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Sunday, December 22, 2013

African Economies growing rapidly, transforming slowly

Africa’s business and political leaders are buoyed by the continent’s growth prospects. But Donald Kebaruka, African Development Bank president is cautious. He argues that African countries must now pay attention not to just GDP growth, but its quality and sustainability.

Currently, Africa’s growth is powered by a confluence of factors, including foreign direct investment, the rise of the middle class and a surge in global demand for commodities, especially by China. African countries have also liberalized their economies, removing growth-stifling distortions. Moreover, a growing middle class is driving demand for goods and services.

Kenya’s last population census showed that out of 14.3 million people in employment, only 2 million people were employed in what is considered as the modern formal economy. 3.1 million people were employed in the informal sector. The remaining, 64 percent did not work for wages. This is precisely why many pundits doubt the sustainability of Africa’s growth, arguing that the ingredients for sustained and inclusive growth are lacking.

The patterns we see in Kenya underlays Africa’s growth uncertainty and undermine its capacity for structural transformation. Unlike Africa, East Asia converged more rapidly with the West because they transformed their farming populations into middle-income industrial workers and exported a wide range of sophisticated manufactured goods. In Kenya, like many African countries, today manufacturing contributes 18 percent, of GDP, just like in the 1970s.

Africa’s much celebrated rapid urbanization is not supplying African cities with high quality human capital to fuel innovation and creativity. These new unskilled urbanites find low paying jobs in the service sector, such as transport, hospitality, retail, security and construction, not in manufacturing industries. Moreover, private or public sector investment in modern industries has not grown and remains too tepid to power consequential structural transformation.

Experts have long held that dominant feature of Africa’s economic landscape – the informal sector or Jua Kali – is serving a vital social safety net function in urban areas by absorbing new immigrants from collapsing rural economies. However, it cannot provide the sorely needed productive dynamism of modern industrial society.

Over a decade of credible growth and economic expansion and increased domestic consumption has raised the expectation of Kenya’s youth. However the economy has failed to deliver high quality wage paying jobs in sufficient numbers. According to recent Economic Survey data, the working age population is growing by 800,000 per year while the economy is adding a paltry 50,000 wage paying jobs in the formal sector.

Economic growth that does not make available broad opportunities or alienates large sections of the population, especially the youth, is a recipe for social instability. A sense of inclusive economic growth and of an equitable society is the bulwark of social cohesion and political stability. In young country such as ours, where 51 percent of the population is aged between 15 and 54 years of age, social sustainable and equitable growth is central to national stability.

In my view GDP growth will not eliminate poverty or bring about economic inclusion, regardless of how strong or long. There is no such thing as trickle down. To have a truly transformative impact, economic growth must be supported by robust social policy, which promotes investment in high quality tertiary education, including vocational training.

It will be difficult to improve the quality of Africa’s human capital sufficiently to power structural transformation. According to a UNESCO report published in 2009, gross enrollment in Africa’s higher education was just 5 percent, compared to 11 percent in India, 20 percent in China and 70 percent in OECD countries.

Africa’s lack of sufficiently educated and skilled work force is profoundly depressing. An audit conducted in 2011 revealed that only 10 percent of Kenya’s civil servants have post-secondary education. This is hardly surprising given that only 22.8 percent of Kenya’s population has more than primary school level of education.

Even where governments, donors and the private sector have invested in education, there has been limited improvement in quality. Competency in numeracy and literacy among primary school leavers across East Africa is deplorable. Thoughtless expansion of university education has eroded the quality of higher education, producing functionally illiterate graduates who now swell the ranks of unemployable youth. 

Africa’s high GDP growth owing to liberalization, commodity booms, growing domestic consumption and prudent fiscal management are reason for optimism. But the fundamentals necessary for inclusive, transformational and durable economic growth are lacking.

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