African Development Bank (AfDB) says it sees economic growth of the African region accelerating to 4.1 percent in 2018 and 2019 from 3.6 percent last year as growth recovery moves faster than envisaged, especially among non-resource–intensive economies.
But the bank fears challenges remain, especially for the structural transformations that would create more jobs and reduce poverty by deepening investment in agriculture and developing agricultural value chains to spur modern manufacturing and services.
“African economies have been resilient and gaining momentum. Real output growth is estimated to have increased 3.6 percent in 2017 and to accelerate to 4.1 percent in 2018 and 2019,” the bank stated in the Africa Economic Outlook which it released on Wednesday.
“Overall, the recovery of growth has been faster than envisaged, especially among non-resource–intensive economies,” the bank added.
The AfDB notes that the world economy is also in better shape, with faster growth and buoyant capital markets, and is optimistic that with more than $100 trillion in assets managed by institutional investors and commercial banks globally and searching for good returns, African countries have an array of options, beyond domestic resources and foreign aid, to support their investments.
Africa’s infrastructure requirements run to $130–170 billion a year- far higher than the long-accepted figure of $93 billion a year, according to the bank’s new estimates. This leaves a financing gap of as much as between $68 and $108 billion.
“With such a large infrastructure gap, and urgent needs in health, education, administrative capacity, and security, Africa has to attract private capital to accelerate the building of critical infrastructure needed to unleash its potential.
“But African countries do not need to wait until all financing gaps are filled before they transform their economic structures.
The bank is hopeful that with better strategies, sustained and inclusive growth can still be achieved in the context of a large infrastructure gap.
“Africa must industrialize to end poverty and to generate employment for the 12 million young people who join its labor force every year. One of the key factors retarding industrialization has been the insufficient stock of productive infrastructure in power, water, and transport services that would allow firms to thrive in industries with strong comparative advantages,” the report stated.
The AfDB, however believes that African countries do not need to solve all their infrastructure problems before they can sustain inclusive growth.
It also advises economies of the region to focus on how best to use their scarce infrastructure budgets to achieve the highest economic and social returns.
“Economic diversification is thus key to solving the continent’s problems, especially in the context of a challenging demographic structure, it noted, adding that “a first priority for African governments is to encourage a shift forward labor-absorbing growth paths.
“A second is to invest in human capital, particularly in the entrepreneurial skills of youth, to facilitate the transition to higher-productivity modern sectors,” the bank which is due to open its first official building in Nigeria’s city capital on Thursday stated.
The bank further advised that African economies would need continued prudent macroeconomic efforts to create the incentives and business environment for the private sector to play its role.
“Macroeconomic policy should aim at ensuring external competitiveness to avoid real exchange rate overvaluations and get the full benefits of trade, improve fiscal revenue, and rationalize public expenditure,” it stated, adding that “To achieve these goals, the macroeconomic framework must blend real exchange rate flexibility, domestic revenue mobilization, and judicious demand management.
According to the bank, also needed are massive investments in infrastructure, which is this year’s Economic Outlook special theme.
To take advantage of the great potential for infrastructure development, governments will have to put in place effective institutional arrangements to manage the complex tasks of project planning, design, coordination, implementation, and regulation. They should also focus on the soft side of infrastructure development—on tackling the big policy and regulatory issues, on training the teams assembling the financing packages, and on conducting constant research to keep up with the knowledge frontier.
Concluding the outlook for the year, the bank notes infrastructure projects as being among the most profitable investments any society can make. “When productive, they contribute to and sustain a country’s economic growth. They thus provide the financial resources to do everything else.”
ONYINYE NWACHUKJWU, ABUJA
