Africa’s Big Boom

PARIS – Africa is undergoing a period of unprecedented economic growth. According to The Economist, six of the ten fastest-growing countries in 2011 were in Africa. Average external debt on the continent has fallen from 63% of GDP in 2000 to 22.2% this year, while average inflation now stands at 8%, down from 15% in 2000. This positive trend is likely to persist, given that it is based on structural geographic and demographic factors, such as rising exports, improved trade conditions, and steadily increasing domestic consumption.

But Africa’s national governments still face significant challenges, given the wide variety of factors at play in each country. Economic characteristics vary significantly by country, depending on, for example, whether a fixed or floating foreign exchange regime is in place, and which natural resources the country controls.

As a result, prospects also differ by country. Although the average annual GDP growth rate for the entire continent has been forecast at roughly 6% in 2012, South Africa’s economy is expected to grow by only 3.6%, while Côte d’Ivoire is expected to grow at a rate of 8.5%. In order to tailor national economic policy effectively, policymakers must identify the drivers of – and barriers to – growth in each country.

Africa’s growth potential has caught the attention of foreign investors, who have contributed to a rapid increase in capital expenditure. In 2008-2011, sub-Saharan Africa received on average 4.4% of all funds invested in developing countries worldwide, and 3.1% of investment spending. In fact, foreign direct investment in Africa has been on the rise since the early 2000’s, increasing fivefold in 2000-2010. But foreign investors remain aware of the challenges faced by certain countries. For example, much of the Horn of Africa (particularly Somalia), Mali, and Guinea Bissau carry significant political risk.