The Paradox of Africa's Growth

Economic growth projections are a tricky business, often requiring forecasters to revisit and change their projections. Nonetheless they provide us with a window into the future. A new report from the World Bank projects Sub-Saharan Africa to grow at 5.3 in 2014, up from 4.7 in the past year.

Compared to other regional blocs, projected growth in Sub-Saharan Africa ranks third, after East Asia at 7.2 and South Asia at 5.7. The paradox of the past several years of impressive economic growth in Africa is that it has been accompanied by little in job creation, and this trend is set to continue.

Many reports have documented the extent to which economic growth has failed to translate into real development in Africa. Weak job growth has remained stubbornly high during the past decade of sustained economic growth. The International Labour Organization classifies 82 percent of African workers as poor, because they are stuck into the informal sector of self-employment and have no good wage-paying jobs. A new United Nations report on Global Economic Outlook warns of the danger of this paradox which is an issue in many countries around the world, albeit, at differing degrees and for different reasons. Last May, the African Development Bank warned governments of "political instability" due to soaring youth unemployment. Around 12 million young people join the labor force each year in Africa and so far, only one fifth get jobs. Reason why every month or so, we watch in horror desperate young people drowning in the Mediterranean trying to cross to Europe for greener pastures. The Arab spring, which toppled governments in Tunisia, Libya and Egypt, was a reaction to disturbingly high unemployment among young people.

Poverty rate is not declining as fast as it should and those in extreme poverty, around half of Africa's population, can't find food nor quality education in news headlines of 'impressive economic growth'. Extreme poverty declined from 52 percent in 1981 to 48 percent in 2010, according to World Bank estimates, a mere 4 percent in 29 years. That is as slow as it can get in the 21st century of ubiquitous technology which, if harnessed, propels countries, as it did with those in Asia, to leapfrogging.

So why is Africa's job growth so weak while its economic growth outlook is just fine, even robust? The reasons are structural in nature and three-fold.

First, much of that 'robust' economic growth in the past decade in Africa has been driven by export of commodities or natural resources. McKinsey and Company estimates this resource boom to be responsible for 32 percent of Africa's GDP. The problem with commodity-driven growth is that it is not labor-intensive, but rather capital-intensive. Wealth from wells and the ground -- which then travels to far-flung places in pipelines -- tend to bypass people. In addition, let's remember that economic development springs from adding value to resources, not merely exporting them crude. This is why Angola's economy grew at 11.1 percent for the decade of 2001-2010, the fastest on earth, much of it from oil exports, while 60 percent of Angolans live under extreme poverty. Countries need to make deliberate choices to facilitate growth in key labor-intensive industries.

Second, while Africa needs investments in sectors such as infrastructure, technology and education, much of its finances keep leaking out to the rest of the world. In May 2013, a joint study by the African Development Bank and the Global Financial Integrity showed that from 1980-2009 Africa lost $1.2 to 1.4 trillion in illicit financial outflows -- in corruption, tax evasion and bribes. This amount is more than three times the total amount of foreign aid received in the same period and twenty-eight times higher than the annual foreign direct investments to Africa which, according to the United Nations Conference on Trade and Development, was at 50 billion in 2012. If this trend was reversed, Africa would be able to solve all of its economic woes with no outside assistance. Were it to be reversed even by 1 percent, well, the African Union headquarters wouldn't be a donation from China.

Third, there is no industrialization, not even in agricultural production, taking place when it should. It is getting expensive to manufacture products in Asia because of growing labor costs there and this presents unprecedented opportunities for Africa to venture into the manufacturing sector, a labor-intensive industry which could potentially solve the persistent and pervasive problem of joblessness. Last October, the African Development Bank declared, rightly so, that "Industrialization is a precondition for Africa's economic transformation." Manufacturing contributes less than 10 percent to Africa's GDP and employs even less of that percentage, an unhealthy structure for many resource-rich countries. Agriculture share in GDP is just 12 percent, according to OECD estimates, while it employs over 60 percent. What this shows is that wealth in Africa is not where people are. That is the paradox of Africa's 'impressive' economic growth, and a continuing sluggish job market.

Tackling this complex issue will take time, years or even decades, but first policymakers need understand its root causes and the limits of committing to create a 'certain number' of jobs by the government every year as a response to the crisis. Though such a response might be helpful, the real causes are structural in nature and must be tackled as such.

This article was first published in French in Libre Afrique.