GDP per capita is falling in Africa for the first time in more than two decades. It’s been a good run for growth on the continent, but at least for now, GDP growth is following below population growth. The FT reports:
Income per head in sub-Saharan Africa, the world’s poorest region, will fall this year for the first time since 1994, according to the International Monetary Fund.
The fund has downgraded its forecast for gross domestic product growth in sub-Saharan Africa from the 3 per cent it foresaw in April to just 1.6 per cent, well below expectations of population growth of 2.5 per cent.
The sharp slowdown will entrench poverty in a region where annual per capita GDP in purchasing power parity terms is just $3,869.
Will this year’s falling GDP per capita really “entrench poverty” in Africa? The claim is difficult to prove. For starters, GDP per capita is an imperfect measure of poverty; petro-state Equatorial Guinea has the continent’s highest GDP per capita at over $30,000 per head (comparable to Israel), but almost everyone there is desperately poor. How so? Almost almost all of the oil money flows to the kleptocratic family of Teodoro Obiang, the country’s longtime dictator—not to the people. In commodity-rich, corruption-ridden economies, GDP per capita can go up and down with price swings, without bringing many changes at all for most people. If anything, in such a setting, dramatic changes in GDP per capita would mean more for small group of people with high incomes than for the majority in poverty.
To get a real sense of how most people are doing in Africa, median family income would be a much better indicator. Where inequality is high and a small elite enjoys tremendous wealth while everyone else lives in crushing poverty, GDP per capita is going to be substantially higher than what the median worker actually makes. But median family income has to be collected by surveys, which are time- and funding-intensive. Calculating GDP per capita, in contrast, is easy: just divide a country’s GDP by its population.
Even though it does exaggerate what the news means for poverty within countries, the FT piece does a good job of explaining that falling GDP per capita is not constant across countries in Africa:
The IMF’s sharp downward revision for 2016 is driven by the woes of the sub-Saharan region’s two largest economies, Nigeria and South Africa. […]
However, there is a view that the IMF’s glum regional forecast is largely driven by the problems of the largest economies, rather than being symptomatic of the 49 countries of sub-Saharan Africa as a whole.
As with most economic developments, the latest out of Africa is mixed—bad news for Nigeria, South Africa, and Angola, but actually quite good throughout East Africa and in some decently well-governed countries in West Africa, like Senegal and Ghana. Of course, sub-Saharan Africa is a vast place with economies enjoying (or suffering) markedly different states of development and conditions of governance. The continental U.S. could fit comfortably in West Africa; imagine the policy and income differences between states in the U.S. and try multiplying them by 10: then you’ll get a sense of the striking differences between even neighboring countries in Africa today. The differences between the best and the rest in Africa grow starker by the day.
In Nigeria and Angola, it looks like stubbornly low oil prices are the culprit behind slower growth (plus the devastating Niger Delta Avengers, whose attacks on infrastructure have cut Nigeria’s production by a third). But in South Africa, the low growth story is a little different: it’s less driven by commodities, and more by governance. Jacob Zuma’s presidency has been especially disappointing; he has failed to deliver any major economic reforms as corruption and unemployment remain stubbornly high. Look out for South Africa’s municipal elections on August 3; if the pro-business opposition Democratic Alliance notches big wins, markets may perk up a little and investor confidence might send the country’s growth projections a little higher.
The woes of sub-Saharan Africa’s three largest economies have revealed some chinks in the armor of the Afro-optimist narrative. Over-reliance on commodity exports (which make government budgets subject to devastating price swings), corruption, and poor governance remain major problems on the continent and that isn’t set to change any time soon. But these problems, while not easy to solve, aren’t intractable either. Some of Africa’s smaller economies have shown the path forward. Botswana has vibrant democratic institutions that have delivered good governance; the country’s diamond wealth has been reinvested in infrastructure, education, and healthcare. Rwanda has largely tamed corruption. Kenya has a robust and growing entrepreneurial sector. The latest news out of Africa only underscores the danger of a single story.