A New Era for African Development

In 2012 six of the top ten fastest growing economies in the world will be African. Click to tweet! Accelerating growth in the most poverty stricken region of the world poses a question; is this a new era in African development? Africa’s rich deposits of raw materials are an attractive prospect for resource hungry Asian tigers, while population growth is likely to support the region’s nascent consumer markets. However, corruption is rife and slowing demand from its main investors may inhibit long-term growth.

Key points

  • The African economies making up six of the top 10 fastest growing economies in the world in 2012 are Libya, Sierra Leone, Niger, Angola, Liberia and Ghana. This group represents a diverse mix of raw material exporters, developing and unstable economies;
  • According to United Nations Conference on Trade and Development (UNCTAD), in 2011 58.2% of the workforce was active in agriculture across the six countries, many at subsistence levels, while raw materials and basic manufacturing dominate exports in these economies;
  • Major civil wars have resulted in significant declines in output in Angola, Sierra Leone, Liberia and Libya. In the case of Libya, real GDP declined by 61.0% in 2011, amid the revolution to end the Gaddafi regime;
  • Africa is experiencing the highest population growth in the world; between 2000 and 2011, the population increase of these 6 countries was 37.3%. Between 2012 and 2020 Euromonitor International is expecting population growth of 22.0% across the six; Click to tweet!
  • Foreign direct investment (FDI) in the region has increased rapidly since 2000. The West remains a major contributor, though developing economies, especially China are increasing investment significantly. According to UNCTAD Africa’s inward stocks of FDI amounted to US$554 billion in 2010 (last date available), an increase of 258% in US dollar terms on the 2000 figure.

Rapid growth, stability and recovery

Stability is vital for fostering confidence in an economy, promoting private investment and supporting economic development. Civil wars, famine, oppression and corruption have suppressed many African countries. As real GDP growth rates increase on the back of stability, it stands to reason that African countries would be some of the fastest growing economies in the world and therefore, the African real GDP regional average is increasing. However, some countries are experiencing extremely high economic growth because of specific one-off factors.

  • Africa has a history of conflict and political instability which limited economic growth in the region. However, since 2000 there has been a major reduction in incidents of conflict in Africa. According to the Uppsala Conflict Data Program between 1990 and 2000 there were 259 incidents in Africa where more than 250 people were killed. In the decade beginning in 2000, the number of such incidents was just 63;
  • Libya will be the fastest growing country in the world in 2012, with a real GDP growth rate of 76.3%. Click to tweet!In 2011, the country witnessed a civil uprising which ended Muammar Gaddafi’s 42 year reign and saw real GDP fall by 61.0%. Now in recovery mode, with oil production resuming, the country is experiencing meteoric growth rates as factors of production converge towards capacity. However, 2012 growth was expected to be a sharp rebound following the deep economic contraction of 2011 as reconstruction boosts the economy, but it will take several years for hydrocarbon and non-hydrocarbon output to return to pre-crisis levels;
  • Since the end of the civil war in 2002, Sierra Leone has established a fully functioning democracy and a free market economy. Rich in mineral resources, the country is a major producer and exporter of diamonds. However, the country’s physical infrastructure is still underdeveloped and private investment is lacking but resumption of bauxite and rutile mining, an industry which was practically eradicated by the civil war, is a major contributor to GDP. 2012 GDP will receive a one-off boost from iron-ore projects, making Sierra Leone the second fastest growing economy in the world; Click to tweet!

Real GDP Growth in Sierra Leone, Libya and African Average: 2006-2013 


Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), World Economic Outlook (WEO) International Financial Statistics (IFS).

Note: Figures for 2011 onwards are forecasts

  • In terms of economic fundamentals, inflation issues have been a major cause of the lack of investment in these countries. Angola suffered from hyperinflation at 4,145% in 1996 and has suffered persistently high, double digit inflation since then. As a result of high inflation, private investment has been restricted in the country, while illiquid and shallow capital markets have further restricted investment opportunities;
  • Finally corruption remains a major issue in Africa as a whole. Based on a corruption perceptions index by Transparency International, on a scale of 0 to 10, where 0 is highly corrupt and 10 is highly clean, the average of the six countries in 2011 was 2.7, indicating high levels of perceived corruption. Though corruption levels have marginally declined in Africa, this remains an often cited and major issue for foreign investors.

Commodity boom and export led growth

Since 2000, the rapid development of East Asia and some Latin American countries has created a boom in commodity prices. By December 2012 Europe Brent Crude oil and copper are expected to increase in value by 401% and 386% in nominal terms from January 2000. This has majorly benefitted the resource rich African economies.

  • Angola’s economic growth between 2002 and 2011 averaged 11.6% per year in real terms following the end of the civil war in 2002 but also thanks to its deposits of natural resources. Oil makes up an estimated 96.0% of the country’s export earnings, while it is also the fourth largest producer of diamonds in the world. Click to tweet! High oil profits have allowed the government to enact major investment in infrastructure as the economy attempts to diversify its industrial base;
  • In 2011 China imported 33.2% of the world’s imports of crude materials, excluding fuel, the highest share in the world. Click to tweet! As a result there is a shift in African exports away from its traditional European partners and developed regions, to South East Asia. This change has also brought on significantly higher FDI investment from China and other developing countries into Africa. Foreign direct investment stocks in Angola increased by US$8.5 billion in real terms between 2006-2010 (latest date available) increasing the amount of foreign investment in the country by 44.0%. Between 1997 and the peak of foreign investment in 2007 (before the global financial crisis of 2008 hit) based on UNCTAD figures FDI inflows into Africa as a whole increased by 472% in US$ terms;
  • Major foreign partnered investment projects have become increasingly popular in Africa. Chinese sovereign wealth funds have been particularly active in supporting long term development projects in the region, including investment in infrastructure in Angola. Investment from China and other East Asian economies is changing the FDI map in Africa as these companies tend to have fewer qualms when investing in unstable or corrupt countries;
  • Sierra Leone is a prime example of a resource-rich African country which has seen a spike in economic growth off the back of a surge of mining projects. According to the IMF, the Tonkolili iron-ore mines which became operational in 2011 are expected to be the main source of the one-off spike in real GDP growth in 2012 of 35.9%;

Commodity Prices Evolution: January 2000 – December 2012


Source: Euromonitor International from International Monetary Fund

Note: Figure for May 2012 – Dec 2012 are forecasts

  • Across the six fastest growing African economies, an abundance of natural resources is a common theme. It’s important to remember that these are also finite resources and to ensure future sustainable economic growth, other sectors such as financial services and high-tech manufacturing should be explored.

Rise of the middle class drives domestic markets

The highest population growth in the world has been another key contributing factor to economic growth in Africa.Click to tweet! According to UN statistics, between 1980 and 2010 Africa’s population growth averaged 2.2% per year compared to 1.5% in the rest of the world. In Niger and Angola population growth was even higher at 3.3% and 3.1% respectively on average per year. Furthermore, based on UNCTAD estimates Africa’s population is expected to more than double, increasing to just above two billion between 2010 and 2050. Click to tweet! This will provide a strong domestic base for consumer markets.

  • Rising disposable incomes due to strong economic growth are bolstering growing domestic markets in Africa. An emerging middle class in the middle income countries of Africa is developing as a result. As disposable incomes are increasing away from subsistence levels, opportunities for non-essential consumption goods are rising. In 2011, Nigeria, for example, had 4.8 million households with annual disposable incomes above US$5,000. As a result, consumer spending on communications has seen major growth, growing on average in real terms by 6.2% a year between 2001 and 2011;
  • Between 2001 and 2011 there has been a marked increase in consumer expenditure in Sub-Saharan Africa with per capita consumer expenditure increasing by 26.7% in real terms offering significant new potential for the region’s consumer markets;
  • There are some challenges associated with such rapid population growth, most notably poverty and high levels of unemployment. Young people under the age of 25 will make up 75.0% of the population by 2015 according to African Economic Outlook. Finding work for all of these new additions to the labour market will be difficult.


In the six economies discussed, economic growth is expected to average 9.8% a year in real terms between 2012 and 2017. Continuing high demand from China and the rest of the developing world is expected to sustain exports while these economies grow from a low base.

  • One major risk in the medium term is a slowdown in raw materials demand in world commodity markets. Raw material prices are buoyed by China’s demand but there are fears that a hard landing in China in 2012 will stifle demand. A move towards a more consumption focussed growth model in China will reduce the upward pressure on many raw material commodities;
  • Stability is fundamental to the continued development of Africa. A key development is a moderation of inflation rates which will ease the pressure on business and consumers. The average inflation rate for the six fastest growing African economies is expected to be as low as 5.0% in 2013 after 7.3% in 2012 according to the IMF;
  • By 2020, only three of the top ten fastest growing countries in the world will be African, with the fastest economic growth happening in Asia. Growth rates will also have returned to more stable rates and in 2020 Liberia will see real GDP growth of 8.0%, while Zambia and Mozambique will both have growth rates of 7.6%.




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