s millions of poor; about half of sub-Saharan Africa’s 750m-plus people still live on less than a dollar a day, a figure that has been pretty static since 1990, whereas in South Asia it dropped from 39% in 1990 to 30% in 2001 and is dropping further, while in eastern Asia (mainly China) it fell from 33% to 17% in the same period and is now falling faster still. Most foreign investment in Africa still goes to oilfields or mines, rather than factories, services or farming. Mineral riches provide governments with cash but do not create many jobs. Most people in Africa still work in the informal sector, while unemployment is rife. With a few exceptions in Africa, private business, especially the job-creating small and medium sort, is weak. Even South Africa, with its diverse economy, has failed to create jobs fast enough: at least a quarter of its people have no work.

The other huge check on growth is corruption. Some governments say they are trying to tackle it. Nigeria, whose economy has been devastated by the dishonesty of its politicians, has embarked on a high-profile anti-graft campaign. So has Zambia. But in the rankings index of Transparency International, a Berlin-based lobby, African countries are generally perceived as being the most corrupt.

Moreover, sub-Saharan Africa’s economy is still missing the target of 7% annual growth set last year by the UN among its eight Millennium Development Goals for ending poverty by 2015. The island of Mauritius, hardly a mainstream African country, may be the region’s only one to halve the proportion of its people living on less than $1 a day; only Ghana has so far met the target for hunger reduction; stemming the tide of HIV/AIDS by 2015 is still a dream. Only a handful of countries (the Cape Verde islands, Mauritius, Namibia and the Seychelles) look set to meet half the targets. Even Botswana, a shining example of stability that has been spending its diamond wealth wisely, is likely to fail to meet most of them. The goals are ambitious, but other once very poor regions have been doing far better (see table).

Africa is probably more vulnerable than other regions to the vagaries of weather, aid and commodity prices. But it can do far more to educate its people and make them healthier, to nurture local businesses, to expand irrigation and avoid soil erosion, to build roads and lay on water and electricity. Above all, despite improvements here and there, it still sorely needs accountable and honest governments that people can freely eject when they fail. The current economic upturn, from a very low base, offers a rare chance for governments to build for the future while the going is a bit better. Hold your breath.