Africa’s average rate of productivity growth falls to 1.7 Pc

17Jun 2016
The Guardian Reporter
The Guardian
Africa’s average rate of productivity growth falls to 1.7 Pc

Strong growth domestic product (GDP) growth in Africa has masked disappointing productivity, according to ICAEW’s latest Economic Insight: Africa Q2 report.

African economies should be in a position to improve productivity in the agriculture sector, thanks to low cost labour and climate.

Kenya in particular has seen low productivity in agriculture. Over the last 15 years trade and investment have buffered the continent against the global financial crisis.

However, according to the accountancy and finance body, this has hidden low productivity figures – despite much greater potential for economic ‘catch up’.

The report notes that from the year 2000 to 2015, the average GDP growth across the continent was 4.8 percent per annum, a full 2.3 percentage points faster than the global average during the 1990s. This is only marginally slower than the ASEAN region, which grew by an average 5.6 percent per annum and around 0.2 percentage points faster than the Middle East region.

Michael Armstrong, Regional Director at ICAEW Middle East, Africa and South Asia said “Matching the performance of some other emerging market regions might, at face value, seem respectable enough.

But the truth is that Africa is starting from a much lower level of economic development than these economies.” ”

African economies should be in a position to improve productivity in the agriculture sector, thanks to low cost labour and climate. However, so far progress has been disappointing. The report notes that the East African region was especially affected by inflation.

The recent El Niño rains caused major fluctuations in food prices across the southern half of the continent, with greater than usual rainfall in Tanzania and Kenya. On the other hand, southern countries suffered from severe drought.

Ethiopia has been particularly hard hit by adverse weather conditions, with the worst drought in around 30 years pushing food inflation to a peak of 16.2 percent year on year in October 2015 and easing only gradually in the first half of 2016. “Poor agricultural output had an additional inflationary effect in some countries especially as agricultural goods constitute a large proportion of East African exports.

This, combined with weaker exports, undermined currencies in the region, further fueling inflationary pressure,” added Michael. In an attempt to limit the acceleration in price growth, central banks across the region adopted tighter monetary policies, with some countries such as Kenya and Uganda aggressively raising interest rates.

Subtracting this component, as well as the modest contributions from increasing labour participation and utilisation, the continent is left with the improvement in output per worker, which has grown by just 1.7 percent per annum from 2000-2015 in non-oil sub-Saharan economies overall.

This, however, is substantially slower than in low-income economies in other regions, and suggests capital is not being allocated to the most productive uses. Almost all GDP growth came from an increase in the working age population in many countries.

Tom Rogers, Associate Director, Macro Consulting at Oxford Economics, said: “Excluding oil intensive economies such as Angola, Nigeria, Equatorial Guinea and Mozambique, average output per worker in sub-Saharan Africa grew by just 1.7 percent per annum from 2000 to 2015, and in half of sub-Saharan economies by less than 1 percent per year.

The fact is that Africa has tremendous economic potential, but realizing it will depend on being able to move up the value chain and deliver productivity improvements.

For example, crop yields in largely agrarian economies are typically lower than in other major producers. Solving these problems would enable African producers to compete more effectively with farmers from other parts of the world, freeing up labour to move to manufacturing sectors.”

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