DRIVING FORCES

ECONOMIC DRIVERS

The share of the total
population living
below the $1-a-day
threshold of 46 per
cent is higher today
than in the 1980s and
1990s – this despite
significant
improvements in the
growth of African
GDP in recent years.

ECA 2005

Although Africa is richly endowed with natural and human resources, it remains relatively underdeveloped. Nevertheless, there are significant indicators of improved economic performance. Economic growth rates have been improving steadily. In 2004, Africa grew at 5.1 per cent (OECD Development Centre and AfDB 2005), an increase from 3.7 per cent in 2003 (AfDB 2004), and a significant improvement over the average annual growth rates of 2.6 per cent between 1990 and 2003. However, this has not translated into a decrease in the percentage of people living on less than a dollar a day. This failure to ensure that economic growth contributes to poverty reduction may be attributed to various factors, including an inadequate rate of growth, low labour absorption into the primary growth sectors, and inequitable distribution of the opportunities created by growth (ECA 2005). The lack of access to other secure sources of income compounds the incidence of poverty (ECA 2005). If these patterns continue, then even with improved economic growth, Africa will not be able to meet key development targets and improve human well-being. This will in turn perpetuate the poverty-environmental degradation cycle.

The economies of most countries are characterized by dependence on the extraction and export of natural resources, and thus by a high level of vulnerability to global economic fluctuations, especially in mineral and agricultural commodity prices. Chapter 8: Interlinkages: The Environment and Policy Web considers how global policy and practice in trade, aid and investment affect economic performance in Africa.

Many economies reflect a dualism, with a relatively small monetized structure, consisting of such sectors as government, commerce and industry, and a large subsistence and informal sector. Low levels of industrialization, characterized by relatively little value-adding, have environmental and development implications that impact on overall levels of human well-being. For example, although industrial emissions of greenhouse gases (GHG) are low, the per capita emissions per unit of industrial and manufactured output are relatively high because of the relatively old and inefficient equipment and technologies used by industry.

Figure 3: GDP growth by ECA sub-region Africa’s share in world trade remains small. It is being met with fierce competition from the other regions of the world that have faster and more sustained economic growth, particularly from Southeast Asia. Africa’s share of world exports declined from about 6 per cent in 1980 to approximately 2 per cent in 2003 (ECA 2005). However, in 2004 trade performance improved and exports continued to grow at high rates: 8 per cent in volume and 23.5 per cent in value (ECA 2005). This is primarily linked to the growth of the oil sector. In other sectors Africa has continued to be severely marginalized in the global economy as it continues to face formidable barriers to northern markets. Given the small size of domestic markets, exports are essential for increased economic growth. However, trade has continued to be on unfair terms, primarily as a result of the rules governing world trade, which were set largely by the industrialized countries over the course of the 1986-94 Uruguay Round of WTO talks.

Figure 4: Gross Domestic Product by sub-region The economic underdevelopment of Africa partly reflects its history of economic and political colonization, and partly the economic and other policies adopted by governments since independence. The latter include wage and price controls, widespread subsidies of basic commodities, a burgeoning civil service, fixed currency exchange rates that lead to overvaluation of currencies, high tax rates, and disincentives for potential external investors. In the 1980s and 1990s, the World Bank and the International Monetary Fund (IMF) imposed Structural Adjustment Programmes (SAP) on some of the countries, often as a condition for being granted loans. The features of these programmes vary somewhat from country to country but common elements include:

  • Strict controls on public expenditure;
  • Reforms of the structure and functioning of the civil service;
  • Reductions in barriers to trade;
  • The removal of domestic subsidies;
  • Opening up of the economy to external investment; and
  • Allowing the value of the national currency to be determined by the operations of the market.

As discussed in Chapter 8: Interlinkages: The Environment and Policy Web, notwithstanding the appearance of burgeoning economies, SAPs led to rising prices of basic commodities, unemployment, increasing poverty and the breakdown in health-care systems. These impacts had significant environmental and social implications.

Debt, too, remains a major challenge. (See Chapter 8: Interlinkages: The Environment and Policy Web.) The burden of debt repayment is enormous, resulting in the diversion of funding away from, among other things, public services. Some countries faced with a huge debt burden spend all their earnings on servicing their debts rather than providing basic social services. A combination of internal and external factors continues to perpetuate the debt problem. Debt cancellation by the Group of 8 (G8) nations in favour of 13 selected poor countries (by the beginning of 2006) is still viewed as too insignificant to have an impact on environment and development in the region.