By Hanan Morsy
In 2019, six African countries were among the world’s 10 fastest-growing economies: Rwanda at 8.7%, Ethiopia at 7.4%, Côte d’Ivoire at 7.4%, Ghana at 7.1%, Tanzania at 6.8%, and Benin at 6.7%.
In most African countries, growth fundamentals and macroeconomic governance have improved. Some countries have undertaken large infrastructure projects, such as road constructions and rehabilitations, or modernized their energy networks. Others have invested in the health and education sectors.
While this is highly commendable — and good news for the continent — it is clear that rapid growth has not been enough to address the two persistent problems of extreme poverty and inequality. In fact, the overreliance on fast growth has sacrificed one important priority: inclusive growth.
According to the African Development Bank’s “African Economic Outlook 2020” report, progress has been made but much remains to be done. From 2000 to 2017, only 18 of 48 African countries with available data managed to achieve inclusive growth that cut both poverty and inequality. Despite fast growth, the disparity in the living standards between the rich and the poor in the 30 other countries remained essentially unchanged or, worse yet, widened. Evidence suggests that in the majority of countries, the benefits of growth are going primarily to the middle classes and the rich.
This finding is particularly alarming given African countries’ commitment to achieving the Sustainable Development Goal to eliminate extreme poverty by 2030. The report warns that it can no longer be business as usual. If we do not challenge the status quo, the continent as a whole will not eradicate extreme poverty before 2045.
The good news is that there is a growing consensus that beyond growth, targeted approaches are needed, and many African countries have developed poverty reduction strategies. By prioritizing inclusive growth and shared prosperity, African countries can accelerate toward eliminating extreme poverty.
For instance, a government that adopts inequality-reduction strategies is projected to cut extreme poverty by 6 percentage points more than one adopting inequality-neutral strategies, according to the bank’s analyses. All else being equal, countries that focus on the quality of their economic growth as well as the quantity are more likely to achieve success in tackling extreme poverty.
How can African countries improve the quality of their growth? The report highlights two important policy actions.
First, empirical evidence suggests that simply allowing workers to move freely across economic sectors and national boundaries would boost incomes and reduce poverty and inequality. This labor reallocation, a key feature of structural change, will require addressing underlying labor mobility issues in Africa, including labor regulations and employment policies. This will also require education reforms to ensure that workers have qualifications and skills that are transferable across sectors.
Implementation of transnational agreements such as the African Continental Free Trade Area could play an important role in the removal of existing obstacles to the free movement of workers.
Second, a wider distribution of the benefits of growth is critical for shared prosperity. It is common to hear ordinary people, when asked about the benefits of economic growth, respond to the effect that they have not seen evidence of it in their own lives. Fast growth must become more reality than abstraction.
For that to occur, African governments should improve and expand social security to ensure that poor citizens also benefit from growth. Potential programs to add include conditional cash transfers, social protection programs, and targeted subsidies. In African countries where such programs have been rolled out — such as South Africa, Liberia, and Chad — poverty has fallen more rapidly among beneficiaries than among the wider population.
The analysis contained in the “African Economic Outlook 2020” report suggests that there is hope for Africa as a whole to achieve inclusive growth. If some countries on the continent have managed to reduce both poverty and inequality while improving the living standards of their poor populations, others also have the potential to do so. For that, the quest for higher and faster economic growth should be pursued in tandem with initiatives to ensure that the fruits of growth and prosperity are shared by all citizens.
Hanan Morsy is the director of the macroeconomic policy, forecasting, and research department at the African Development Bank Group.