Economic Development In Africa

Economic Development In Africa – MIT’s Forum on Global Change has built an international reputation for organizing serious, open and informed discussions about global climate change. The meetings of the forum provide an informal and neutral environment for the analysis and discussion of scientific and policy aspects of global change and for the independent assessment of research and policy proposals. This year, the forum met in collaboration with MIT, UNU, the Republic of South Africa, Treasury, Environmental Affairs and the National Planning Commission in South Africa to discuss environmental change and economic development in Africa.

With CoP21 fast approaching and the fact that developing countries are likely to play a bigger role than they did six years ago at CoP15, this was a timely and important topic. By using research from our Growth and Poverty Project to describe economic development in Africa over the past twenty years, my contribution to this forum helped set the backdrop against which other discussions could take place.

Economic Development In Africa

Economic Development In Africa

To understand how environmental change is likely to affect Africa’s economic development, we must first understand the region’s economy and how it has changed over the past two decades. In recent years, there have been much more positive reports about the situation in Africa. In 2011, the newspaper The Economist, which in 2000 called the continent hopeless Africa, carried an article titled “A Continent of Hope – The Rise of Africa”. Although it should be noted that some question this view*, there is certainly much to celebrate in Africa. In particular, six key indicators have improved since 1995:

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Overall, macroeconomic management has improved significantly compared to previous periods; A new generation of politicians and business leaders entered the scene; Significant progress has been made in terms of political stability, economic growth, and monetary and non-monetary indicators.

Despite the impressive progress Africa has made over the past twenty years, challenges remain. By 2050, Africa’s population is projected to exceed that of both India and China, and Nigeria is on track to become larger than the United States. Africa needs more jobs. Despite strong growth, however, job creation has lagged behind. Agricultural productivity was limited and industrialization was slow.

To solve these problems, much more growth is needed in Africa, which with the technology currently available means a significant contribution to CO2 emissions, as the region currently uses a lot of so-called black coal. In a world now demanding global emission limits, the situation inevitably requires compromises.

The short answer is “yes”. Africa is rich in renewable energy and is likely to suffer worse economic consequences of climate change than other regions of the world. Therefore, Africa has both the natural resources and the incentives necessary to continue on the path of sustainable development. However, major efforts are needed to harness this potential for the benefit of the people of Africa and indeed the rest of the world. Leadership is now required by those with decision-making power and the necessary investment funds.

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This is what makes events like the MIT Global Forum so important. Bringing experts together to discuss the latest research on clean energy, the economic impacts of climate change and the challenges of sustainable development provides an excellent opportunity to address these issues and find concrete win-win solutions to the challenge of sustainable development. Its socio-economic and environmental dimension.

This blog post is based on a presentation given at the XXXVIII MIT Forum on Global Change: Environmental Change and Economic Development in Africa. You can see the full slides of the presentation below.

* A recent Afrobarometer study suggests that, despite high reported growth rates, there has been little change in poverty at the grassroots level (Dulani et al. 2013); And others even question the recovery in economic growth, citing poor data.

Economic Development In Africa

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In recent months, we have carried out extensive research in Mozambique as part of the Inequality and Governance in Unstable Democracies – The Mediating Role of Trust project… Africa is one of the world’s poorest regions. But with the world’s fastest growing population and access to natural resources, African countries can take advantage of this growth opportunity.

According to UN Projections show Africa’s population will grow from about 1.2 billion in 2015 to more than 2.5 billion in 2050. In percentage terms, this is the largest increase of any region in the world (see Figure 1).

As of 2005, Africa has the second largest number of people of working age (15-64) after Asia (see Figure 2). This is clearly a good development in terms of economic value creation.

And the growth in the working-age population is expected to continue for some time to come, because Africa’s population is very young by global standards. According to United Nations projections, by 2050 only six percent of Africa’s total population will be 65 and older. In Europe and North America, the share reached eight percent in 1950!

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However, Africa’s population growth is quite different from that of most other regions of the world. Even in 2040, the share of the working-age population will still remain below 60 percent. This is significantly less than in most other regions, as can be seen in Figure 4.

The growing economically active population must share the goods and services they produce not only with the elderly who can no longer work, but also with children and young people who cannot yet contribute to the production process. The dependency ratio between working age and non-working age (see Figure 5) plays an important role in the ability of African leaders to create economic prosperity in the region and foster African economic development.

In principle, despite the high dependency ratio, it should be possible to produce a higher GDP with a larger working-age population. However, this requires sufficient capital resources, without which labor cannot produce anything. Even extremely labor-intensive production processes cannot be completed without tools, machines, energy, a functioning road network, etc.

Economic Development In Africa

As a rule, there is a lack of capital in Africa. There are hardly enough productive resources to produce adequate capital goods and infrastructure facilities. Thus, it is uncertain that the growing labor force can be productive, therefore it is necessary to bring in physical capital from abroad. African developing countries have two options for this:

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If capital goods are imported, African economies can integrate into the global economy and export labour-intensive products. Without the imports, however, it risks becoming further detached from the international division of labor and global economic development. In this case, the pressure to migrate, or the incentive to leave one’s country, increases.

It is not the absolute level of GDP that matters for people’s living conditions, but GDP per capita. Fortunately, it is gradually increasing. Investments in both physical and human capital accelerate growth, the IMF predicts above-average GDP growth for Africa in the coming years (see Figure 6).

Did you enjoy reading this post about economic development in Africa? You may also be interested in our focus book on promoting intra-African trade.

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