The latest African Economic Outlook, published by the OECD, finds that despite a weakened global economy, lower commodity prices, and some serious weather shocks, Africa saw positive economic growth in 2015.
The report estimates that real GDP growth on the continent in 2015 was 3.6 percent, higher than the global average of 3.1 percent. This makes Africa the world’s second fastest growing economy after East Asia. Africa south of the Sahara, with the exception of South Africa, grew even faster, with 4.2 percent real GDP growth in 2015. Average growth on the continent is expected to remain around 3.7 percent in 2016, but the report states that growth could accelerate to 4.5 percent in 2017 if the global economy strengthens and commodity prices recover.
Several domestic factors impacted Africa’s economic performance in 2015. On the demand side, private consumption and investment in construction and public infrastructure were the main drivers of economic growth. However, lower global demand slowed many African exports, particularly mineral and oil exports, and conflict and security concerns hurt tourism in some countries. The supply side was similarly mixed. Agriculture helped boost growth in countries that saw favorable weather conditions; however, agricultural productivity in East and Southern Africa was constrained by drought and flooding.
In the medium-term, the report points out that continued improvements in African countries’ business environment and further expansion of regional markets can spur future growth; intra-regional trade in particular can help African producers diversify into more high-value products. The proposed Tripartite Free Trade Agreement could be especially important in increasing market size, narrowing income gaps in African countries, and helping the region become more financially integrated. The report highlights, however, that the success of this and other trade agreements depends on governments’ willingness to strengthen structural and regulatory reforms and focus on macroeconomic stability.
One area that requires particular government attention is Africa’s rapid urban growth. According to the report, Africa’s share of urban residents has increased from 14 percent in 1950 to 40 percent today. This growth is expected to only continue, with urban residents making up 56 percent of Africa’s total population by 2050. This urbanization could play an important role in Africa’s structural transformation and industrialization, but only if growth patterns become more economically, socially, and environmentally sustainable than they currently are, says the report.
The challenges of urbanization are many. Instead of increased manufacturing and industrial activities, many countries have seen a shift in their labor force from agricultural to low-skilled, informal service activities in urban areas. In addition, access to public goods such as healthcare, quality housing, and education remains highly unequal in urban areas, excluding minority groups, women, and the poor and putting pressure on countries’ social cohesion. Finally, rapid urbanization without proper planning and infrastructure has resulted in increased environmental risks such as inadequate sanitation, increased air and water pollution, and increased pressure on scarce natural resources.
However, under the right conditions, urbanization can be a driver of future economic development and food security in both urban and rural areas. As cities grow, their populations will require more food, providing opportunities for farmers; urban markets currently account for 50 percent of total food consumption (including home production) in Africa south of the Sahara, according to the report. In addition, due to generally higher incomes in urban areas, urban households tend to spend more money in absolute terms on food than rural households, even if a lower share of urban households’ total expenditures.
The types of foods that urban consumers are purchasing can also help improve the livelihoods of rural farmers. The report cites that wealthier urban consumers are changing their food preferences from staple grains to higher value fruits, meat and dairy products, and processed foods. According to the study, selling meat and dairy products to urban areas can increase farmers’ income five to ten times per hectare, compared to selling staple grains. Of course, given the structure of these value chains, not all farmers will be able to participate. Stronger rural-urban linkages through improved transportation infrastructure, communications, and market integration also provide farmers with access to inputs like fertilizers, improved crop varieties and more resilient livestock breeds, farm machinery, and irrigation techniques. This in turn helps farmers increase their productivity and meet the needs of urban consumers.
Post-harvest activities like processing, distribution, and retail have significant potential to increase the efficiency of food value chains if properly supported and operated, says the report, and a large portion of these activities is concentrated in more urban areas. Ensuring that urban and rural areas are connected by efficient transportation systems and that urban areas have electricity to support cold-chain and storage facilities can reduce the region’s significant post-harvest food loss; the report cites that total post-harvest food spoilage in SSA, if reclaimed, could feed about 300 million people per year. This means that cities, with their important post-harvest activities, have an important role to play in improving food security throughout the region.
Policies to ensure more inclusive, sustainable urbanization will depend greatly on each country’s specific social and economic conditions, and will require countries to have an explicit urbanization strategy that is integrated into a longer-term development plan. However, according to report, only 16 out of 51 African countries have currently adopted national urbanization strategies – less than one-third. Of the remaining 35 that have no explicit strategy, only seven have actively considered formulating such a plan.
The report provides four generic priorities that should guide most urbanization plans: improving data collection and analysis to understand each country’s demographic shifts, infrastructure, social conditions, and economic drivers; clarifying land rights and their enforcement to improve efficient, sustainable, and equitable land use; improving delivery of infrastructure and public services; and establishing intermediary cities to help bridge the gap between rural areas and larger urban centers.
By: Sara Gustafson, IFPRI